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Jakarta Post

Newmont gets export permit despite pending smelter fund

  • The Jakarta Post

    The Jakarta Post

Jakarta   /   Sat, September 20, 2014   /  11:44 am

A recommendation letter that permits mining company PT Newmont Nusa Tenggara, a subsidiary of US-based Newmont Mining Corp., to export copper will be issued soon, but the government will limit the amount of concentrates allowed to be exported as the company has yet to fulfill its obligations for developing a smelter.

Newmont last month withdrew an international arbitration request that criticized the Indonesian government'€™s policy banning ore exports as it had cost the company dearly. The government'€™s policy was aimed at developing the country'€™s downstream industry and at adding value to exported mineral products.

The withdrawal was followed by a memorandum of understanding (MoU) between Newmont and the government that will allow the company to resume exporting under the condition that it would build a processing plant to strengthen the country'€™s upstream mineral industry.

R. Sukhyar, director general for minerals and coal at the Energy and Mineral Resources Ministry, said his office had sent a recommendation letter to the Trade Ministry to allow Newmont to export 304,515 tons of copper concentrate for six months, reported.

The export quota could be increased if the company kept its promise to process their concentrates at a local smelting plant, he said.

The quota is far lower than Newmont'€™s production capacity of between 600,000 to 800,000 tons per year.

According to Sukhyar, the quota calculation includes the capacity of the smelter that will be built by PT Freeport Indonesia, even though Newmont has yet to transfer a surety bond worth US$25 million, or 5 percent of the total investment, as a guarantee that it is serious about constructing the plant.

Sukhyar refused to confirm whether the permit violates the agreement because the government was convinced that Newmont would submit the surety bond funds at the same time that the Trade Ministry would officially issue the permit.

Last week, the Energy Ministry asked Newmont to build its own smelter or establish partnerships with companies other than Freeport Indonesia so that it would not have to rely on the latter'€™s refining facility.

Sukhyar said such options were needed because Newmont and Freeport had yet to reach a deal on the amount of concentrate Newmont would refine at Freeport'€™s facility.

'€œRelying on another company'€™s smelter is complicated; therefore, we are asking Newmont to seek partners to build its own refining facility,'€ Sukhyar said.

Newmont had planned to process part of its copper concentrate at Freeport'€™s smelter, which is currently under development. The plan was part of Newmont'€™s commitment to meet its obligations to refine its minerals in this country before exporting them, as stipulated in the 2009 Mining Law.

However, the law allows companies that show a tangible commitment to domestic mineral refining to continue selling semi-finished products '€” such as copper concentrate '€” until 2017.

Newmont had previously said building its own smelter would not be economically viable for the company. Therefore, it decided to send its concentrate to other companies'€™ smelters, including Freeport'€™s.

Freeport'€™s and Newmont'€™s combined copper concentrate production accounts for about 97 percent of the country'€™s total output.

Paul Lubis, secretary of director general for minerals and coal at the Energy and Mineral Resources Ministry, said the government was optimistic that the export permit would improve the deficit in the country'€™s trade balance.

According to the ministry'€™s calculation, Newmont would be able to sell its 304,515 tons of concentrate in the range of between $1,926 and $2,116 per ton as the export reference price (HPE).

'€œAccording to calculations, the potential export value can reach around $587.4 million to $644.35 million,'€ he said.

Paul said that Newmont would be also be required to pay a 7.5 percent export duty on the HPE for each activity. Based on the regulation and the HPE, the country will receive around $43.98 million to $48.32 million from export duties. (gda)

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