Indonesia threatens to hand over Newmont mine if output stays shut

Trucks carry ore from stockpiles at Newmont’s copper and gold mine on Indonesia’s Sumbawa island. Newmont Mining risks its Indonesian mining licence being taken over by a state-owned firm if the US miner does not resume copper production, the Southeast Asian nation warned, escalating a six-month dispute over export rules.

Reuters/Jakarta

Newmont Mining risks its Indonesian mining licence being taken over by a state-owned firm if the US miner does not resume copper production, the Southeast Asian nation warned, escalating a six-month dispute over export rules.

The move represents a hardening of the stance of Indonesia’s outgoing government. The mining ministry earlier this week said it could terminate Newmont’s mining contract in response to the miner stopping production and filing legal arbitration over the export rules.  The developments mark the latest twist in the dispute between Indonesia and US miners Newmont and Freeport-McMoRan Inc that has led to a halt in copper concentrate shipments from Southeast Asia’s biggest economy.

Indonesia plans to soon send a letter to Newmont saying that the company has defaulted on its contract, said Sukhyar, director general of coal and minerals at the mining ministry.

“The default is due to the stopping of production, so we can say they are negligent,” Sukhyar told reporters yesterday.

Newmont was not immediately available for comment.

The company and Freeport are in dispute with the government over an escalating export tax imposed in January that they say conflicts with their mining contracts. The tax is part of a government drive to force miners to build smelters and processing plants in Indonesia.

Newmont declared force majeure on shipments last month and said it had to halt production at its Batu Hijau copper mine because it did not have an export permit and its storage facilities were at full capacity.

Before the new export rules, Colorado-based Newmont forecast copper concentrate output for 2014 at its Indonesian mine at 110,000-125,000 tonnes. But that is unlikely to be met, and thousands of its employees have been placed on leave at reduced pay.

Experts said the company would have a good case against the government in international court.

“On the basis of the facts as I know it, Newmont would almost certainly win,” said Jakarta-based foreign advocate Bill Sullivan.

If the government terminates Newmont’s contract, the mining ministry said it would first offer the Batu Hijau mine to Aneka Tambang (Antam).

“The procedure is this mining site will be given back to the government,” Sukhyar said. “First, the government will offer it to a state-owned enterprise, then a local-government owned enterprise, and then private.”

Antam Corporate Secretary Tri Hartono said it would be ready to accept Newmont’s mine if offered by the government, which holds a 65% stake in the Indonesian miner.