UPDATE 3-Indonesia threatens to take over Newmont mine if output stays shut

Thu Jul 17, 2014 3:34pm EDT

* Newmont's copper mining licence may be given to state-run Antam

* Govt to send letter soon to Newmont citing contract default

* Newmont says cannot restart production as storage is full

* President directs state to start preparing to defend case in court (Adds Newmont response)

By Wilda Asmarini and Fergus Jensen

JAKARTA, July 17 (Reuters) - Newmont Mining Corp risks its Indonesian mining licence being taken over by a state-owned firm if the U.S. miner does not resume copper production, the Southeast Asian nation warned, escalating a six-month dispute over export rules.

The move represents a hardening of the stance of Indonesia's outgoing government. The mining ministry earlier this week said it could terminate Newmont's mining contract in response to the miner stopping production and filing legal arbitration over the export rules.

The developments mark the latest twist in the dispute between Indonesia and U.S. miners Newmont and Freeport-McMoRan Inc that has led to a halt in copper concentrate shipments from Southeast Asia's biggest economy.

Indonesia plans to soon send a letter to Newmont saying that the company has defaulted on its contract, said Sukhyar, director general of coal and minerals at the mining ministry.

"The default is due to the stopping of production, so we can say they are negligent," Sukhyar told reporters on Thursday.

A Newmont spokesman did not comment on the risk of the company losing its mining licence at its Batu Hijau copper mine but said in an email that the company is eager to resume production as soon as the government issues it an export permit.

Newmont repeated that it had to halt production as its storage facilities were at full capacity, a statement it made last month when it declared force majeure on shipments.

The company and Freeport are in dispute with the government over an escalating export tax imposed in January that they say conflicts with their mining contracts. The tax is part of a government drive to force miners to build smelters and processing plants in Indonesia.

Experts said the company would have a good case against the government in international court.

"On the basis of the facts as I know it, Newmont would almost certainly win," said Jakarta-based foreign advocate Bill Sullivan.

If the government terminates Newmont's contract, the mining ministry said it would first offer the Batu Hijau mine to Aneka Tambang (Antam).

"The procedure is this mining site will be given back to the government," Sukhyar said. "First, the government will offer it to a state-owned enterprise, then a local-government owned enterprise, and then private."

Antam Corporate Secretary Tri Hartono said it would be ready to accept Newmont's mine if offered by the government, which holds a 65 percent stake in the Indonesian miner.

PREPARING FOR A FIGHT

President Susilo Bambang Yudhoyono on Thursday directed his chief economic minister Chairul Tanjung to start making preparations, including appointing a lawyer, to defend the government's case in international court.

"I heard today that Newmont will sit down with us ... but we must be ready. We do not want (Newmont) to be just buying time," Chairul told reporters.

The current government, which has been criticised by investors for its increasing nationalistic policies in the oil and mining sectors, has only three months left in office.

Indonesia's likely next president has signalled a more conciliatory approach to the contract dispute with Newmont.

Such a move by the new president could prove politically costly if he is seen to be backing down to a foreign company, experts said.

"If they had waited until the next government was in place, it might have been possible to solve this in a more amenable fashion," advocate Sullivan said.

"But now having started arbitration ... I think (the new government) will just say 'Hey, it'll be politically disastrous for us to be backing down in the face of Newmont's arbitration.'" (Writing by Randy Fabi; additional reporting by Nicole Mordant in Vancouver; Editing by Richard Pullin, Muralikumar Anantharaman and Marguerita Choy)