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Copper Miners Hit Back At Indonesian Export Tax

by Mary Swire,, Hong Kong

12 May 2014

As a consequence of the Indonesian Government's decision to impose an export tax on mineral concentrates from the beginning of this year, Newmont Mining has announced that its copper and gold mining operation in the country will shut down on or about June 1, while Freeport-McMoRan is reducing its production to half the normal rate.

Within its new mining tax structure, which has been in operation since January 12 this year, the Government has prohibited the export of raw mineral ores, but minerals that are presently exported in concentrate form have been subject to specific export tax rates, targeting copper in particular. Under the new law, these rates are to be gradually increased each year until January 12, 2017, when exports of concentrates will also be banned.

In a move that particularly affected Newmont Mining and Freeport McMoRan, which together accounted for 97 percent of the market, an immediate 25 percent export tax was imposed on Indonesian copper concentrates. This rate will increase to 35 percent on January 1, 2015, and then up to a maximum of 60 percent by July 31, 2016.

The two companies expressed their direct opposition to the new tax immediately, and have yet to resume exporting under the new arrangements. Both companies have said that the new Indonesian regulations conflict with the production contracts they have signed, which stipulate the level of taxation to which they should be subject, and exempt them from any new taxes and duties.

In a recent statement, Newmont stipulated that, unless an exporting agreement can be reached with the Indonesian Government, its copper concentrate storage facilities will reach capacity in late May, "requiring an orderly ramp down of operations. Once the copper concentrate storage is filled, (it) will move to cease mining and milling, along with significantly scaling back contracted services, purchasing, and capital expenditure." Most of its employees would be placed on leave at reduced pay starting in early June, it said.

The Indonesian policy is said to be aimed at enhancing the amount of domestic value added and economic activity attached to the mineral sector in Indonesia. The Government has indicated that it is finalizing new regulations that will provide a reduction in the export tax on mineral concentrates for mining companies that commit to building a smelter in the country. However, it has yet to make any definitive announcement.

Newmont has confirmed that, while it has "taken numerous steps to support the desire to increase in-country smelting, (and) continues to dialogue with the Government, … (its) Contract of Work explicitly guarantees our right to export copper concentrate and establishes all the taxes and duties it is required to pay." The current position, it concluded, "is a very unfortunate and difficult situation for all of us."

In addition, within the announcement of its first-quarter 2014 results, Freeport-McMoRan professed that it is "actively engaged in reaching a resolution to enable resumption of copper concentrate exports in Indonesia," but that it has not yet "received authorization from the Indonesian Government."

"As a result of the delay in obtaining approvals for 2014 exports," the company indicated that it has "implemented changes to its operations" to align its concentrate production with internal smelting demand, which has halved its production rates.

TAGS: compliance | tax | business | mining | export duty | law | tax rates | Indonesia | regulation

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