UPDATE 2-Newmont withdraws mining arbitration case against Indonesia

Tue Aug 26, 2014 11:53am EDT

(Adds company statement)

By Michael Taylor and Yayat Supriatna

JAKARTA Aug 26 (Reuters) - Newmont Mining Corp has withdrawn an international arbitration filing against the Indonesian government, government and company officials said on Tuesday, indicating a possible breakthrough in a seven-month dispute that halted exports.

Newmont's Indonesian Chief Executive Martiono Hadianto said the mining giant had reached a "constructive solution" over new mining rules and expected to resume production at its copper mine soon.

"The decision to discontinue and withdraw arbitration comes after commitments from senior government officials to open formal negotiations to conclude a Memorandum of Understanding (MoU) with PTNNT (PT Newmont Nusa Tenggara) upon cessation of the arbitration claim," the company said in a statement late on Tuesday.

"Signing of a MoU with the government would be followed by the safe ramp-up of copper concentrate production and exports from Batu Hijau."

U.S.-based Newmont, which declared force majeure at its Batu Hijau copper mine in June and then filed for arbitration in July, has been in a dispute with the Indonesian government over an export tax imposed in January that the U.S.-based miner says conflicts with its mining contract.

The controversial export tax was part of government moves to force all miners to develop local mineral-processing facilities, which would bring bigger returns for Indonesia from its mineral resources.

The government has yet to receive an official letter from Newmont, said Sukhyar, director-general of coal and minerals at the mining ministry, adding that Newmont still needed to negotiate a MoU before exports could be resumed.

Sukhyar said Newmont had agreed to pay an export tax but that further negotiations were needed over royalties.

Chief Economics Minister Chairul Tanjung is expected to make an announcement on Newmont's arbitration on Wednesday, said Susyanto, the director of the law bureau for the mines ministry.

Mining industry executives in Indonesia have balked at the idea of developing downstream industries and building smelters, citing a lack of power and infrastructure in remote areas where mines are often located.

RELATIONS TESTED

The relationship between Newmont and the Indonesian government has been severely tested during the dispute, with outgoing president Susilo Bambang Yudhoyono criticising the company's methods.

In contrast, President-elect Joko Widodo, who will replace Yudhoyono in October, said he wanted to sit down with mining companies in a bid to resolve the row over policies. It is not known whether Widodo was involved in the talks that led to Newmont's withdrawal of its arbitration case.

Before the new export rules, Newmont forecast total output of copper in concentrate would amount to 110,000 to 125,000 tonnes from its Indonesian mine this year.

Shares of the Denver, Colorado-based gold and copper miner were up just over 1 percent at 1540 GMT.

Freeport-McMoRan Inc's Indonesian unit resumed exports earlier this month after clinching a deal and signing an MoU with the government in July.

Both Freeport and Newmont, which account for 97 percent of Indonesia's copper output, had previously argued they should be exempt from the tax, which kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017.

Freeport agreed to a much reduced export tax rate of 7.5 percent, which will fall further depending on its progress in the construction of a domestic copper smelter. (Additional reporting by Wilda Asmarini and Fergus Jensen; Editing by Randy Fabi and David Evans and Jane Baird)

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