Indonesia assures Freeport that Grasberg mine contract to be extended

(Adds analyst views, Rio Tinto (LSE: RIO.L - news) 's stake in Freeport's Indonesian operations, updates stock price)

By Susan Taylor

TORONTO, Oct (HKSE: 3366-OL.HK - news) 8 (Reuters) - U.S (Other OTC: UBGXF - news) . energy and mining company Freeport-McMoRan Inc said on Thursday it has been assured by the government of Indonesia that the mining contract for its giant Grasberg copper and gold mine will be extended beyond 2021.

The pledge was seen as a promising development for Phoenix (LSE: PHNX.L - news) , Arizona-based Freeport, which is under pressure from billionaire activist investor Carl Icahn and slumping commodity prices.

The development is modestly positive because it indicates the two sides are holding constructive talks, said Clarksons Platou Securities analyst Jeremy Sussman, who added that details on terms would be needed to better assess the arrangement.

Shares (Berlin: DI6.BE - news) were up 1.7 percent to $13.24, after climbing more than 10 percent on Wednesday, when Freeport said two Icahn appointees were added to its board of directors.

Freeport declined to provide details on the current terms of its contract, spending plans or the expected timing of a formal deal with the government.

Freeport, the biggest listed U.S. copper producer, said the Indonesian government is working on economic stimulus measures, including revisions to mining regulations.

Indonesia's Minister of Energy and Mineral Resources said in a letter to Freeport that the government would not "unreasonably withhold or delay approval" the contract extension.

The company can submit its proposal for Grasberg, one of the world's biggest copper mines, after regulatory amendments governing coal and mineral resources are completed.

Freeport must commit to continuing its $18 billion investment in the country when the contract extension is approved, said the letter from Minister Sudirman Said.

Freeport, which has been trying for years to obtain a contract extension, plans to transition Grasberg from open pit to underground mining in late 2017. Production is expected to ramp up over several years to process approximately 240,000 tonnes of ore daily.

Rio Tinto has a joint venture with Freeport for a 40 per cent share of Grasberg's production above specific levels until 2021, then 40 per cent of all production after 2021.

The promise of an extension reflects Freeport's previous agreement to higher royalties, domestic processing and divestment, the company said in a statement.

The government currently has a 9.4 percent stake in Freeport's Indonesian unit and the company must propose a plan to increase that stake by Oct. 14. (Reporting by Susan Taylor in Toronto, additional reporting by Amrutha Gayathri in Bengaluru; editing by Savio D'Souza and Jeffrey Benkoe)