Newmont is a no-win for the Central Government.

Newmont is a no-win for the Central Government. [Posted 23 Aug 2014, 212 views, 3 likes, 0 comments]

Bill Sullivan’s recent Coal Asia (Vol 46) magazine article – “A tale of 2 (very different ) cities” explains nicely the concept the differences between Newmont and Freeport’s response to the Indonesian Government’s approach to CCOW renegotiation’s and the smelter issue. Essentially Freeport has more to lose that Newmont, wherein Freeport is more willing to strike a deal, and Newmont is headed towards arbitration. However there seems to be other factors to consider;

Perhaps Bill’s article could have been titled “A tale of 2 Families”! Not so long ago Newmont divested shares to the local government, wherein theBakri family is believed to be behind the financing of such share. It would seem Bakri is now struggling financially, and to be asked to put up equity capital (as a shareholder) to build a smelter that may not make much profit would be an undesirable investment, and so there is more tendency to resist the central government. On the other hand it is known that theSuharto family invested in Freeport’s infrastructure that is leased back to Freeport. The Suharto family apparently has no obligation to contribute to raising funds with Freeport to finance the smelter that may be an overall better economic business.

Perhaps Bill’s article could have been titled “A tale of 2 Governments”! Newmont’s recent divestiture saw shares going to the Regional government, and to the Central Government. So it would seem awkward for the Central Government to take Newmont (with its local & central government shareholders) to arbitration! Taken in this context the Mr Giri Ahmad Taufik quote “ Newmont’s lawsuit must be considered a threat to [the] government’s sovereignty in ruling the country.” Then perhaps the Newmont arbitration option is a reflection on the Regional Governments standing up the Central Government to protest its sovereignty over mining and protect its independent regional growth, and this is a much more serious power play.

Perhaps Bill’s article could have been titled “A tale of 2 Shareholders”! The Jakarta Globe reference to the Mines Department threaten to terminate Newmont’s Batu Hijau mine and have it taken over by PT. Aneka Tambang leads us into murky ground. To take over the mine would mean the local & central government shareholders would lose out. There is no way such government shareholders would accept such loss, and would demand their interests be reinstated in the new Aneka Tambang structure, or the Regional government may demand majority ownership. There would be an open fight between Aneka Tambang, the Regional and Central Governments that could lead to a much wider temptation for regional governments to take over other mines, perhaps KPC, Vale and so on. But the Regional & Central Government’s claim to be assigned as new shareholders in the Aneka Tambang proposal could be seen by Newmont’s lawyers as unequal treatment of shareholders – and be a bases to start international arbitration based on unfair treatment between foreign and domestic shareholders.