Indonesia’s mining tax
In 2014, Indonesia banned exports of unprocessed base metals. Copper ore accounts for almost 6% of Indonesia’s mineral exports.
Japan and China are the top two destinations of Indonesia’s mineral exports. Both countries lack access to quality natural resources.
Earlier we saw that China has only 4% of global copper reserves, while it accounts for more than 40% of global copper consumption. The iShares China Large-Cap ETF (FXI) gives investors access to Chinese equity markets.
Indonesia has completely banned exports of certain minerals. It has levied a mining tax, a hefty export duty, on export of several ores. Freeport-McMoRan (FCX) has copper as well as gold mining operations in Indonesia. Newport Mining (NEM) also has major operations in Indonesia. It has also been impacted by the new regulations in Indonesia.
Importance of Indonesia
Freeport’s Indonesian mine is the company’s lowest cost copper producer globally. The above chart shows Freeport’s expected copper production costs at various mines. As you can see, its unit net production costs in Indonesia are expected to be $1.19 per pound this year. Indonesian mining operations are vital to Freeport since it’s a low-cost destination.
However, the Indonesian government wants more value addition in the country. It wants to increase exports of finished metal products and limit exports of unprocessed metals. This should help the Indonesian economy in the long term.
But how is Freeport tackling these regulatory changes in Indonesia? We’ll find out in the next part.