News: RIO UPDATE 1-Indonesia's Inalum aims to close $3.9 bln Freeport deal this week -CEO

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Indonesian miner PT Inalum said it expects to finalise this week a $3.85 billion deal to take majority control of the local subsidiary of mining giant Freeport McMoRan Inc FCX.N , once environmental and other issues are resolved.

The long-anticipated deal will close "hopefully this week", Inalum CEO Budi Gunadi Sadikin told Reuters in an interview on Tuesday, adding that a conclusion within that timeframe was "highly likely".

The deal, which would give Indonesia and state-owned PT Inalum a 51.23 percent stake in PT Freeport Indonesia, aims to end years of wrangling over ownership rights to Grasberg, the world's second-biggest copper mine.

At the same time, Inalum, which last month raised more than $4 billion in bonds to fund the deal, aims prove to investors it is a "world-class partner that can work with them and get a decent and sustainable business out of Indonesia's natural resources," Sadikin said.

As part of the transaction, Inalum has proposed to sell a 10 percent stake in PT Freeport Indonesia to Papua province and Mimika regency, where the giant Grasberg mine is situated, for $819 million, Sadikin said.

But before Freeport can be issued a new mine permit the government of Papua still needs to agree on the stake price and ratify an expansion of Grasberg's forestry use permit for the mine's vast tailings sedimentation area, Sadikin said.

The proposed shareholding structure that was last month rejected by Papua governor had now been settled and would benefit Papuans by ensuring the stake could not be sold off by future governments, Sadikin said.

"There are several examples where a big significant asset is being transferred from foreign investors to local entities and the local government got nothing," he said.

Inalum was also facilitating discussions between Freeport and the province, which hopes to resolve an existing dispute with the miner over surface water taxes before approving the deal, he added.

Inalum currently has a 9.36 percent stake in Freeport Indonesia.

A Jakarta-based spokesman for Freeport Indonesia and a spokesman for the Papua government did not immediately respond to requests for comment.