New mining rules in Indonesia relax ban on mineral exports

January 12, 2017

The Indonesian government relaxed the controversial ban on exports of nickel ore and bauxite and will extend exports for mineral concentrates.

The Wall Street Journal reported that the new mining rules released on Jan. 12 revise an earlier regulation and will allow miners to export as long as they show progress toward building smelters in a five-year period. Investors and analysts had expected Indonesia to continue allowing exports of mineral concentrates, but the government surprised markets by allowing limited amounts of nickel ore and bauxite.

Indonesia had put the controversial restrictions in place in 2014 in an attempt to force miners to build domestic smelters to process ores in Southeast Asia’s largest economy.

Energy and Mineral Resources Minister Ignasius Jonan said the new rules were aimed at improving the economy and creating jobs. The restrictions had hit exports and revenues from mining.

The new rules “improve what we have done this far” and aim to “perfect [them] for the future,” he said.

The rule changes require miners to reserve at least 30 percent of their smelter capacity to processing low-grade nickel ores. Any excess ore would be open for export, said Bambang Gatot, director general for coal and minerals.

The new rules also require that for foreign miners to be allowed to export, they must switch from long-term contracts of work to a mining licensing system in which they say their rights are more limited. In addition, they must agree to gradually divest at least 51 percent stakes in their local operations to Indonesian entities.

Some analysts viewed the changes as a tactical shift but one that could hurt the government’s objective of adding value to its natural resources and create further uncertainty around its mining policies.

The development will come as some relief to China — the world’s largest metals producer — as Indonesia was the largest supplier of nickel ore and bauxite before the ban imposed three years ago.

The 2014 ban allowed concessions for some exports of mineral concentrates, such as copper, following protests from miners. Those concessions expired on Jan. 11.

A relaxation of the export ban on nickel ore will enable miners in Indonesia to sell in the international markets instead of the domestic market, said Daniel Hynes, an analyst with ANZ Bank, adding that higher supplies globally will likely pressure prices lower.

The revisions would also allow big miners such as U.S.-based Freeport McMoRan—which produces copper and gold at its giant Grasberg mine in Papua and is the country’s largest taxpayer—to continue exporting copper concentrate.

Freeport had been at loggerheads with the Indonesian government about the mining rules, stalling an $18 billion investment and further smelter development. Other miners had pushed for changes to the export ban because they said it wasn’t financially viable for them to build smelters.


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