2009 Mining Law Indonesia: No Copper Concentrate Export Extension for Newmont
As Indonesia’s Ministry of Energy and Mineral Resources declined to issue a recommendation for the extension of Newmont Nusa Tenggara’s export permit, operations at the Batu Hijau mine (an open-pit gold and copper mine located on the island of Sumbawa in the eastern part of Indonesia) have become uncertain. The six-month permit for copper concentrate exports of copper miner Newmont Nusa Tenggara, a unit of US-based Newmont Mining Corp, expired on Friday (18/09) and was not extended as the company failed to fulfill the government’s requirements regarding smelter development.
Based on Indonesia’s 2009 New Mining Law, mining companies in Indonesia have not been allowed to export mineral ore since January 2014. Instead, these miners are required to add value (extract the valuable element via smelting). However, as Indonesia’s smelting capacity was insufficient at the start of 2014 (and still is insufficient), some miners - including Newmont Nusa Tenggara and Freeport Indonesia - were allowed to resume exports of unprocessed minerals provided that they would agree and comply with specific requirements (a full ban on mineral ore exports will come into effect in 2017). One of these requirements was that the miner would establish smelting facilities (by themselves or by teaming up with another miner) and would provide evidence to the government regarding the progress made with the development of these facilities. If progress is satisfying then Indonesia’s Energy and Mineral Resources Ministry’s Mineral and Coal Directorate General issues a recommendation, needed to obtain a six-month export permit.
Last year, Newmont Nusa Tenggara announced that it had signed a memorandum of understanding (MoU) with Freeport Indonesia (the local unit of US-based Freeport McMoran Inc) for the development of smelting facilities in Indonesia. However, there have been no updates regarding this partnership. Last Friday (18/09), Newmont spokesman Ruby Purnomo said the company tries to fulfill all government requirements in order to extend the export permit but he declined to respond to local reporters’ questions about the fate of the MoU with Freeport Indonesia.
Newmont Nusa Tenggara produces approximately 350,000 tons of copper concentrate per year. About 30 percent of production is sent to a smelter located in Gresik (East Java), while the remaining (unprocessed) output is exported abroad. Domestic absorption of Newmont’s copper output is low and therefore a (temporary) stop to exports will impact heavily on production.
Both Freeport Indonesia and Newmont Nusa Tenggara were allowed to resume copper concentrate exports in the second half of 2014 after successfully renegotiating their contracts with the Indonesian government. While Freeport Indonesia quickly decided to cooperate with authorities, Newmont Nusa Tenggara almost filed for international arbitration in mid-2014 as the 2009 New Mining Law was not in line with the previously existing contracts. Arbitration would have made the company's long-term future in Indonesia highly uncertain.