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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Indonesia Just Rocked The Mining World With This Unexpected Move

Mining operations

One major event dominated mining news this week. Affecting nearly every major metal — from copper and nickel to gold and aluminum.

An abrupt and unexpected change in mining laws from major producing nation Indonesia.
As I wrote last Thursday, Indonesia’s mining sector has been in a state of flux. With exports of copper concentrates halting in the face of a January 12 deadline imposed years ago by the government.

Lawmakers had been scrambling to pass legislation dealing with the export stoppage. And Friday they did introduce new rules — covering not just copper, but also unexpectedly reopening the door to exports of other metals.

Here’s what we know. Indonesia’s new mining laws will allow copper miners like Freeport-McMoRan to resume exports of concentrate. But there are strings attached.

In order to resume exports, miners will have to change their operating contracts. Miners currently work in Indonesia under Contracts of Work (CoW) — but in order to receive export permission for concentrates, they will have to convert existing CoWs to Special Mining Business Permits (also known by their Indonesian acronym IUPKs).

Indonesia’s mining ministry says the license conversion will only take two weeks. But there are other conditions for concentrate exports.

Exporters will have to show they are making progress with smelter construction in Indonesia. A factor that the mining ministry will evaluate every six months.

That throws some uncertainty into the resumption of copper concentrate shipments. With officials from Freeport saying they have no timeline for resuming exports — a fact investors seized on, driving Freeport’s shares down as much as 5% Friday.

Copper jumped above $2.60/lb on fears of a supply disruption. But the bigger effect might come in another metal.

Nickel.

As part of the rule overhaul, Indonesian officials also did something no one was expecting: re-allowed exports of nickel and bauxite. Commodities not shipped since 2014, when the export ban was initially imposed.

That’s an absolutely huge development. Prior to the 2014 export ban, Indonesia was running neck-and-neck with the Philippines for world’s top nickel producer — putting out 440,000 tonnes of contained nickel in 2013.

Related: Where Will Oil Prices Go This Year?

Following the ban, Indonesia’s nickel production instantly fell 60% during 2014, to 177,000 tonnes. A level where Indonesian miners have remained — up until now.

This week’s reversal opens the door for Indonesia’s big nickel reserves to once again hit global markets (state miner PT Aneka Tambang is said to be sitting on stockpiles of 235,000 tonnes). Raising a big red flag for the nickel price — which fell as much as 5% on the Indonesia announcement.

As expected, new rules also require miners to divest 51% interest in mining projects to local investors. Officials clarified that this sale will be required over a ten year period, so won’t have any immediate impacts — but will certainly be a drawback for new foreign investors eying Indonesia’s mining sector.

A lot of critical changes, for a number of different metals. Watch for more clarity on when copper concentrate exports will resume — and for data on how much nickel starts leaving Indonesia.

Here’s to a sea change.

By Dave Forest

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  • Bill Simpson on January 17 2017 said:
    Trump finds out about this, and he might order that enormous copper deposit in southern Alaska opened as a 'national economic emergency'. Who is going to stop him with one party rule, fellow Republicans wanting to be called, 'job killing liberals' on his Twitter machine, and on Fox News? Oh no, not unless they want to be primaried in 2018.
    And there is that HUGE metal deposit on the Canadian border too, along with the rare earth hoard in Nebraska or Iowa discovered by the Canadians. Taken together, The Donald could create tens of thousands of jobs with only 3 'emergency' mines. FDR would have done it. Shovels would be digging within 6 months.
    Of course, that was before the environmentalists stifled our innovation and wealth creation.

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