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"Indonesia Mining Report Q3 2013" Published

New Materials market report from Business Monitor International: "Indonesia Mining Report Q3 2013"


Boston, MA -- (SBWIRE) -- 08/14/2013 -- Government To Backtrack On Mining Policy

BMI View: Changes to Indonesia's mining code have reduced the overall level of investment attractiveness in the country. While there is a possibility for further reforms, especially in the run up to the 2014 general election, we believe the worst is behind us and do not expect significant policy changes in the near term. A moderation in the government's stance is highly possible as metal prices continue to head broadly lower over the coming quarters, weighing on profits for mining companies.

While rhetoric against foreign miners could step up, we believe a moderation in the government's stance is more likely to happen owing to two reasons. Our below consensus forecasts for base metals prices does not bode well for domestic miners in Indonesia. We forecast metal prices to head broadly lower over the course of 2013 and 2014 and believe the government may reconsider measures in a period of lower prices and profits for the mining sector. The paramount importance of the mining sector, which constitutes 11% of Indonesia's GDP, further reinforces our conviction that policies that would jeopardise growth in the mineral sector will not be implemented.

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Overall, we forecast Indonesia's mining industry value to reach US$140bn by 2017, growing at an annual average rate of 8.6% from 2012 levels. This will mark a drastic slowdown from the 2006-2011 period, during which growth averaged 18.3% per annum. Nevertheless, Indonesia will remain a dominant mineral exporter in the region and retain its status as the largest thermal coal and tin exporter in the world.

Two new mining laws were signed into law during Q112 that give more clarity to previous statements by the Indonesian government. Firstly, actual threshold specifications for raw material exports have now been revealed through the passing of Law No. 7 of 2012. Secondly, a new law was also passed that will require foreign investors to divest at least 51% of their ownership in Indonesian mining assets 10 years after initial production. The key risk for these two rulings is whether they will be applied retroactively or partially to existing contracts. Another risk is that thermal coal exports have been left alone so far and have the risk of additional taxes in the future.

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