Newmont agrees to sell Indonesian ops for up to $1.3 bln

(Updating to add more details on additional metal-price-contingent payments, mining and export ban background]

London 30/06/2016 – Newmont has agreed to sell its Batu Hijau copper and gold mine via its interest in Indonesian subsidiary PT Newmont for up $1.3 billion to Indonesian bank-backed company PT Amman Mineral Internasional (PT AMI), the US miner said.

The Newmont side of the deal will total $1.3 billion, $920 million of which is for Newmont’s 48.5-percent stake in PT Newmont Nusa Tenggara (PTNNT), the holding company for the Batu Hijau mine, which is the 13th largest gold mine in the world.

It will also include $403 million of contingent payments, tied to copper price upside and development of the nearby Elang copper/gold mine.

In total PT AMI, which is owned by Indonesian energy conglomerate PT Medco Energi, will pay up to $2.5 billion for 82.2 percent of the mine, Newmont said.

Batu Hijau, whose exporters were consistantly at risk due to Indonesia’s resource nationalism policy, produced 21 tonnes of gold in 2015 and was due to export 431,885 tonnes of copper concentrate in the first half of 2016, predominantly to Japan, South Korea and India.

“We’ve got it broken into two pieces… the contingent metal price has several metal price triggers over time whereby we share in the upside relative to the buyers,” the company said in a conference call on Thursday.

Terms for the tiered $403 million in contingency payments include roughly $135 million on copper prices moving above $3.75 cents per pound.

There are also two smaller payments that are triggered relating to prices – one when the copper price reaches 2.75 cents per pound and the other when it hits 3.25 cents per pound.

Half of the second part focussing on the Elang mining prospect totalling $118 million is triggered on completion of construction of the mine itself and the other half of the achievement of commercial production, which is expected in 2024-2025.

The transaction is expected to close in the third quarter, the company added.

Sumitomo Corp, which owns 24.5 percent of the mine though its majority ownership of PT Nusa Tenggara Mining Corp, has also agreed to sell its interest to PT AMI.

TROUBLED RELATIONSHIP WITH GOVT

Under Newmont’s ownership, Batu Hijau’s rolling six-month export permit was constantly under threat – the Indonesian government required Newmont to build a new copper smelter in the country and pay progressively higher taxes as part of new laws to end the export of unprocessed minerals, something which market participants generally thought was unlikely.

In 2014 Newmont was forced to declare force majeure on copper concentrate shipments to customers from Indonesia. Again in September 2015, the company was unable to export after its permit expired and talks with the government stalled.

Selling Batu Hijau, one of southeast Asia’s premier copper deposits, means Newmont will be moving closer to becoming a pure-play gold mining company. Gold will now make up 92 percent of the company’s reserves, the company said.

“We’re taking the next step on positioning Newmont as the word’s leading gold business,” it said.

(Editing by Mark Shaw)