By Andreas Ismar and John W. Miller
JAKARTA, Indonesia-- Newmont Mining Corp. declared force majeure
over Indonesian export taxes, a surprising move that allows the
company to back out of contracts without penalty and could raise
tensions with the resource-rich nation.
Martiono Hadianto, chief executive of the Newmont Indonesia
subsidiary, said Thursday that his company "was left with no option
but to declare force majeure" after taking "numerous steps to help
resolve the export issue."
Indonesia, a major copper producer, banned ore exports in
January and introduced taxes on mineral concentrate exports. The
goal was to force mining companies to build smelters and refine
their minerals in Southeast Asia's largest economy. Taxes on
concentrates are between 20% and 25% and will gradually rise to 60%
by 2016.
The government didn't return calls seeking comment on Thursday,
but the Mining Ministry has said that its options were limited
regarding the export ban and taxes.
Denver-based Newmont and Phoenix-based Freeport-McMoRan Copper
& Gold Inc., which control the two largest copper producers in
Indonesia, complained that the new tax violated their contracts
with the government, which don't include export taxes. The
companies responded by selling to domestic smelters and stockpiling
inventory. Freeport also cut production to 140 million pounds of
copper in the first quarter, down 36% from a year earlier, while
Newmont increased output.
The mining companies chose different tactics in negotiations
with the government. Newmont has been more vocal in discussing the
possibility of taking Indonesia to arbitration, while Freeport has
played its hand more carefully. Freeport CEO Richard Adkerson met
with Indonesian government officials this week. Representatives of
the government and the company said they were close to reaching an
agreement, which could involve Freeport getting a break on taxes in
exchange for helping to build a new smelter. Newmont executives
said they, too, met with government officials.
Indonesian Industry Minister M.S. Hidayat said Wednesday that a
deal on lowering export duties was near. "But as these are all long
term contracts, there needs to be legal fine-tunings," he said. He
declined to detail how much the duties would be lowered but hinted
that a gradual decrease in export taxes would be linked with the
progress of smelter construction.
Newmont's statement on Thursday was unusual.
"Usually, you only declare force majeure when there's a mine
accident or a strike," said Charles Bradford, an analyst with
Bradford Research Inc. "It doesn't happen often because governments
change the rules, because governments don't often do that."
Analysts said Newmont's and Freeport's strategies illustrated
how a company's stake will determine the risks it will take in
negotiations.
"Freeport is much more heavily invested in the country, so they
have more to lose by picking a fight with the government," said
Ignace Proot, an analyst with Sanford C. Bernstein & Co. "For
Newmont, it's a much smaller part of their business." Freeport
employs more than 30,000 people in Indonesia, more than seven times
as many as Newmont, and is planning an ambitious new underground
copper mine.
"It makes sense for Newmont to do this now, because they have
inventory built up for the holiday season, and there'll be a new
president in the fall," who might renegotiate the export taxes, Mr.
Proot said.
Newmont's move came two days after its subsidiary, PT Newmont
Nusa Tenggara, stopped production at its mine in Eastern Indonesia,
saying it lacked storage space after going more than four months
without exporting copper concentrate. The company has yet to
receive an export permit since the new taxes went into effect in
January.
About 80% of Newmont's 4,000 employees in Indonesia will be
placed on leave at reduced pay starting Friday, the company
said.
Write to Andreas Ismar at andreasismar.sandiwan@wsj.com and John
W. Miller at john.miller@wsj.com
Corrections & Amplifications
The photograph accompanying this article was taken in September
2012. An earlier version of this article indicated that the photo
was taken in September 2013.