(Recasts, adds details, comments, market reaction)
By Michael Taylor
JAKARTA, May 7 (Reuters) - Newmont Mining Corp said it will be forced to cut production at its Batu Hijau copper and gold mine in Indonesia from around June 1, if talks with the government remain unresolved over export permits and taxes.
Indonesia in January levied an escalating tax on copper concentrate exports, but both Newmont and fellow miner Freeport-McMoRan Copper & Gold Inc - who account for 97 percent of Indonesia’s copper output - say the rule conflicts with contracts they signed with Indonesia that exempt them from new taxes and duties.
“Batu Hijau’s copper concentrate storage facilities will reach capacity in late May, requiring an orderly ramp down of operations,” Newmont said in a statement.
“Once the mine’s copper concentrate storage is filled, PTNNT (PT Newmont Nusa Tenggara) will move to cease mining and milling.”
Newmont CEO Gary Goldberg said late last month the miner was running out of space to store copper concentrate in Indonesia but was cautiously optimistic it would get permission to export in the coming weeks and that the country’s proposed export tax “will be clarified”.
Before the new export rules, Newmont forecast copper concentrate output for 2014 at 110,000-125,000 tonnes.
Newmont, which is the world’s third largest gold producer by market value, usually supplies around 30 percent of its Indonesian output to the country’s only copper smelter, PT Smelting at Gresik.
While talks with the government continue, Newmont said it will continue to ship and sell copper concentrate to PT Smelting throughout 2014.
However, it is currently unable to export the rest of the concentrate, which the government says is liable to a 25 percent export tax, rising to 60 percent in the second half of 2016, before a total concentrate export ban takes effect in 2017.
The government has demanded Newmont and Freeport commit to building or supplying smelter projects in Indonesia before they can resume concentrate shipments, and has hinted this may give them leeway with the export tax.
Newmont said it had obtained registered exporter status from Indonesia’s ministry of trade in April, which was “a necessary milestone prior to receiving the export permit”.
But once storage capacity is full, the miner will scale back contracted services and capital expenditure, reduce overtime and place most employees on leave at reduced pay from early June.
“We have taken numerous steps to support the government’s desire to increase in-country smelting,” PTNNT President Director Martiono Hadianto said in the statement.
“This is a very unfortunate and difficult situation for all of us, as it will disrupt the lives of our 8,000 employees and contractors and impact thousands of more people in the Sumbawa Barat area who derive their incomes from our operation.”
The copper market currently has ample global concentrate supplies and given that exports from both Newmont and Freeport have already been largely halted this year, the impact on copper and gold prices of any stoppage in production by Newmont would be muted, said a mining source.
London copper prices recovered to near two-month highs around $6,800 late last month but have struggled to build on the momentum. The global market for copper is expected to post a surplus this year for a second year running. (Additional reporting by Melanie Burton in Singapore; Editing by Richard Pullin)