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wo of the world'€™s mining giants have openly opposed a new rule on mineral export duties, saying that the taxes infringe on their contracts of work (CoWs) with the Indonesian government. Some of them have even considered legal action to fight for their rights.

Both Freeport-McMoRan Copper & Gold Inc. along with Newmont Mining Corp. said the export duties contradicted their CoWs, which maintain that the holders of the contracts shall not be subject to taxes, duties or fees by the government, except those already regulated in the contracts.

Under their existing contracts, the two mining giants are obliged to pay a 35 percent income tax plus royalties and other fees.

Newmont, which operates in Indonesia through PT Newmont Nusa Tenggara (PTNNT), said it would defend its right to export copper concentrates produced at its Batu Hijau processing facility.

'€œPTNNT will continue to engage with government officials in Indonesia in an effort to resolve this issue, while also considering other remedies, including possible legal action,'€ Newmont'€™s senior vice president for Indonesia Blake Rhodes said in a statement late Wednesday.

The government went ahead with its controversial plan to ban exports of raw minerals beginning Jan. 12 to comply with the 2009 Mining Law, which requires all mineral ores to be first processed in local smelters before being exported.

Due to the lack of smelting facilities, the government will continue to allow exports of semi-finished minerals for three years until the end of 2016 so that local miners will have enough time to build their processing facilities.

However, the Finance Ministry'€™s ruling to impose export duties between 20 percent and 25 percent in the first year of the three-year exemption, between 30 percent and 40 percent in the second year and between 50 percent and 60 percent in the third year has angered the miners. They said that with such high duties, most miners would have to close their mines given that their profit margins are mostly below 15 percent. Miners are also required to obtain permits to export their semi-processed mineral products.

Newmont and PT Freeport Indonesia (PTFI), a subsidiary of Freeport-McMoran Copper & Gold Inc., said they had been working to obtain the permits but had yet to obtain them. As a result, the companies have halted their shipments.

Newmont said the Indonesian unit had no plans to export copper concentrate until later this quarter and that previously scheduled shipments were already completed in early January.

On the other side, Freeport said that the delay in administrative approval for its concentrate exports had affected its operations in Indonesia. Freeport and Newmont only process about one-third of their copper ore with PT Smelting Gresik, the only copper smelter processing company in the country.

Freeport said that it was in talks with the government to settle the issue. The company chief executive officer Richard Adkerson said as quoted by Bloomberg that he was positive an agreement would be reached and the company would prefer not to resort to international arbitration.

In addition to Newmont, Indonesia'€™s Mineral Entrepreneurs Association (APEMINDO) has also threatened to take legal action against the export ban.

Meanwhile, Finance Minister Chatib Basri defended the export duties, saying that the taxes were needed to ensure that miners complied with the mining law.

He said such a regulation should be supported so that Indonesia would be able to create added value in the country'€™s mining sector. '€œThis will help Indonesia avoid the middle-income trap,'€ he said in a text message.

Satria Sambijantoro contributed to this story