FUTURE investment by Western Australian companies in Indonesia’s resources industry is under threat after the Indonesian government outlined plans to tighten mine ownership laws.
Under the changes, foreign companies will be required to divest a 51 per cent share of their assets by the 10th year of production to interests in the country.
WA companies already operating in Indonesia have reacted cautiously to the announcement, with many downplaying the impact of the changes.
These companies believe they will not be required to lower their shares in Indonesian projects to 49 per cent due to existing contract of work (CoW) agreements signed between 1967 and 1997.
Indonesia’s old mining law was used to administer foreign investment in mining and ensured an investment would not be subject to changes in government laws or policies after signing for a period.
Perth-based Kingsrose Mining said it would not be directly affected by the new law, as it would be covered by a fourth-generation CoW agreement through its 85 per cent owned Indonesian subsidiary.
Straits Resources, which produces from the Mt Muro mine in Indonesia, also has a CoW agreement in place, but said it would monitor the situation.
A company spokesperson told WA Business News: “Straits maintains these changes will have no impact upon Mt Muro’s third generation contract of work”.
However, Intrepid Mines said the effect of, and timeframe for, implementation of the regulations were still subject to interpretation by the Indonesian government.
“The company is currently studying these regulations and is considering the best course of action in light of a number of related issues that have yet to be addressed and ongoing discussion with the minister,” Intrepid said.
Patersons Securities analysis stated the law amendment should not affect mining companies that already had CoW agreements.
However, Patersons was scathing in its outlook for future investment into the Indonesian resources industry.
“Hands up, who wants to invest to build a company where the notoriously corrupt locals will have majority – not just locals but government locals?” Patersons said.
“Resource assets take a lot of capex and a long time to pay off and crucially, cannot be taken out of the country.”
Indonesia was ranked by Canadian think-tank Fraser Institute as the ninth least attractive destination for mining investment in its latest survey, and consistently finishes in the bottom 10.
