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Rio Tinto Limited (ASX:RIO) shares rise on US$3.5 billion Grasberg sale

The Rio Tinto Limited (ASX: RIO) share price has pushed higher in morning trade after the mining giant provided an update on its interest in the Grasberg mine in Indonesia.

In early trade Rio Tinto’s shares are 0.5% to $80.30.

What was in the update?

According to today’s release, Rio Tinto has signed a non-binding agreement for the sale of its entire interest in Grasberg to Inalum, Indonesia’s state mining company, for US$3.5 billion.

All interested parties have committed to working towards agreeing and signing binding agreements before the end of the second half of 2018.

But given that the terms still need to be agreed, management has warned that there is no certainty that a transaction will be completed. Furthermore, any final agreements will be subject to approval by the necessary government regulators and authorities.

What is the Grasberg mine?

Grasberg is a copper mine in Indonesia that produced 468kt of the metal in 2017. Rio Tinto doesn’t actually own the mine but has a right to 40% of production above a pre-agreed level and 40% of all production after 2022.

Of the 468kt of copper produced in 2017, Rio Tinto’s shares was just 5.7kt.

Is this a good deal?

I think offloading its interest in the controversial mine is a great idea and that the price received seems more than fair.

The Indonesian government has been pushing for its mines to be majority owned by local companies, which has led to Newcrest Mining Limited (ASX: NCM) recently agreeing to sell a portion of its Gosowong mine to local companies.

Should you invest?

I suspect that this sale and the proceeds of its previous divestments could find their way back to shareholders in the form of share buybacks or special dividends over the next 12 months.

Which could make Rio Tinto a great resources option alongside BHP Billiton Limited (ASX: BHP), just as long as a global trade war doesn’t ensue over the coming months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.