UPDATE 2-Indonesia to ease export tax, 1st rollback of mining rules

Mon Feb 24, 2014 6:28am EST

* Export tax could be eliminated for firms building smelters

* The move is a potential victory for Freeport, Newmont

* Minister: Freeport to resume copper exports in near future

By Wilda Asmarini and Yayat Supriatna

JAKARTA, Feb 24 (Reuters) - Indonesia will ease a controversial tax on mineral concentrate exports for firms that build smelters in the country, in the first rollback of new rules that have caused its mining industry to grind to a halt.

The move is a potential victory for U.S. mining giants Freeport-McMoRan Copper & Gold and Newmont Mining Corp . A senior government official said Freeport would resume exports of copper concentrate in the "near future".

Around $500 million a month in ore and concentrate exports have stopped since President Susilo Bambang Yudhoyono in January imposed mining rules, which included the progressive tax and a mineral ore export ban, to force companies to build smelters and process raw materials in Indonesia.

"The export tax can be changed. For those who have seriously committed to building smelters, we will ease it," said Sukhyar, director general of coal and minerals for the mines ministry.

"The export tax can be lowered or maybe eliminated to zero percent."

By contrast, Indonesian government officials have said over the last few weeks that Jakarta would not back down from the export tax or any of the mining regulations passed last month.

Before the ban, Indonesia was the world's biggest exporter of nickel ore. It is also a major supplier of refined tin, thermal coal and copper.

Freeport and Newmont have refused to pay the progressive export tax, which rises from 25 percent this year to up to 60 percent by the second half of 2016, saying it breaches their contracts.

High-level executives from the two companies, which together produce virtually all of Indonesia's copper, have been involved in talks with the government for weeks over the tax and the building of smelters.

BREAKTHROUGH

The first major breakthrough seemed to have been reached on Monday in a meeting between Freeport Indonesia Chief Executive Rozik Sutjipto and Industry Minister M.S. Hidayat in Jakarta.

Hidayat said Freeport was seeking permission to resume concentrate exports while it works to build a smelter within three years.

"Freeport, in principle, understands the regulation and will obey it," Hidayat told reporters after the meeting.

"Freeport will also export concentrate in the near future."

Freeport declined to comment on the expected resumption of its exports. Hidayat did not mention Newmont in his comments.

Freeport's Sutjipto confirmed to reporters on Monday that the company would build a copper smelter in Indonesia.

Industry experts said the government's turnaround was to be expected since the intention of the new regulations was not to halt concentrate exports.

"I wouldn't say this has come to a surprise to us. What has come to a surprise is that it took so long to get here," said Gayle Berry, base metals analyst at Barclays.

Freeport and Newmont have until March 7 to sign agreements detailing the volume of copper concentrate they will supply to companies that are building smelters in Indonesia - PT Indosmelt, PT Nusantara Smelting and PT Aneka Tambang (Antam) .

Earlier this month, Freeport and Antam agreed to study the possibility of building a $2.2 billion, 300,000 tonne smelter to process copper.

Sutjipto said the feasibility study on the smelter with Antam will be completed in April.

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