BHP Billiton Limited (ADR) NYSE:BHP, Rio Tinto plc (ADR) NYSE:RIO, Newcrest Mining Limited ASX:NCM, Freeport-McMoRan Copper & Gold Inc. NYSE:FCX
During the last week we have heard BHP, Rio, Newcrest, Freeport etc all say that the Indonesian Mining Law does not apply to them, however the Indonesian Department of Mines and Energy has confirmed when we contacted them that all companies without exception, must implement the new policy under which foreigners cannot own more than 49 per cent of a mining project in the country. The divestment must start taking place after a mine has been in production for five years, and be complete after 10 years.
The Indonesian regulation extends a 2009 law mandating local ownership of at least 20 percent in joint ventures by the sixth year of production.
The new law applies to companies with mining business licenses. Miners, including Vale, Freeport-McMoRan Copper & Gold and Newmont, currently operate under contracts of work and need to apply for mining business licenses when their permits expire, according to the literal translation of the rule.
So we will likely see miners holding working contracts but not mine equity in Indonesia in the future.
With the current high profile focus of corruption in Indonesia it is politically unlikely that any mining company will receive or be able to negotiate special favours.
Indonesian politicians are in damage control after the Indonesia Chamber of Commerce and Industry revealed last week that businesses in Indonesia must set aside up to 17.4 percent of their investment funds to pay illegal fees, such as those needed to obtain official permits.
The study noted that complicated processes to obtain business permits were still common, with businesses having to negotiate up to nine steps at a variety of government institutions.
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.