Vale Indonesia to Boost Nickel Output, Undeterred by New Law

PT Vale Indonesia, a unit of the world’s second-biggest nickel producer, said it plans to boost output by 64 percent in eight years and won’t be deterred by a new law that may reduce its hold over domestic mines.

The unit of Brazil’s Vale SA will increase nickel-in-matte production to 120,000 metric tons in 2020 from 73,000 tons currently, Vice President Director Bernardus Irmanto said in an interview at the Clariden Global Indonesia Mining 2012 conference in Bali today. All its Indonesian output is shipped to Japan under a long-term contract, according to its website.

President Susilo Bambang Yudhoyono signed a decree last month that limits foreign ownership in local mining companies to 49 percent within 10 years of starting output, potentially curbing investment in the world’s largest thermal-coal and tin exporter. The regulation applies to producers with a mining business license, which Vale is required to seek after its mining permit expires in 2025, Irmanto said.

The new rule “is putting our investment at risk,” Irmanto said. “With all the regulations, it’s very hard to evaluate our business. But we’re still interested to invest in Indonesia.”

Companies that currently operate with contracts issued under the 1967 mining law, including Freeport-McMoRan Copper & Gold Inc., Newmont Mining Corp. and Vale Indonesia, will need to change to mining business licenses when they seek to extend their contracts, according to a regulation published on the Energy and Mineral Resources Ministry’s website last week.

Vale Indonesia was unchanged at 3,475 rupiah in Jakarta trading as of 3:52 p.m. local time. The stock has gained about 8.6 percent this year, compared with a 4.4 percent increase in the benchmark Jakarta Composite index.

Output Decline

The company’s nickel-in-matte production may decline about 25 percent in the first quarter because it’s rebuilding a furnace and it will try to make up in future quarters, Irmanto said, without providing figures.

Vale Canada, a unit of the Brazilian company, has a 58.7 percent stake in Vale Indonesia, Sumitomo Metal Mining Co. holds 20.1 percent and the public owns 21.2 percent, the company said on its website.

Vale Indonesia was issued a mining permit in 1968 and started commercial production in 1978, according to its website.

The foreign ownership regulation issued last month was an extension of a mining law passed in 2009. The government also said in February that it will start banning exports of metal ore by companies holding mining business licenses from May.

2009 Law

The 2009 law, which replaced previous legislation passed in 1967, has substituted so-called Contracts of Work with mining business licenses. Regional governments are allowed to grant, and revoke, such licenses, while Contracts of Work under the old mining law were only issued by the central government.

The law may need to be reviewed if it risks driving away investors and reducing state revenue, Syahrir Abubakar, executive director of the Indonesia Mining Association, told reporters in Bali. The group has embarked on a study of the impact of the legislation, he said.

The association groups mining companies including units of Freeport and Newmont, as well as PT Adaro Indonesia and PT Berau Coal, according to its website.

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