Freeport Indonesia Can Resume Copper Concentrate Exports from Indonesia

In January 2014, the controversial ban on exports of unprocessed minerals and ore (part of the Minerba Act, or, 2009 Mining Law) was introduced. This ban aims to boost domestic processing facilities and production of value-added products. Although this ban had been announced several years earlier, few expected the government to implement it as it was not in line with existing contracts of work between miners and the government. Moreover, Indonesia still lacks sufficient domestic processing facilities (smelters), implying that mining exports would plunge considerably. However, a last-minute government amendment to the ban provided temporary room for adjustment. If a miner can provide evidence that it is serious about building smelting facilities, then exports of unprocessed minerals are temporarily allowed (until 2017). However, the miner will have to face progressive export taxes (increasing from 25 percent in 2014 to 60 percent in mid-2016) and higher royalties. Freeport Indonesia, which operates the world's largest gold mine and third-largest copper mine (both located in Indonesia), has been granted this reprieve. Therefore, in exchange for resuming copper concentrate exports, Freeport Indonesia has to pay higher taxes and royalties as well as to start construction of smelting facilities. The miner has already issued a bond to finance the construction. Freeport Indonesia’s copper concentrate exports are expected to resume in early August 2014.

Previously, on Friday (25/07), the Indonesian government had already announced that it will ease the export tax on mineral concentrates for miners that plan to establish smelters. For Freeport Indonesia this means that its copper concentrate export tax has been lowered to 7.5 percent from the initially planned 25 percent as the company agreed to establish processing facilities. The exact tax rate is not standard but depends on the miner’s investments in smelting facilities.     

When Freeport Indonesia’s exports resume it is able to ship 756,000 metric tons of copper concentrate in the second part of 2014. Reuters reported yesterday that “Chinese copper smelters are holding off on spot purchases of raw material concentrate, betting they can charge higher processing fees on imports once Freeport-McMoRan resumes exports from Indonesia.” China is the world’s largest importer of copper concentrate and purchases about half of this commodity in the spot market.

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