Russia's leading role in the Indonesian mining revolution

Sun Mar 23, 2014 10:46pm EDT
 
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By Randy Fabi and Fergus Jensen

JAKARTA (Reuters) - Russia's two metal giants have emerged as big winners from Indonesia's new mining law, after leading a drive to get Jakarta to stick to its controversial mineral ore export ban in the face of opposition from miners and Asian buyers.

In its six-month lobbying campaign last year, United Company Rusal (0486.HK: Quote) and Norilsk Nickel (GMKN.MM: Quote) delivered a blunt message to Indonesian officials: We will only invest billions of dollars in smelters if you ban bauxite and nickel ore exports.

The effort seemed to have paid off, despite a denial by Indonesia that it was influenced. When the law came into effect this year, Indonesia enforced a water-tight export ban for only two major minerals - nickel ore and bauxite.

The halting of $3 billion of annual nickel ore and bauxite exports has already lifted the price of nickel and helped support aluminum, boosting the fortunes of Rusal and Norilsk, the world's top aluminum and nickel producers, respectively.

At the same time, it has strengthened the case for the pair to invest billions of dollars in Indonesia to build smelters to replace costly capacity in Russia, a key part of a recovery plan for struggling Rusal and in line with Indonesia's own aims to earn more from its minerals resources.

The mineral ore export ban is aimed at forcing miners to move up the value chain by processing the minerals they dig up.

Rusal CEO Oleg Deripaska traveled repeatedly to Jakarta last year as signs emerged that the government might water down the ban under pressure from miners, and concerns over its impact on Southeast Asia's largest economy.

"They made the export ban policy the main requirement for them to invest here," Industry Minister Mohamad Hidayat told Reuters.   Continued...

 
A worker poses with a handful of nickel ore at the nickel mining factory of PT Vale Tbk, near Sorowako, Indonesia's Sulawesi island, in this January 8, 2014 file photograph. REUTERS/Yusuf Ahmad