Export restrictions pose potentially serious effects on ore price

By Adianto P. Simamora

Noted corporate lawyer Alistair Duffield, partner and head of Berwin Leighton Paisner - Singapore and SE Asia - said that Indonesian government?s proposed changes to exporting ore focus on a costly and lengthy requirement to invest in smelters, the construction costs of which are massive, running to billions of dollars and taking up to 2-3 years to construct.

?The equity investment is not feasible for the majority of new investors from a cost perspective and the time to arrange financing and construction does not fit with the government timetable. Further, not all resources are large enough to justify the cost of a smelter, in fact most are not,? Alistair told Petromindo.com

He said that the changes require that companies come up with a plan of an undertaking to build a smelter themselves, or invest with other producers to do so. The third option is that they agree to sell ore to a party who has constructed a smelter.

"These new requirements could have a potentially serious effect on the price of ore, as those who have built a smelter with associated costs will want to make an internal rate of return in line with the risk of the investment, such as paying a low price for ore supply to the smelter - meaning there will be massive price risk at negotiation," he said.

Editing by David Mustakim