Workers are seen at the Grasberg Mine, operated by the US-based Freeport-McMoRan, in Indonesia’s Papua province. Indonesia’s government officials said the government was close to an agreement with Freeport that would allow the miner to resume copper exports.
Reuters/Jakarta
Indonesia will revise its rules on mineral export taxes next month, a senior official said yesterday, paving the way for the country’s multi-billion dollar mining industry to rebound after months of layoffs and stalled exports.
Deputy Finance Minister Bambang Brodjonegoro told Reuters the new rules on mineral export taxes would be issued in August but gave no other details.
Earlier, other officials said the government was close to an agreement with Freeport-McMoRan Copper & Gold Inc, the biggest mining company in the country, that would allow it to resume copper exports.
The controversial escalating tax on mineral concentrate exports was introduced in January along with a ban on unprocessed ore exports. The rates are different for each company, and Arizona-based Freeport appears to have reached an agreement on what it will pay.
The ban on unprocessed ore exports will remain in place.
The new rules resulted in hundreds of thousands of layoffs and halted $500mn of exports a month from Southeast Asia’s biggest economy and one of the world’s most resource-rich nations, according to government and industry sources.
Despite the agreement with Freeport and the move toward revising the export tax rules, the government had harsh words for another US miner, Newmont Mining Corp, and said it would take stern action against the company over the dispute.
The two are Indonesia’s top copper miners, and account for 97% of the nation’s copper output. They have taken divergent paths in dealing with the government over the rules.
Freeport is close to completing necessary steps to qualify for an export permit, chief economics minister Chairul Tanjung told reporters. Coal and Minerals director general Sukhyar now had legal grounds to sign an memorandum of understanding (MoU) with the firm as a necessary step before it could obtain an export permit, Tanjung said.
While Freeport had engaged in behind-the-scenes talks, Newmont suspended operation at its Batu Hijau mine and filed for international arbitration.
“The government will take stern action towards Newmont,” Tanjung quoted President Susilo Bambang Yudhoyono as saying.
He said also that Yudhoyono referred to the firm as “not valuing working on Indonesian soil, the birthplace of Indonesia’s ancestors.” Newmont officials were not immediately available for comment.
The government is expected to grant Freeport an export permit within two weeks, Sukhyar said. The company is Indonesia’s biggest taxpayer, and earlier said its contributions would drop by $1.6bn in 2014 as a result of declining output from the rule change in January.
The comments on the policy shift come as Indonesia declared that Jakarta Governor Joko Widodo had won this month’s presidential election, which will take some of the pressure off the new government to resolve the dispute when it takes power in October. There was no immediate word if the decision had been deliberately timed.
Freeport said on Wednesday it expected to “imminently” sign an MoU with Indonesia that would enable it to immediately resume copper concentrate exports. Under the agreement, Freeport said it would pay a “significantly reduced” export duty in 2014, 2015 and 2016 but higher royalties on copper and gold sales. It would also pay a $115mn “assurance bond” against development of a smelter.
Newmont also said it was negotiating an MoU that could restart stalled shipments, but the government denied such talks had taken place.
“There have been no MoU discussions with Newmont. None at all,” Sukhyar said. “The government’s position is we will face them in court.
Freeport said on July 8 it had agreed on a draft MoU with the Indonesian government but had not signed it. At the time, it gave no time frame on when it would resume exports.
“It is a compromise to create a bridge for us so that we can return to normal operations,” Freeport Chief Executive Richard Adkerson said of the MoU in an earnings call with analysts and investors. Freeport and Newmont need the MoU to secure billion-dollar expansion plans, but at this stage no other companies that have contracts to operate in Indonesia were being asked to sign such documents before being eligible for export permits, Indonesian Mining Association (IMA) Executive Director Syahrir Abubakar told Reuters.
The older mining contracts that have their own tax rates are slowly being phased-out through renegotiation processes and are being replaced with special mining licences that are subject to different rules and prevailing tax rates.
“There are no other cases like Freeport,” Abubakar said, adding that other miners were only waiting for the government to revise its tax regulation. “And if it’s a reasonable figure, they’ll accept it.” “What about the small guys? Their people were sent home a long time ago ... The industry needs a definite decision now,” Abubakar said referring to the tax.
News of the change in the tax rules caused little immediate market reaction. Copper on the London Metal Exchange (LME) was trading flat at $7,043.75 a tonne in early Asian trade.
A North America-based concentrates trader said any resumption in exports from Indonesia would not be enough to dramatically increase supply, but would renew expectations of an oversupply in the market.
“A lot of people expected the market to be over-supplied,” he said, adding that recent delays to mine output expansions had led to tighter conditions.
It was not clear if Widodo or any of his advisers had provided any input to the government, although Tanjung denied that the election had any impact on the progress. The president-elect said on Tuesday he planned to sit down with Freeport and other miners to resolve the minerals row, but gave no other details.
