Monday, March 3, 2008

Jakarta and Newmont head to arbitration


By Reuters March 3

Indonesia will take a local unit of Newmont Mining Corp. to an international arbitration court after the firm failed to meet a Monday deadline to sell shares in a local unit which may lead to termination of its mining contract, an official at the energy and mines ministry said.

In response, Newmont said it would also file a case against the government at an arbitration court.

Under its contract of work, PT Newmont Nusa Tenggara which operates the Batu Hijau copper and gold mine in Sumbawa, eastern Indonesia, must sell 51 per cent of its shares to local investors.

It has already sold a 20 per cent stake to a local company, PT Pukuafu Indah, and has agreed to sell 31 per cent gradually by 2010, although the government had threatened to annul the firm’s contract if it did not sell the shares quickly enough.

”The energy minister, representing the Indonesian government, will sue Newmont in the international arbitration court for failing to meet the divestment obligation,” said Sutisna Prawira, the head of the legal unit at the mines and energy ministry.

Prawira said if the arbitration court ruled in favour of Indonesia’s default notice to Newmont it would be possible for the government to ask the court to terminate the firm’s mining contract.

The government had given Newmont until March 3 to wrap up the sale of 10 per cent of its shares which were offered in the past two years to local governments. The company has so far only sold 2 per cent to Sumbawa regency on Jan. 28.

Energy minister Purnomo Yusgiantoro said the government would appoint the attorney general’s office to represent Indonesia in court.

Newmont said it regretted the government’s decision to go to arbitration given progress in the divestiture process.

”This move has triggered a requirement for Newmont Nusa Tenggara and its foreign shareholders to also file arbitration to ensure all rights are preserved and to confirm that the company is not in breach of the contract,” Russell Ball, Newmont’s chief finance officer, said in an emailed statement.

Despite the arbitration filing, the company would continue the divestiture process, Ball said.

Newmont is scheduled to offer 7 per cent of its shares to local investors each year from 2008-2010.

Ball said the firm would continue talks with the government after a revelation this week that PT Bumi Resources Tbk had agreed last year with three local governments in Indonesia to buy 31 per cent of Newmont’s local unit.

Bumi, a local coal firm controlled by the family of Indonesia’s chief welfare minister Aburizal Bakrie, has since said it has no interest in the stake.

Indonesia has some of the world’s largest deposits of copper, tin, nickel and gold, and has benefited from surging commodity prices.

But analysts say lack of legal certainty and continuous disputes with Indonesia’s government have contributed to a slowdown in new investment in the country’s mining sector.

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