Global copper prices can come under pressure as Newmont Nusa Tenggara (NNT) has started to export copper concentrate again this week after a nine-month hiatus caused by the dispute between the Indonesian government and NNT about Law No. 4 of 2009 on Mineral and Coal Mining (the “New Mining Law” of Indonesia), which sets high export taxes on unprocessed mineral exports (and stipulates a complete ban by 2017), in an effort to force Indonesian miners to build local processing facilities.
On Monday (29/09), NNT exported 30,000 tons of copper concentrate after reaching an agreement with the Indonesian government earlier in September 2014. In June, the company declared a force majeure at its Batu Hijau copper & gold mine in Sumbawa (West Nusa Tenggara) as exports had ceased since January, while the company’s storage depots were full, resulting in a stop of production. Successful renegotiations earlier in September implied that production and export could resume. NNT expects that the company will be fully operational again within six to eight weeks.
|Renegotiations Newmont Nusa Tenggara (NNT) and Indonesian Government
|Downsizing the mining concession area of NNT (in accordance with the New Mining Law) from 87,000 to 66,000 hectares|
|Extend the contract of NNT but also change the contract from a Contract of Work (Kontrak Karya, KK) to a Special Mining License (Izin Usaha Pertambangan Khusus, IUPK)|
|NNT is required to pay export duties on copper concentrate of 7.5 percent|
|NNT is required to pay higher royalties; 4 percent for copper, 3.75 percent for gold, and 3.25 percent for silver|
|NNT is required to process its mineral ore domestically|
|Divest a portion of the foreign stake in NNT to the Indonesian government or an Indonesian private company|
|Increase usage of locally-produced goods and services in NNT’s mining activities in Indonesia|
Freeport Indonesia, the other copper giant in Indonesia, had already resumed copper concentrate exports in August after successful renegotiations with the government, including the agreement to build local processing facilities. Exports of the company will probably not be interrupted by the fatal accident that occurred on Saturday when four workers died during mining activities at the Grasberg mine in Papua. An investigation will be conducted to see whether the company is guilty of careless management.
Freeport Indonesia announced in mid-August that it had built up stockpiles of 140,000 tons and expects total copper concentrate production to reach 1.8 million tons in 2014 (down from the initial 2.2 million tons production target and 700,000 tons export target this year).
As such, the global copper concentrate supply is expected to hit a surplus in 2014. Goldman Sachs expects the copper price to fall to USD $6,600 per ton on a three- and six-month horizon, and to USD $6,200 per ton on a 12-month horizon. Year to date, the benchmark copper price on the London Metal Exchange is down 8.4 percent.
Indonesian Coal Exports
Meanwhile, coal exports from Indonesia are expected to fall by 15 to 20 percent m/m in October 2014 due to the new export rules that were implemented on 1 October 2014. The new rules stipulate that coal miners in Indonesia need to obtain a ‘listed exporter’ status (Eksportir Terdaftar, ET) from the ministry in order to be allowed to export coal. The new rule applies to miners that hold Coal Contracts of Work (PKP2B) and Mining Business Permits (IUP). Initially the new law would be implemented on 1 September 2014 but needed to be delayed by one month as additional time was needed for the processing of more license applications. Local miners had requested the delay because most miners faced difficulties to obtain the new license amid a lack of clarity regarding the new legal framework.
In September 2014, Indonesia exported between 25 and 30 million tons of coal according to the Indonesian Coal Mining Association (ICMA).