All foreign miners face divestiture in Indonesia

Indonesia’s government offered a clearer view on Friday of a new regulation that limits foreign ownership in mines to no more than 49 per cent, saying the rule applies to existing as well as new contracts.

The comments by senior officials in the Ministry of Energy and Minerals could unnerve foreign companies owning mines in Indonesia, including Australian miners who have played down the impact of the rule signed last month by President Susilo Bambang Yudhoyono.

Mining makes up 11.9 per cent of the economy in Indonesia, the world’s top exporter of thermal coal and tin, and foreign investment in mining in the sector topped $2.2 billion in 2010.

Under the rules, Southeast Asia’s top economy will require foreign companies to sell down stakes in mines and increase domestic ownership to at least 51 per cent by the 10th year of a mine’s production.

Trade Minister Gita Wirjawan said the regulation would only affect short-term investment by foreign miners. “In the middle and long term there will not be a significant effect on the investment if we can explain the policy properly to them,” Wirjawan told Reuters.

Firms with existing “Contract of Work” agreements signed before the new rule have mostly said the regulation did not apply to them and would only apply to firms holding newer “mining business licences.”

Newcrest, the world’s third-largest gold miner, said its 82.5-per-cent stake in the Gosowong mine in Indonesia would not be affected by the rule, at least until its existing contract runs out in 2029. Newcrest already has an Indonesian partner in Gosowong, PT Aneka Tambang, with a 17.5 per cent stake.

Government officials, however, see things differently. The plan is to renegotiate all contracts using a special team to talk to each company one by one, coal and mining director Thamrin Sihite told reporters.

The scope of those renegotiations would include divestment, royalties, the company’s working area, contract length and rules on smelting.

The biggest mining firm, U.s.-listed Freeport Mcmoran Copper & Gold Inc., is currently renegotiating its contract to run Grasberg, a mining complex that has the world’s largest gold reserves and the second-biggest copper mine. Freeport owns 90 per cent of the open-pit mine in Papua, and analysts say divestment would likely benefit Indonesian miners as well as the government, which holds a 10-per-cent stake.

“They (Freeport) should accept renegotiation because they have gained a lot of profits until now,” Vice Energy and Minerals Minister Widjajono Partowidagdo said.

His view echoes growing calls by Indonesians for a greater share of mining revenue in a country that recently regained investment grade status and has seen its economy grow steadily at above six per cent a year.