* Indosmelt says smelter margins are very small, calls for
* Says its copper smelter due to start construction next
* Indosmelt has conditional purchase agreements with
By Michael Taylor and Wilda Asmarini
JAKARTA, Feb 4 Indonesia's government must
provide tax holidays and other financial incentives to convince
companies to invest hundreds of millions of dollars to build
copper smelters amid weak global prices, said the head of
smelting firm PT Indosmelt.
President Susilo Bambang Yudhoyono last month imposed new
mining policies, including a controversial mineral ore export
ban and progressive export taxes, 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, which together
produce 97 percent of Indonesia's copper, to halt all exports.
The two firms have yet to commit to building smelters, saying it
was not economically viable to make such large investments.
"The margins for smelters are small, very small," Natsir
Mansyur, president director of privately owned and unlisted PT
Indosmelt told Reuters. "There must be incentives from the
government. To build (a smelter), this business should be
protected by the government."
In mid-2012, government officials said they planned to offer
financial incentives to help firms build smelters to comply with
the new mining regulations, although the details have yet to be
announced and talks are still ongoing.
Indosmelt is planning to start next month construction of a
700,000-tonnes capacity copper smelter, with production due to
start in 2017 or 2018. Mansyur did not say whether PT Indosmelt
was receiving any government incentives.
A consortium of local and foreign banks would finance 70
percent of the $1.5 billion needed for PT Indosmelt's South
Sulawesi copper smelter, said Mansyur, who is also an official
at the influential Indonesia Chamber of Commerce and Industry.
Copper smelters process copper concentrates to make blister
or anode, which is then refined into cathode. Besides PT
Indosmelt, other firms due to start construction of copper
smelters include PT Nusantara Smelting and PT Global Investindo.
Southeast Asia's largest economy currently has only one
copper smelter, PT Smelting in Gresik, East Java, and receives
its concentrate supplies from both Freeport and Newmont.
Indosmelt has reached "conditional sale and purchase
agreements" to also receive copper concentrate supplies from the
U.S.-based miners, the miners' representatives said.
To make a copper smelter economically viable in Indonesia,
benchmark copper prices must trade above $6,000 a tonne,
said Mansyur. "With current LME copper price at about
$6,000-$7,000, we can get a profit," he said. "At least a
minimum price of $6,200 to break even."
Goldman Sachs last month forecast global copper prices would
rebound from a four-year slump by 2016 and average around $7,500
a tonne in 2017, a year before Indosmelt's project begins
operation. The three-month copper price on the London Metal
Exchange traded at around $7,030 a tonne on Tuesday.
(Additional reporting by Yuka Obayashi in TOKYO and Yayat
Supriatna in JAKARTA; Editing by Randy Fabi and Muralikumar