June 5, 2014 / 8:40 AM / in 3 years

UPDATE 2-Newmont says declares force majeure at Indonesian copper mine

(Adds union comments)

By Michael Taylor and Fergus Jensen

JAKARTA, June 5 (Reuters) - Newmont Mining Corp said on Thursday it has notified the Indonesian government that it is invoking force majeure at its Batu Hijau copper mine and plans to put most of the mine’s employees on leave with reduced pay.

Newmont and fellow miner Freeport-McMoRan Copper & Gold Inc - accounting for 97 percent of Indonesia’s copper output - are in dispute with the government over an export tax imposed in January.

“Despite our best efforts, we have not been able to export copper concentrate since January, and we still do not have an export permit,” Martiono Hadianto, CEO of Newmont’s Indonesian operations, said in a statement. “We are left with no option but to declare force majeure.”

A declaration of force majeure, which literally means “higher power”, allows certain terms of an otherwise legally binding contractual agreement to be ignored.

Newmont’s move came after the Indonesian government launched a drive this week to force a breakthrough in the dispute, which has contributed to slower economic growth.

Both Freeport and Newmont have previously argued that 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. They said their current contracts prohibit any extra taxes.

“The new export conditions, duty and January 2017 ban, fundamentally impact Batu Hijau’s economics and conflict with our Contract of Work,” Hadianto added.

Before the new export rules, Colorado-based Newmont forecast copper concentrate output for 2014 at 110,000-125,000 tonnes at its Indonesian mine, but halted production earlier this week after it was unable to break the deadlock over the new export rules.

The Indonesian mine will be placed under care and maintenance, although Newmont said it will continue shipping concentrate from storage to Indonesia’s only copper smelter, PT Smelting at Gresik, through 2014, said the statement.

This would allow for copper concentrate shipments of 81,000 tonnes between now and the end of the year, the statement added.

Dede Suhendra, Mineral Enterprise Director at the mining ministry, told reporters the government would try to help Newmont overcome any obstacles relating to exports in response to the force majeure.

An official at a trade union representing workers at Newmont’s Indonesian mine said it may take legal action against both the company and the government over the mine closure and layoffs, and planned to organise demonstrations.

“We will sue both Newmont and the government because they have been so arrogant, and caused the workers to be the victims of their arrogance,” Yoesrawan Galang, chairman of the Newmont Nusa Tenggara unit of an Indonesian mine workers’ union, told Reuters. “This is why we will also stage demonstrations against them.”

Newmont, the world’s third-largest gold producer by market value, had said its storage facilities at the Indonesian mine were full after the near five-month export halt, but that it had delayed standing down its employees and contractors ahead of government meetings this week.

About 80 percent of Batu Hijau’s 4,000 employees will be placed on leave at reduced pay from Friday, the statement added, as export talks with the government continued.

Freeport said earlier this year it had cut production at its Grasberg mine in Papua, Indonesia, the world’s fifth-largest copper mine, by around 60 percent and that a force majeure could be announced if the export dispute dragged on.

London copper prices fell to the lowest in three weeks this week amid worries about a widening probe on copper financing in China’s third largest port. (Additional reporting by Wilda Asmarini and Yayat Supriatna; Reporting by Michael Taylor and Fergus Jensen; Writing by Michael Taylor; Editing by Richard Pullin and David Evans)

Our Standards:The Thomson Reuters Trust Principles.
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