June 5, 2014 11:33 am

Newmont halts Indonesia mining operations

©Bloomberg

US mining group Newmont has halted operations at its Indonesian gold and copper mine and will put 3,200 workers on leave with reduced pay from Friday, after it failed to reach a compromise with the government over export restrictions.

Indonesia is a key global supplier of metals and a law implemented in January banning exports of raw minerals unless companies build processing plants has thrown the industry into turmoil.

The measure, which is designed to promote industrial development in southeast Asia’s biggest economy, has forced many producers to shut down, sending the global price of nickel soaring and prompting threats of legal action from companies including Newmont.

The US miner and its counterpart Freeport-McMoRan, which operates a much larger copper and gold mine in Indonesia, both claim that the export restrictions breach their contracts of work and have been locked in negotiations with mining officials for months to find a workaround.

Officials and industry executives have said the government and the companies were close to a deal under which the miners would agree to build a copper smelter and be allowed to resume exports if they pay a small export tax.

If there was a complete cessation of exports out of Indonesia, it would make a significant difference to the global market

- Jim Lennon, Macquarie

But Newmont said on Thursday that with its storage facilities full and talks still inconclusive it was no longer able to continue mining operations.

“We have taken numerous steps to help resolve the export issue and support the government’s desire to increase in-country smelting,” said Martiono Hadianto, president director of Newmont Nusa Tenggara, the group’s local subsidiary. “However, despite our best efforts, we have not been able to export copper concentrate since January and we still do not have an export permit.”

The discussions have been complicated by Indonesia’s upcoming presidential election on July 9, with incumbent Susilo Bambang Yudhoyono stepping down after reaching the two-term limit. Both presidential candidates, Prabowo Subianto and Joko Widodo, have indicated they will keep the mineral export ban in place.

Newmont said on Thursday that it was putting 80 per cent of the 4,000 employees at its Batu Hijau mine, on the island of Sumbawa, on leave with reduced pay, leaving a skeleton staff responsible for “care and maintenance” at the site.

Freeport has warned previously that the export ban would force it to cut production by 60 per cent, resulting in 15,000 job losses and costing the government an annual $1.6bn in lost royalties and taxes.

But Mr Hadianto said he was hopeful that “continued dialogue with the government will lead to resolution in the near term”.

Jim Lennon, a metals consultant for Macquarie, the investment bank, said the Newmont shutdown was unlikely to have an immediate impact on the international copper market given that Indonesia only produces about 1.5 per cent of global supply.

By contrast, Indonesia accounts for about a quarter of global nickel and prices of that metal have soared by more than 40 per cent since the export ban came into force.

Mr Lennon added that there could be long-term consequences if Newmont and Freeport do not iron out their differences with the Indonesian government soon. “If there was a complete cessation of exports out of Indonesia, it would make a significant difference to the global market,” he said.

“But there is a widespread expectation that they will reach a deal on a smelter soon and will resume exports.” 

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