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ith the government signaling that it will not extend the Contract of Work (CoW) for PT Koba Tin, state-owned tin mining company PT Timah said that an issuance of a new mining permit (IUP) would be preferable in a bid to ensure the smooth takeover of Koba Tin’s mining concessions.

“There are two options: the government issues a new IUP or declares the site as the state reserve area [Wilayah Pencadangan Negara/WPN],” Timah corporate secretary Agung Nugroho told The Jakarta Post recently.

“We are expecting the new IUP so that we can take over the concession when Koba Tin finishes its tenure. If the government chooses to declare the site as WPN, it will take time for us,” Agung added.

Under Government Regulation No. 22/2010, a WPN can only be issued if the mining area belongs to a conservation area or is located in an area bordering another country.

The regulation also says that declaring a WPN requires approval from the House of Representatives. A WPN can be worked on after the land in question is declared a special mining territory, Wilayah Usaha Pertambangan Khusus (WUPK), which also needs approval from the House.

Timah, whose shares are traded under the code TINS on the Indonesia Stock Exchange (IDX), now holds a 25 percent stake in Koba Tin. Meanwhile, Malaysia Smelting Corporation Berhad (MSC), which is listed on the Bursa Malaysia, owns the remaining 75 percent.

Koba Tin has been working at its concession in Bangka Island, South Sumatra, for about 41 years, which has included several extensions. The company’s CoW will expire in April 2013.

According to a file available on its website, MSC announced that it entered into a strategic alliance agreement with Optima Synergy Resources Limited (OSRL) in March. The agreement stipulates that OSRL will subscribe up to a 23 percent equity interest in Bemban Corporation Limited (BCL), which is the penultimate holding company of Koba Tin.

The agreement also requires OSRL to strive for the extension of Koba Tin’s CoW for 10 years up to March 2023. If the extension is achieved, OSRL will have the opportunity to increase its stake in BCL up to 60 percent.

The attempt may fall through as the Energy and Mineral Resources Ministry minerals and coal director general Thamrin Sihite said recently that the government would not extend the Koba Tin contract. Thamrin also hinted that the government would likely ask Timah to manage Koba Tin’s 41,680 hectare area.

According to a report filed by MSC to the Malaysian bourse, Koba Tin’s production reached 1,577 tons in the first six months of the year, a 54 percent drop compared to 3,461 tons in the same period last year.

The MSC said that Koba Tin’s lower production was related to the declining price of tin. Tin prices continued to decline in the second quarter of the year, moving around US$18,000 per ton after reached the highest level of $25,650 per ton last February.

The lower production and tin prices contributed to Koba Tin’s net loss of RM 97.01 million in the first half of the year, a significant setback as the company reported a net profit of RM 36.91 million (US$11.9 million) in the same period last year.

Despite such a business setback following the poor tin price settlement, Agung said that Koba Tin’s concession would be beneficial for Timah.

“We will likely be the second largest tin producer in the world. Currently, the largest producer is China’s Yunan Tin and the second is MSC,” Agung said.

Koba Tin’s production reached 6,332 tons last year, far below its production capacity of 25,000 tons of refined tin. Meanwhile, Timah produced 38,132 metric tons of refined tin last year, also below its capacity of around 50,000 tons a year. Yunan Tin produced 56,174 tons last year, while MSC reported a consolidated production of 46,599 tons last year.