www.thejakartaglobe.com - Indonesia will force foreign firms to sell down stakes in mines by the 10th year of production, with domestic ownership to be at least 51 percent, in a move likely to hurt existing miners and scare off potential investors.
The new rule is the latest government move to extract greater domestic profit from the vast mineral wealth in the world’s top exporter of thermal coal and tin.
The requirement, stated in a regulation on the mining ministry’s website, comes as the government is renegotiating contracts with the leading foreign metals miners in the country, Freeport McMoRan Copper & Gold Inc and Newmont Corp . (source)
Southeast Asia’s largest economy contains some of the world’s richest mineral deposits, such as the Freeport-run Grasberg, the world’s largest gold mine, and its fast-growing mining sector accounts for about 11 percent of GDP.
But the change in regulation may deter overseas investment in the country that’s also rich in nickel, copper and bauxite.
"Mining is a long-term and capital-intensive investment,” said Syahrir Abubakar, executive director of the Indonesia Mining Association, whose members include the local units of Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. “If they have to divest within 10 years, they are not yet reaching the break-even point of their investment.”
It was not clear if the regulation, effective from Feb. 21, will apply only to new investors or also to existing mining investors.
“Holders of mining business permits and special mining business permits, in terms of foreign investment, are required to divest the shares gradually 5 years after production, so in the 10th year the shares are at least 51 percent owned by Indonesian entities,” the regulation stated.
Coal mining will be less affected by the shareholding rule as most of ventures are majority-owned by local investors, Supriatna Suhala, executive director at the Indonesia Coal Mining Association, said by telephone.
“The impact will be on minerals, especially on newcomers,” Suhala said. “Mineral investment will require a few billion dollars. People with a few hundred million dollars can invest in coal mining, so this segment doesn’t really need foreign investors.”
BHP, Freeport, Newmont BHP Billiton Ltd. is “reviewing this recent statement by the President of Indonesia,” Fiona Martin, a spokeswoman at BHP, said in an e-mail.
The world’s largest mining company holds a 75 percent stake in the IndoMet Coal project in the Indonesian part of Borneo island. Adaro Energy owns the rest.
Freeport operates the Grasberg mine in Papua province, which accounted for 19 percent of the company’s revenue last year and contains the world’s largest recoverable copper reserve, according to the company.
Newmont runs the Batu Hijau copper mine in West Nusa Tenggara province. The company and its overseas partners including Sumitomo Corp. have sold a 24 percent stake in their venture to a unit of Bumi Resources and three local administrations. The central government is in the process of buying another 7 percent stake.
After steep rises in commodity prices over the last decade, Indonesian politicians have become increasingly vocal in their demands to improve deals with mining companies, many of which were made in the era of former autocratic leader Suharto.
The 2009 mining law was aimed at boosting investment in mining and metals processing, but its supporting regulations have not gone down well with the industry, and new investors still face risks such as policy reversals, local community demands, a tortuous permit process and poor infrastructure.
Another previous regulation aimed to ban exports of some unprocessed metals from 2014, despite widespread industry pleas to delay the plan, in a move that could cripple miners’ profits, cut global supplies and boost prices.
Source : http://www.thejakartaglobe.com/corporatenews/indonesia-to-limit-foreign-ownership-in-mines/503108 - March 7, 2012
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