Newmont Mining has announced the suspension of operations at its Batu Hijau mines in Indonesia. This follows the halt in production and processing of copper concentrate at its Indonesian operations after its copper concentrate storage facilities were filled to capacity.
The company had halted exports from Indonesia in January, as a law banning exports of unprocessed minerals from the country came into effect. Though last minute changes to the law permitted Newmont to export its copper concentrates, they imposed a 25% tax on exports which would rise to 60% by 2016. The company claimed that this tax violated the terms of its original investment agreement, or contract of work, with the Indonesian government.
The company is engaged in negotiations with the government regarding the export duty, leading to resumption of its exports from the country. The company invoked the force majeure clause of its contract of work, in order to suspend operations, after its storage facility was filled to capacity and production could not be continued.
The suspension of production will impact Newmont’s quarterly and annual results, though the extent of the impact will be determined by the duration for which operations remain suspended.
A law enacted in Indonesia in 2009 banned exports of unprocessed minerals from the country with effect from January12, 2014. The intent behind this law was to provide a boost to the development of the Indonesian mineral processing industry and simultaneously increase the value of the country’s commodity exports. However, last minute changes to the law deferred the ban on exports to 2017. Exports of copper concentrate were permitted, but under new rules. The government introduced new regulations in order to get an export permit, and also imposed an export duty of 25%, which will rise progressively to 60% by 2016.
Newmont contends that the export tax violates the terms of its contract of work with the Indonesian government, and will also impact the economic viability of the project. The company halted its exports from Indonesia in January pending negotiations with the government over these regulatory changes. Though the Indonesian government has recently displayed some leniency in its stance on the tax issue, it has still not been resolved.
Newmont has a 48.5% effective economic interest in PT Newmont Nusa Tenggara, the entity that operates the Batu Hijau mines. In April 2014, PTNNT received approval from the Ministry of Trade as a “registered exporter”. However, it has not secured an export permit. As the ongoing export restrictions prevent production from continuing, the company has invoked the force majeure clause of its contract of work. This would allow it to renege on supply commitments without paying any penalties, as the event triggering a breach of commitment in this case was beyond its control.
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