UPDATE 1-Indonesia to issue new mining rules this week -minister

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JAKARTA, Jan 10 (Reuters) - Indonesia will issue new rules for miners this week, the mining minister said late on Tuesday, which will cover contracts and permits, exports, taxes, divestment obligations and domestic processing requirements, among other issues.

Indonesia announced in 2014 a ban on ore shipments to push miners to build smelters to process ore locally, but gave some concessions to concentrate producers after protests from the industry. As part of this push, a ban on the export of mineral concentrates from Indonesia is due to kick in on Jan. 12.

Rules now being drafted will allow concentrate shipments to continue beyond that deadline in certain cases, Energy and Mineral Resources Minister Ignasius Jonan told reporters after a cabinet meeting.

The new rules were needed “to clarify agreements on downstream mineral processing and other related matters,” Jonan said, referring to directions from President Joko Widodo and rules on domestic processing set out in the 2009 Mining Law.

The rules would have to maximise returns on Indonesia’s natural resources, as mandated in the Constitution, while also considering increasing state revenues and employment opportunities, he said.

“The government hopes for the creation of new work areas,” he said. Foreign mine investors would need to divest 51 percent of their holdings “wherever possible,” he added.

Traders have been closely watching the situation given Indonesia is a major producer of metals such as copper and nickel.

Any relaxation of Indonesia’s ban on ore exports could impact nickel prices and nickel smelter investors, which have been supported by supply restrictions, including from the Philippines, which took Indonesia’s place as the world’s top nickel ore exporter in 2014.

No mention was made of nickel or bauxite on Tuesday, but Jonan said the new rules would include obligations on domestic processing of low-grade ores. Last month Jonan said the government was considering allowing some nickel ore and bauxite exports.

A change to the existing rules is critical for Phoenix, Arizona-based Freeport McMoRan, whose Grasberg operation in Indonesia currently exports around two-thirds of its output as copper concentrate.

Freeport, along with state-controlled PT Aneka Tambang Tbk and other major miners, had lobbied President Joko Widodo’s administration to ease the ban to allow more time for them to build the necessary smelters to process all the ore at home.

A continuation of concentrate exports would be linked to the development of smelters, Jonan said on Tuesday, stopping short of providing details.

In December, the government said Freeport would first need to switch over from its current contract of work (COW) to a special mining licence in order to clinch a new export permit.

This would mean Freeport needs first to agree on new fiscal terms including taxes and royalties among other things, issues that may take longer to resolve.

Freeport's exports from Indonesia were held up for more than six months in 2014 in a fractious export tax dispute connected to the country's mining rules, costing Southeast Asia's top economy more than $1 billion and putting thousands of jobs at risk. [ ]

“Hopefully in 1, 2, 3 days this week this will all be finished,” Jonan said. (Writing by Fergus Jensen; Editing by Alexandra Hudson)