Newmont Nusa Tenggara (NNT), subsidiary of US-based mining company Newmont Mining Corp, has received a permit from the Indonesian government to export 350,000 metric tons of copper concentrate in the next three years. Three weeks ago it became known that both parties agreed on the content of a renegotiation package after an eight-month dispute over Indonesia’s mineral ore export ban, implemented on 12 January 2014 (part of the New Mining Law). In the remainder of 2014, the company is expected to export 160,000 tons.
The topic of the dispute between both sides was Law No. 4 of 2009 on Mineral and Coal Mining (the “New Mining Law” of Indonesia), which replaced its 1967 predecessor. This New Mining Law implied several drastic changes to the country’s mining business, some of which were not in line with the existing Contract of Work that had been signed between the Indonesian government and NNT previously. Moreover, several new rules set in the new law conflict with the bilateral investment agreement between the Indonesian and Dutch governments (NNT is majority-owned by Netherlands-based Nusa Tenggara Partnership BV), most importantly being the ban on exports of unprocessed minerals. Through this ban the government aims to boost domestic processing facilities in order to add value to mining products, thus increasing state revenue from the mining sector. Being a major copper concentrate exporter, NNT was hit hard by this new rule. In fact, the company declared a force majeure at its Batu Hijau copper and gold mine in Sumbawa (West Nusa Tenggara) in June 2014 as exports ceased, while the company’s storage depots were full (and thus mining activities at the Batu Hijau mine had to stop as well). The company said that 80 percent of the company’s workers would be put on leave with reduced salaries due to the government’s export ban. Tensions heightened after NNT threatened to file for international arbitration at the Washington-based Centre for Settlement of Investment Disputes (ICSID). In a response to this threat, the Indonesian government said it would revoke the mining permit of NNT based on the claim that NNT did not meet production targets according to the contractual agreement between both sides.
However, after seeing that fellow mining giant Freeport Indonesia obtained a permit from the government to resume copper concentrate exports, NNT decided that international arbitration would only worsen the situation and thus dropped the case. Freeport Indonesia, which operates the world's largest gold mine and third-largest copper mine (Grasberg mine in Papua), was allowed to resume copper concentrate exports but in exchange has to pay higher taxes and royalties as well as to start construction of smelting facilities.
NNT and the Indonesian government agreed to the following:
|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|
The company’s copper concentrate exports are expected to resume this week.
Currently, NNT is working together with Freeport Indonesia to establish a smelter with a production capacity of 400,000 tons of copper concentrate per year.