Indonesia, Southeast Asia’s largest economy, will limit foreign companies from owning more than 49 percent of some mines, potentially limiting investment in the world’s largest thermal-coal and tin exporter.
Foreign holders of mining licenses will have to cut their stakes to 49 percent within 10 years of starting production, from 80 percent, according to a decree signed by President Susilo Bambang Yudhoyono on Feb. 21.
The change in regulation may deter overseas investment in the country that’s also rich in nickel, copper and bauxite. Indonesia is seeking to increase participation by domestic investors in mining projects, according to the decree.
“Mining is a long-term and capital-intensive investment,” said Syahrir Abubakar, executive director of the Indonesia Mining Association, whose members include the local units of Freeport-McMoRan Copper & Gold Inc. and Newmont Mining Corp. (NEM)“If they have to divest within 10 years, they are not yet reaching the break-even point of their investment.”
Foreign miners of coal and minerals will need to sell shares to the central and regional governments, state-owned companies or local private companies, according to the decree on the website of the Directorate General of Coal and Minerals.
Coal mining will be less affected by the shareholding rule as most of ventures are majority-owned by local investors, Supriatna Suhala, executive director at the Indonesia Coal Mining Association, said by telephone.
“The impact will be on minerals, especially on newcomers,” Suhala said. “Mineral investment will require a few billion dollars. People with a few hundred million dollars can invest in coal mining, so this segment doesn’t really need foreign investors.”
BHP, Freeport, Newmont
BHP Billiton Ltd. (BHP) is “reviewing this recent statement by the President of Indonesia,” Fiona Martin, a spokeswoman at BHP, said in an e-mail.
The world’s largest mining company holds a 75 percent stake in the IndoMet Coal project in the Indonesian part of Borneo island. PT Adaro Energy (ADRO) owns the rest.
Freeport operates the Grasberg mine in Papua province, which accounted for 19 percent of the company’s revenue last year and contains the world’s largest recoverable copper reserve, according to the company.
Newmont runs the Batu Hijau copper mine in West Nusa Tenggara province. The company and its overseas partners including Sumitomo Corp. (8053) have sold a 24 percent stake in their venture to a unit of PT Bumi Resources and three local administrations. The central government is in the process of buying another 7 percent stake.