RTZ signs partnership deal with Freeport-McMoRan

Mining giant RTZ (NYSE) has signed a definitive agreement with Freeport-McMoRan (NYSE) for a partnership arrangement announced in March (T.N.M., March 20/95).

RTZ, through its wholly owned subsidiary RTZ America, has gone ahead with its plan to acquire 10.4% of New York-listed Freeport-McMoRan Copper & Gold (FMCG). The company will buy 21.5 million shares of FMCG for US$450 million, with an option to purchase another 3.5 million shares at US$75 million. The parent, Freeport-McMoRan, will call its outstanding 6.5% subordinated notes, and RTZ, if requested by Freeport, will make a cash tender for the notes.

Also, RTZ will enter into joint-venture agreements with subsidiaries of FMCG to develop projects in the Indonesian province of Irian Jaya, on the island of New Guinea.

The joint ventures involve contracts of work (COW) areas held by P.T. Freeport Indonesia (PTFI) and Eastern Mining. RTZ will hold a 40% undivided interest in these COWs, excluding any interest in PTFI’s current mining and milling operations. Exploration committees will convene for the purpose of approving the US$100 million in exploration expenditures that RTZ has agreed to fund.

RTZ will also receive a 40% interest in, and provide US$750 million in funding for, future expansion projects in Block A of PTFI’s COW, where existing mining and milling operations are situated. RTZ will receive all incremental cash flow attributed to the expansion projects until it recoups its investment plus interest. After that, the companies will split the cash flow according to their 60-40 interest.

At present, the Grasberg facilities are being expanded at a cost of US$700 million. The goal is to increase the milling rate to 118,000 from 66,000 tonnes of ore per day, which would raise annual production to about 500,000 tonnes of copper and 1.5 million oz. gold. It is expected this will be accomplished eight months ahead of schedule and within budget.

PTFI and RTZ will carry out a study to determine the feasibility of expanding the mining and milling capacity of Block A operations to 175,000-200,000 tonnes per day.