Grasberg mine. Credit: Alfindra Primaldhi.

Rio Tinto is engaged in talks to divest its entire stake in the Grasberg mine in Indonesia to PT Indonesia Asahan Aluminium (Persero), also known as Inalum, for $3.5bn.

Responding to reports in the media, the company confirmed that negotiations are currently underway regarding the proposed sale and that no agreement has been reached at this juncture.

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Located in the province of Papua, the Grasberg mine is owned and operated by US-based mining company Freeport-McMoRan’s (FCX) subsidiary PT Freeport Indonesia (PT-FI).

“Negotiations are currently underway regarding the proposed sale and that no agreement has been reached at this juncture.”

Under a joint venture with FCX, Rio Tinto is entitled to a 40% share of production above certain levels until 2021, and 40% of all production after 2021.

The proposed sale is part of the company’s strategy to strengthen its balance sheet and reduce debt. It is also to comply with the Indonesian Government’s strategy that seeks to allow local mining firms to have majority stakes in their operations.

In August last year, FCX reached an agreement to offload 51% interest in the mine to the Indonesian Government.

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Karara Capital investment manager Rohan Walsh was quoted by Reuters as saying: “It’s probably a sensible sale – raise a bit of capital, get rid of some governance issues.”

With further investment, the mine is set to transition from an open pit to an entirely underground operation.

The transition will help increase production to 160,000t per day of ore by 2022.

Furthermore, the addition of 80,000t of ore per day from Deep Mill Level Zone block cave mine will increase ore supply to the mill to 240,000t per day by 2022.