JATAM | Mining Advocacy Network

Reuters,  Apr 14, 2009
By Fitri Wulandari

JAKARTA, April 14 (Reuters) - Indonesia's minister for state enterprises said he wants state mining firms to have first right to buy shares in a unit of U.S. gold miner Newmont Mining Corp (NEM.N), but analysts and some firms said they lack the funds.

An arbitration court last month ordered the foreign owners of PT Newmont Nusa Tenggara (NNT), which operates the Batu Hijau copper and gold mine in Sumbawa, to sell part of their stake to the government within six months after a long-running dispute. [ID:nJAK503192]

However, with the 17 percent stake valued by Newmont at around $800 million, analysts have said that neither the government nor the state-owned mines have the necessary funds.

That potentially poses problems for Newmont, which could fall foul of the ruling if it fails to find a buyer, but which could be pressured into dropping its price as the deadline approaches.

The Newmont case has attracted considerable interest from foreign investors particularly as some Indonesian politicians are taking an increasingly nationalistic approach over ownership and access to the country's rich natural resources against the backdrop of this year's elections.

"We have sent letters to the finance ministry, requesting state-owned miners to be given priority to buy the stakes if the government declines to buy it," Sofyan Djalil, state enterprises minister, told reporters on Tuesday, adding "Of course there should be a negotiation on prices."

Local media reports have cited state miner PT Aneka Tambang Tbk (ANTM.JK), coal miner PT Tambang Batubara Bukit Asam Tbk (PTBA.JK), and tin miner PT Timah Tbk (TINS.JK) as the state-owned firms most likely to consider buying the shares.

But analysts and two executives said the price was too high and that they lacked the financing.

"The funding needed is huge and our internal cash won't be able to cover it," said Timah corporate secretary Abrun Abubakar.

Bimo Satryo, Antam's corporate secretary, said the firm was waiting for an offer from the government on the stakes.

"We will have to review it first because it involves huge financing. It's not easy getting financing in this situation," said Satryo.

Newmont and Japan's Sumitomo Corp (8053.T) own 45 percent and 35 percent respectively of NNT. Under its works contract, NNT was required to sell 51 percent of its shares to local investors. It sold 20 percent to PT Pukuafu Indah, an Indonesian mining group, and has agreed to sell 31 percent gradually by 2010.

Newmont began offering its NNT shares in 2006, initially offering a 3 percent stake for $109 million. The following year it offered a 7 percent stake worth $282 million and another 7 percent stake worth $426 million in 2008.

"The prices for the stakes are too expensive. This is silly. State mining firms would also be deterred when they see the stakes are worth hundreds of millions," said Ryad Chairil, an expert on mining law at the Centre of Indonesian Energy Resources Law.

Under the contract of work, Indonesia's finance ministry has the first right of refusal on all the share sales.

The finance ministry is still discussing various options following the arbitration ruling, according to Hadiyanto, director general of state assets at the ministry.

"We don't want to be pressured to make a decision. This is related to government investment. There are various options, whether through the government investment centre or through the state-owned miners," Hadiyanto said.

The government investment centre is an investment arm under the finance ministry responsible for managing central government's investments.

A resolution on the case is seen by analysts as crucial for Indonesia which is keen to attract foreign investment to drive economic growth and create jobs. (Additional reporting by Andreas Ismar, editing by Sara Webb)