Indonesian group to buy control of Newmont unit for $2 billion

By Hidayat Setiaji and Eveline Danubrata

JAKARTA (Reuters) - An Indonesian group including prominent businessman Arifin Panigoro has agreed to buy a controlling stake in Newmont Mining Corp's (NEM.N) local metals operations in a deal that industry insiders say could reach $2 billion (1.4 billion pounds).

Panigoro, the founder of oil and gas firm PT Medco Energi Internasional Tbk (MEDC.JK), told reporters of the planned purchase on the sidelines of an event on Tuesday. The deal will be announced this week, he said.

He added that Indonesian President Joko Widodo approves of the deal to buy the stake in the local Newmont unit, Newmont Nusa Tenggara, as it is "in (the) national interest".

The purchase follows a pattern of Indonesia asserting more domestic control over existing and planned projects in its resource sector. Indonesia has decreed that foreign-owned mining companies should halt mineral exports in favour of building sites to produce and export higher-value refined metals.

Panigoro did not mention if the purchase will be through Medco, but the company's shares surged as much as 17 percent on Tuesday to the highest since August last year.

More than 27 million Medco shares were traded, 4.7 times the average full-day volume over the past 30 days. The broader Jakarta stock exchange (.JKSE) was up 0.2 percent.

Panigoro expressed an interest in buying a 76 percent stake in the Newmont unit with his partners, according to comments from the Indonesian coordinating minister for maritime affairs and resources in November.

Panigoro declined on Tuesday to disclose the size of the deal, but said it is aimed at business diversification.

However, a source with knowledge of the matter said the deal is valued around $2 billion. The transaction will involve debt and equity, said the source who declined to be identified as he was not authorized to speak to the media.

Newmont Nusa Tenggara operates the open pit Batu Hijau mine, the second-biggest copper mine in Indonesia. Its stakeholders include New York-listed Newmont Mining, Japan's Sumitomo Corp and Jakarta-listed Bumi Resources Minerals (BRMS.JK), controlled by the family-owned conglomerate Bakrie Group.

There has been some nationalist sentiment behind the government's orders to foreign mining companies to divest some shares, said Paul Rowland, a Jakarta-based political analyst at Reformasi Weekly.

Newmont had clashed with the Indonesian government in 2014 over implementation of its rules on mineral processing. Newmont also has an obligation to divest a 7 percent stake to the government.

However, the purchase could also make economic sense as copper prices may have hit their low point.

"I think the timing of the deal is right because valuations are more attractive. If Panigoro buys the asset when copper prices are bottoming out, then he can enjoy the upside, said Isnaputra Iskandar, Indonesia research head at broker Maybank Kim Eng Securities.

When asked to respond to Panigoro's comments, Newmont's Indonesia unit referred to an emailed statement that it issued on Friday, saying Newmont and Sumitomo were in discussions with "certain interested parties", but "none has secured fully committed financing or final deal terms" at this time.

A spokesman for Sumitomo Corp declined to comment, while Bumi Resources Minerals did not give an immediate comment. Medco Energi's corporate secretary did not respond to text messages or answer phone calls.

(Reporting by Hidayat Setiaji and Eveline Danubrata; Additional reporting by Fergus Jensen and Fransiska Nangoy and Yuka Obayashi in TOKYO; Editing by Christian Schmollinger)