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06. June 2007

Indonesia May Take Back Parts of Coal, Metal Areas

BLOOMBERG is reporting today, that Indonesia, the world's biggest exporter of power station coal and second-largest tin producer, may rescind parts of mining concessions to secure ``national reserves'' for future generations.

Companies such as Freeport-McMoRan Copper & Gold Inc. and PT International Nickel Indonesia may lose untapped deposits of copper, nickel, bauxite and iron ore, Simon Sembiring, director general of coal and mineral resources at the energy ministry, said in an interview yesterday.

Seizing mining concessions may deter foreign investment in Indonesia, which has lagged behind other mineral-rich countries as global commodity prices have soared. Legislation now being debated in parliament may include provisions to take back part of existing mining leases, Sembiring said.

``If the government takes back part of areas already awarded to miners, where's the legal certainty?'' said Christine Salim, an analyst at PT Samuel Sekuritas Indonesia in Jakarta. ``Investors will be concerned.''

The 10-member Jakarta Mining Index was 1.5 percent lower at 12:04 p.m. in Jakarta, compared with a 0.1 percent gain in the Jakarta Composite Index. Shares in International Nickel Indonesia fell as much as 1.4 percent to 54,000 rupiah and were trading at 54,100 rupiah at 11:59 a.m.

Mining companies spent only $7 million exploring for new deposits outside existing mines in Indonesia in 2005, unchanged for five years, according to PricewaterhouseCoopers.

Investment

Indonesia is trying to win $22 billion in investment a year to power Southeast Asia's largest economy, rich in coal, copper and nickel. The country has 61.3 billion metric tons of coal resources with mineable reserves estimated at 6.7 billion tons, according to data from the ministry.

The government may take part of concessions if mining companies don't have clear development plans, which they must follow, Sembiring said. The government may set up an agency or appoint a state company to dig metals and coal from the areas, he said.

``If the area has good data, we may take'' part of it, Sembiring said after speaking at the 13th Coaltrans Asia conference in Bali. ``It's in the interest of the state. We must support this at all costs.''

``We have to conserve our reserves,'' Sembiring said. ``It makes no sense to just produce as much as we can.'' He said areas where the government has sufficient data on mineral deposits may be designated ``national reserves.''

No Discussions

``The government hasn't discussed this with us,'' said Sri Kuncoro, director of corporate relations at International Nickel, 60 percent owned by Rio de Janeiro-based Cia. Vale do Rio Doce. ``We'll wait until the government informs us on the policy'' before responding, she said.

Phoenix-based Freeport's Grasberg mine in Indonesia is the world's second-biggest copper and gold mine. It accounted for 3.6 percent of world copper production last year.

The company has 202,000 hectares (500,000 acres) of exploration area and 10,000 hectares of production area in Indonesia, said Mindo Pangaribuan, a spokesman for Freeport Indonesia. He declined to comment on the government's plan.

Newmont Mining Corp., the world's second-biggest gold producer, operates the $3.6 billion copper-gold mine in Batu Hijau, West Sumbawa province, which will be mined until 2030. The company also has a copper deposit at Elang, 60 kilometers (38 miles) from Batu Hijau, which it may develop.

Rio Tinto Group, the world's third-largest mining company, is planning a $2 billion nickel project in Indonesia's Sulawesi island. The government is discussing tax payments for the project, Sembiring said.

Copper for delivery in three months gained 2.4 percent to $7,625 a metric ton in London yesterday. The metal, used in power cables, reached an 11-month high of $8,335 a ton on May 4.

Nickel, the best-performer on the London Metal Exchange this year, added $150 to $47,650 a ton. Shares in PT Inco, as International Nickel is known, have tripled in the past year, boosted by the metal price.

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