Freeport Indonesia union says layoffs "inevitable" due to export tax

JAKARTA (REUTERS) - United States miner Freeport-McMoRan Copper & Gold will be forced to lay off workers from the world's fifth-biggest copper mine in Indonesia to offset an unexpected increase in export taxes, a union official said on Tuesday.

President Susilo Bambang Yudhoyono rushed through a last-minute regulation on Saturday giving copper miners Freeport and Newmont Mining Corp a reprieve from a controversial mineral export ban, but imposed an escalating tax to limit the amount of mineral concentrate exports over the next few years.

Freeport has halted copper concentrate exports from its port in Papua and is seeking more clarity on the new policy. It also needs a new export permit to resume shipments.

Under the regulation, the tax for copper concentrate exports has been raised to 25 per cent from 20 per cent, and will gradually go up to a maximum 60 per cent by the end of 2016.

"With the export tax at 25 per cent, layoffs are inevitable,"Papua-based Freeport union official Virgo Solossa told Reuters on Tuesday. "Freeport Indonesia will certainly minimise operation costs with lay offs. We still don't know how many workers will be laid off by Freeport."

When asked to confirm the possible layoffs, Freeport Indonesia CEO Rozik Soetjipto told Reuters that "so far we have no such plan". The company employs about 24,000 workers, including contractors and staff, in Indonesia.

The country's second-largest copper producer, Newmont, was continuing to run mining operations at its Batu Hijau mine as usual, while the firm waited for official notification from the government, a spokesman said on Sunday. Newmont did not comment on its copper exports.

Indonesia introduced the controversial ban on Sunday on a range of raw mineral ores in order to force companies to build processing plants on its soil.

The higher export taxes diminished the president's last-minute relief to the major miners.

Although the government has yet to publish all the regulations clarifying the export rule changes, mining and finance ministry officials said concentrate with a minimum of 15 per cent copper content will be allowed to be exported despite the ban. The Freeport website says that concentrates produced in Indonesia "generally contain 27-30 per cent copper".

Rating agencies Moody's and S&P said state-controlled nickel miner PT Aneka Tambang (Antam) was under review for a possible downgrade due to the ban. The export halt is expected to cost Antam an estimated US$300 million (S$380 million) in revenue this year, as unprocessed nickel ore shipments represent around 30 per cent of its revenue.

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