Indonesia miners must pay smelter cash guarantee -govt officials

JAKARTA Fri Feb 7, 2014 5:32am EST

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JAKARTA Feb 7 (Reuters) - Miners with smelter plans in Indonesia will have to pay a financial guarantee to prove they are serious about building domestic metal-processing plants, said mining ministry officials.

The move indicates the Southeast Asian nation may be unwilling to significantly roll back or make major concessions in its mining policy that have ground ore and concentrate exports to a complete halt.

President Susilo Bambang Yudhoyono last month imposed new mining rules, including a controversial mineral ore export ban and progressive export taxes on concentrates, aimed at forcing miners to build smelters and process their raw materials in Indonesia.

The policies have forced U.S. miners Freeport-McMoRan Copper & Gold and Newmont Mining Corp to halt all exports, as both firms say the export tax breaches their mining contracts and it is not economically viable to make such large smelter investments in Indonesia.

High level executives from both companies have been involved in talks with the government over the tax and building of smelters, and a breakthrough now looks a distant prospect.

"That's our plan," said Susilo Siswoutomo, deputy energy and mineral resources minister, when asked whether companies building smelters had to pay a financial deposit.

The size of the deposit was yet to be decided and would be contained in a regulation to be issued soon, Siswoutomo said, adding that paying the deposit would not exempt miners from the escalating export tax.

Under the Jan. 12 regulation, concentrate exports are allowed to continue for some minerals, with different purity rules attached, but they will be subject to an export tax ranging from 20-25 percent and rising to 60 percent by the second half of 2016.

Ore and concentrate exports from Indonesia, which is the world's biggest exporter of nickel ore, thermal coal and refined tin, have now ground to a complete halt.

Companies will have to pay 5 percent of the total smelter construction cost as a guarantee, which will be held in local banks for up to three years, a Jakarta Post report quoted Sukhyar, director general of coal mines and minerals at the energy and mines ministry, as saying.

PT Indosmelt plans to build a $1.5 billion 700,000-tonnes capacity copper smelter by 2018, and has reached "conditional sale and purchase agreements" to receive concentrate supplies from both Freeport and Newmont.

The smelting firm this week urged the Indonesian government to provide tax holidays and other financial incentives to convince companies to invest hundreds of millions of dollars to build copper smelters.

Freeport is conducting a feasibility study into the construction of an Indonesian copper smelter, which was due to be completed last month, but it has yet to release its findings.

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