* Rio could walk away from Grasberg interest -CEO
* Decision expected in "coming weeks and months"
* Adds to string of problems at world's No.2 copper mine
(Recasts, adds context, analyst comment)
By Fergus Jensen
JAKARTA, Feb 9 Rio Tinto is
considering walking away from its interest in the huge Grasberg
copper mine operated by Freeport McMoRan Inc in
Indonesia, amid uncertainties over the future operation of the
The world's No.2 copper mine is facing a stoppage in its
copper concentrate exports and permit issues with the Indonesian
government, which Freeport has warned could force it to slash
production and its local workforce.
A strike at the country's biggest copper smelter, which is
Freeport's sole domestic buyer of copper concentrate, has added
to pressure on the partnership.
"There is no doubt that Grasberg is a world-class resource.
But the key question, especially in the light of what happened
three weeks ago, is: is Grasberg a world-class business for us?"
Rio CEO Jean-Sebastian Jacques said, according to a transcript
of an analyst briefing late on Wednesday.
"Everyone was taken by surprise," he said, referring to
Indonesia's stoppage of copper exports from Grasberg on Jan. 12.
Freeport CEO Richard Adkerson was "on his way back to Jakarta"
for talks with the government, Jacques added.
Rio, which reported earnings on Wednesday, will decide in
"coming weeks and months" whether to sell or walk away from its
option to take an effective 40 percent stake in Grasberg in
2021, he said.
"If we want to have a meaningful offtake and stream beyond
2021, we would need to invest in a big way in the coming years,"
"We're going to watch very carefully what's happening before
we commit additional material money into this project."
A spokesman for Rio Tinto in Australia could not be reached
for comment on Thursday.
Under a joint venture deal it inked with Freeport in 1995,
Rio gets a 40 per cent share of Grasberg's production above
specific levels until 2021, then 40 per cent of all production
Rio said last month it was expecting to benefit from a share
of production in 2017, but the miner has not had any production
from Grasberg since 2014, when its share was just 7,700 tonnes
of copper. Freeport's share of copper production from the joint
venture was nearly 300,000 tonnes that year.
Freeport Indonesia spokesman Riza Pratama told reporters
that amid the export stoppage, Grasberg's copper concentrate
stockpile warehouse was now "almost full", indicating that a
production cut would be imminent without a breakthrough.
He declined to comment on Freeport's partnership with Rio.
Analysts have noted that muddled policies are complicating
matters for miners in Indonesia.
"What this signals is that politics rule in Indonesia. At
the moment it is very difficult for any investor to navigate
through the mining sector in Indonesia," Achmad Sukarsono, Asia
political analyst at Eurasia Group, said.
However, he saw a resolution.
"I think it will end with an agreement. The ball is now in
Freeport's court - to what extent they want to concede."
(Reporting by Fergus Jensen in Jakarta; Additional reporting by
Nicole Mordant in Vancouver, Jim Regan in Sydney and Sonali Paul
in Melbourne; Editing by Joseph Radford and Keith Weir)