Newmont exposes Batu Hijau risks
Thursday, September 17 2009 - 01:19 AM WIB
Our Batu Hijau Operation in Indonesia is Subject to Political and Economic Risks
We have a substantial investment in Indonesia, a nation that since 1997 has undergone financial crises and devaluation of its currency, outbreaks of political and religious violence and acts of terrorism, changes in national leadership, and the secession of East Timor, one of its former provinces. These factors heighten the risk of abrupt changes in the national policy toward foreign investors, which in turn could result in unilateral modification of concessions or contracts, increased taxation, denial of permits or permit renewals or expropriation of assets.
Presidential and parliamentary elections recently took place, and although the president was re-elected, new ministers or members of parliament may have different (and potentially more negative) views relating to mining in general or relative to our assets and operations from those of their predecessors.
Recent violence committed by radical elements in Indonesia and other countries, and the presence of U.S. forces in Iraq and Afghanistan, may increase the risk that operations owned by U.S. companies will be the target of violence. If our Batu Hijau operation was so targeted it could have an adverse effect on our business.
Our Interest in PT Newmont Nusa Tenggara (?PTNNT?) in Indonesia May be Reduced or Terminated under the Contract of Work
We operate Batu Hijau, a producer of copper/gold concentrates, in which we currently have a 45% ownership interest, held through the Nusa Tenggara Partnership (?NTP?) with an affiliate of Sumitomo Corporation of Japan.
We have a 56.25% interest in NTP and a Sumitomo affiliate holds the remaining 43.75%. NTP in turn owns 80% of PTNNT, the Indonesian subsidiary that owns Batu Hijau. The remaining 20% interest in PTNNT is owned by P.T. Pukuafu Indah (?PTPI?), an unrelated Indonesian company.
Under the Contract of Work executed in 1986 between the Indonesian government and PTNNT, beginning in 2006 and continuing through 2010, a portion of PTNNT?s shares must be offered for sale, first, to the Indonesian government or, second, to Indonesian nationals, such portion equal to the difference between the following percentages and the percentage of shares already owned by the Indonesian government or Indonesian nationals (if such number is positive): 23% by March 31, 2006; 30% by March 31, 2007; 37% by March 31, 2008; 44% by March 31, 2009; and 51% by March 31, 2010.
The price at which such interest must be offered for sale to the Indonesian parties is the highest of the then-current replacement cost, the price at which shares would be accepted for listing on the Jakarta Stock Exchange, or the fair market value of such interest as a going concern, as agreed with the Indonesian government.
Pursuant to this provision, it is possible that the ownership interest of the Newmont Sumitomo partnership in PTNNT could be reduced to 49%, thus reducing our ability to control the operation at Batu Hijau.
PTPI has owned and continues to own a 20% interest in PTNNT, and therefore NIP was required to offer a 3% interest in the shares of PTNNT for sale in 2006 and an additional 7% interest in each of 2007, 2008 and 2009.
In accordance with the Contract of Work, an offer to sell a 3% interest was made to the government of Indonesia in 2006 and an offer for an additional 7% interest was made in each of 2007, 2008 and 2009. Following notifications from the Department of Energy and Mineral Resources (the ?DEMR?) alleging that PTNNT was in breach of its divestiture requirements under the Contract of Work and threatening to issue a notice to terminate the Contract of Work if PTNNT did not agree to divest by 2006, 2007, and 2008 shares in accordance with the direction of the DEMR the matter was submitted to an international arbitration panel.
That panel ruled in March 2009 that the 2006, 2007 and 2008 shares must be sold by the end of September 2009 and gave PTNNT until then to cure any default by selling the shares.
The company has reached agreement with the Indonesian Government and Regional Governments on the price of the disputed shares as well as the 2009 shares; however, the transfers have not occurred and it is uncertain whether they will occur by the deadline, or whether the deadline will be extended. Future disputes may arise as to the divestiture of the shares, the outcome of which cannot be predicted. It is uncertain who will acquire the divestiture shares or the nature of our relations with the new owner or owners. (end of excerpt)