* Ore exports may continue as long as smelter plans in place
* Govt hopes to finalize processing policy next month
* No deadline set for smelter construction
By Yayat Supriatna and Fergus Jensen
JAKARTA, April 23 Major miners in Indonesia,
such as Freeport and Newmont, will get extra time to build
smelters or sign pacts with smelters under construction, as they
move to comply with a ban on exports of unprocessed minerals set
for 2014, the industry minister said on Tuesday.
Mineral processing is politically sensitive in Southeast
Asia's largest economy, which is looking to garner greater
benefits from its resources by developing processing industries,
particularly where foreign firms are involved.
The comment spotlights division in the government over
Indonesia's rules on smelters, after remarks by the deputy
mining minister last week that building smelters was not viable
in some cases.
"We can give them extra time, facilities or incentives, but
they have to start building a smelter or work with another
company to build one," Mohamad S. Hidayat told reporters.
"They have to follow our rules and regulations. No
exception," he added, referring to international mining giants
Freeport-McMoRan Copper & Gold Inc and Newmont Mining
Indonesia is pushing foreign miners, including Freeport's
local unit Freeport Indonesia, to add more value within the
country, as well as trying to secure higher royalty payments and
sales of controlling shares.
Many of Indonesia's older generation of mining permits were
issued under the authoritarian rule of former president Suharto,
but are widely seen as favouring the companies.
Last year Indonesia asked all miners to submit plans to
build refineries or smelters ahead of the January 2014 ban on
raw mineral exports.
Mining industry groups have warned that enforcing the
smelter rules could cost Indonesia up to $10 billion a year in
But the minister did not set a deadline for the completion
of smelter projects, suggesting this was still open to
"One thing is for sure, contract holders must build their
smelters soon," he added. "If, at the end of 2014, the smelters
are not ready, we can talk about them later."
Freeport, which runs the world's second-biggest copper mine,
Grasberg, in west Papua province, now processes just under a
third of its ore in Indonesia at PT Smelting, its partly-owned
copper refinery in East Java.
However, PT Smelting has no plans to expand, as a drop of 14
percent in benchmark copper prices this year points to the
likelihood of slim profits.
The issue of smelters has been a sticking point in the
renegotiations over older mining contracts, with companies
saying they should be exempted from rules that overlap the
terms, particularly on maximum concession size, divestment and
Arizona-based Freeport has repeatedly said it is reluctant
to build smelters in Indonesia, and the contract talks have
delayed its decision to invest billions of dollars to develop
underground mining and extend the life of Grasberg, which also
has the world's largest gold reserves.
Smelters due to start construction before the 2014 deadline
include PT Indosmelt, PT Nusantara Smelting and PT Global
Investindo, which, together with the existing PT Smelting will
make up total copper concentrate capacity of 3.4 million tonnes,
according to industry ministry data obtained by Reuters.
But Hidayat said the government expected the companies to
make a start on complying with the rules about building smelter
facilities, at the very least.
"If they don't do anything now and in 2014 they ask the
government to relax a policy, the government will ignore them.
However, if they start building a smelter now, even if it's not
finished by 2014, the government could consider relaxing
policies for them."
Hidayat said the government was preparing a "road map of
mineral downstream industry development" that he hopes will be
finished next month, to be used to allocate supervision of
development efforts among its departments.