Indonesian Export Tax Will Erode Profits for Miners

It is reported that a 20% export duty the government has imposed on 14 mineral ore products will not only take a toll on mining companies' profits but also cause problems in the domestic market, which won't be able to absorb all the output.

Mr Ray Antonio Gunara president director of Harum Energy a coal mining and logistics company with operations in East Kalimantan said that his business already had to pay a 13.5% royalty and that the additional 20% would only cut deeper into its profit margin.

He said that "If the policy is really implemented, it would mean that besides of the 13.5% royalty obligation, we will also have to pay another 20% to the government and therefore we will only get about 70% of sales."

Mr Ray said if wouldn't be easy for sales to shift to the domestic market because its absorption rate was much smaller than the export market. Currently around 90% of mining products are exported.

The new rule moved up to this year from 2014 bans shipments of unprocessed gold, silver, platinum, copper, lead, nickel, zinc, iron ore and sand iron, manganese, chromium, molybdenum, bauxite and antimony in a bid to boost value added products. The government has made exceptions for miners that plan to build smelters. They will be taxed at an average of 20% on ore exports.

Some companies may end up holding back ore shipments if the new levy makes mining unprofitable and might focus instead on building smelters or selling domestically.