Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
After the Indonesian government announced an upcoming ban on raw minerals, two mining giants signed memoranda of understanding promising to have their product processed in the country – hoping to delay the ban. On Tuesday, they were served a mouthful of disappointment.
Hatta Rajasa, the coordinating minister for the economy, told Freeport Indonesia and Newmont Nusa Tenggara – a Newmont subsidiary – that just because they signed the MoUs does not mean they will be exempt from the new law, the Jakarta Globe reports.
Last year the government told miners to make arrangements to have all ore processed domestically. The companies would have to build refineries or smelters or expand existing ones.
Rajasa told Jakarata Globe that he would only consider extensions where “the ground breaking is already done and the financial closing has been made.”
US-based Freeport-McMoRan (NYSE:FCX), which already processes one-third of its product in Indonesia through a local company, was unable to convince the operator to expand the existing facilities. The miner operates the world’s second largest copper site, Grasberg, and has expressed reluctance at building its own smelters.
The law, which will come into force next year, is part of Indonesia’s efforts to make mining more profitable for the country. But the Indonesian Mining Association thinks the government needs to back off. Metal miners are already processing nearly all of the product domestically, a spokesperson told Jakarta Globe.
In 2009 the country announced a series of measures targeting mining profits and operations, including concession size limits and contract lengths. But most recently the government made some moves to draw in investors. Last week the cabinet promised policies allowing some tax holidays and allowances.
Freeport and Newmont (NYSE:NEM) were both down on the markets on Tuesday, dropping 2.9% and 3.5% respectively.
2 Comments
Jason morin
It’s a game of cat and mouse but people know Indo does not always apply common sense and through its difficult political process could make a serious miscalculation in terms of its leverage it believes to be strong in this case.
sailormac
Indonesian gov’t tells thei miners to process ores locally, not ship out raw.
Huh ! says Canadian government