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UPDATE 1-Freeport Indonesia hopes to sell 10.64 pct stake through IPO -new CEO

* IPO seen as more transparent than direct offer

* Divestment among requirements to extend Freeport contract

* Government previously rejected $1.7 bln offer for stake (Adds quotes, context)

By Fergus Jensen

JAKARTA, Nov 23 The Indonesian subsidiary of Freeport McMoRan Inc hopes to sell a 10.64 percent stake through an initial public offering, its new chief executive said on Wednesday.

The government requires Freeport Indonesia, the country's top copper miner, to divest the stake and "the two sides see that going to the stock exchange is the best option," incoming CEO Chappy Hakim told reporters in his first meeting with media since his appointment.

Under a 2014 memorandum of understanding (MOU) with the government, Freeport agreed to divest a 30 percent stake by 2019 and invest in domestic processing to win an extension of its contract beyond 2021.

The government already has a 9.36 percent stake in Freeport's Indonesian operations, and had hoped to take another 10.64 percent stake this year, but negotiations stalled after the government valued the stake at two-thirds below Freeport's offer price of $1.7 billion.

It would be difficult to reach a deal on a price for the stake if it is sold in a direct offer, Hakim said, speaking at a hotel in Jakarta late on Wednesday.

"We will never reach an agreement because interests from many sides are very influential in price-setting," he added.

"Freeport is more politics than business."

Freeport's Grasberg operation in Indonesia's far-eastern Papua region is one of the world's largest copper and gold mines and a key source of state revenue.

Freeport is negotiating with the government for an extension of its Grasberg contract, which is due to expire in 2021. The company, looking to invest $18 billion to transition Grasberg from open pit to underground mining in 2017, wants to finalise an extension before it signs off on the expansion or build a second smelter.

Phoenix, Arizona-based Freeport's long-held aim to continue mining in Indonesia beyond 2021 has been beset by resignations and a political scandal.

Former parliament speaker Setya Novanto resigned in December after being accused of trying to extort shares from Freeport worth $1.8 billion. He denied the charges.

"An impact of listing a company is openness, fairness and transparency and this will really help," Hakim said.

An IPO would be conducted "as soon as possible," Hakim said, but noted that it related to the company's efforts to extend its contract of work and was still subject to discussions.

It is unclear if the Indonesian government will buy the stake when it goes on sale.

Energy and Mineral Resources Minister Ignasius Jonan could not immediately be reached for comment on the matter on Wednesday.

On Tuesday Jonan told reporters that an IPO may be allowed if regulations permitted the company to do so.

"We'll see," he said, noting that the government had not yet issued a regulation that would allow Freeport to extend its contract before 2019. (Reporting by Fergus Jensen; Additional reporting by Bernadette Christina Munthe; writing by Fransiska Nangoy; editing by David Clarke/Ruth Pitchford)

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