Indonesia Should Increase Mining Royalties: Analyst

Senin, 30 April 2012 | 09:50

Indonesia could ask for higher gold mining royalty fees without having a drastic impact on the profitability of mining companies such as the local unit of Freeport McMoRan Copper & Gold, an analyst at Standard & Poor’s said.“What we think is that 5 to 10 percentage points higher in royalties wouldn’t kill the industry,” Xavier Jean, a Singapore-based credit analyst, told the Globe last week. “There’s enormous scope for the government to get more without killing them.”

Indonesia’s current royalty rate is 1 percent, far lower than the 4 percent to 5 percent Chile and South Africa charge, he said.

Reports have said the royalty rate for Freeport Indonesia, the local unit of US-based Freeport-McMoRan, was set at 1 percent in 1967 and has not been changed since then.

The government is renegotiating contracts with miners in Indonesia. Key issues include the size of mining operations, royalties, local processing of ore, the use of local content, contract extensions and a gradual reduction of the foreign miners’ stake to 49 percent.

Asia accounted for 34 percent of Freeport McMoRan’s $20.88 billion in revenue last year, according to Bloomberg data. Freeport Indonesia’s revenue from gold is estimated at $2 billion, Jean said.

The US company’s sole mining area in Asia is the Grasberg site in Papua, where Freeport Indonesia extracts copper and gold.

The miner’s contract, which is based on a 1991 agreement, is due to expire in 2021. The government may renew it with two 10-year extensions.

By Dominic G. Diongson