Indonesia Asahan Aluminium, or Inalum, got the mandate Friday to buy a 41.64% stake in the local unit of Freeport-McMoRan Inc., but the two parties haven't reached an agreement on the value of the stake.
Indonesia and Freeport have been in tough negotiations since previous year after the government issued a new policy that requires miners to divest a 51 percent stake, relinquish arbitration rights and pay new taxes and royalties.
Indonesia and Papua have long pushed for greater control over Grasberg and the new ownership structure may ease tensions over spoils from the world's second-biggest copper mine, a focal point for local separatists.
Under the agreement signed on Friday, Papua Provincial Government and the Mimika Regency will jointly own rights to a 10 percent share in PT Freeport Indonesia (PTFI) once they have been divested, the Finance Ministry said in a statement.
"This portion of share ownership rights is for the interests for the indigenous land owners and members of the community facing permanent impacts (from the mine)", she said.
A Freeport Indonesia spokesman, Napoleon Sawai, said last month that Jakarta values the stake at $4 billion, while the US company values it between $12 billion and $13 billion.
The move will increase the state-owned company's ownership to 51% from 9.36%, which is now held by the government.
"The agreement signed today is a strategic step forward in efforts to acquire shares divested by PTFI", it said.
Budi Gunadi Sadikin, Inalum's chief executive, said the company will raise funds for the acquisition, but didn't elaborate.
Coal and minerals director-general Bambang Gatot said on Thursday that Indonesia is targeting to complete contract talks with Freeport by June.
She was referring to a joint venture Freeport formed with Rio Tinto in 1996.
Indonesia's proposal could see Rio's interest in Grasberg output being converted to shares in PTFI to make up the lion's portion of the government purchase, provided all parties can agree to the structure and price of the deal, Mining Minister Ignasius Jonan said in December.