22 November, 2015
Four years after the issuance of the coal benchmark price, the Government of Indonesia has issued a formula for calculating the monthly benchmark price for base and precious metals. The formula is regulated under Directorate General of Mineral and Coal (DGMC) Regulation No. 630.K/32/DJB/2015 dated April 27, 2015 regarding Formula for Stipulating Metal Minerals Benchmark Price (DGMC 630/2015).
DGMC 630/2015 clearly states that the benchmark price formula is applicable to all mining companies. So the formula applies not only to holders of a Mining Business License (Izin Usaha Pertambangan), but also to holders of a Contract of Work (Kontrak Karya), for both the domestic sale and export of minerals.
Twelve types of minerals are regulated under DGMC 630/2015, i.e., nickel, cobalt, lead, zinc, bauxite, iron, silver, gold, tin, copper, manganese, and chromium. No formula has been stipulated for other types of minerals.
The benchmark price formula stipulated in DGMC 630/2015 is calculated based on the average mineral price from the 20th day in the second month before a given benchmark price period up to the 19th day of the month before the benchmark price period, as published in the relevant price reference. There are four different price references used in DGMC Reg. 630/2015, namely:
- London Metal Exchange (LME) for nickel, cobalt, lead, zinc, bauxite, and copper;
- London Bullion Market Association (LBMA) for gold and silver;
- Asian Metal (AM) for iron, manganese, and chromium; and
- Indonesia Commodity & Derivatives Exchange (ICDX) for tin.
Similar to the coal benchmark price, the mineral benchmark price is calculated based on Free on Board Mother Vessel (FOB MV). The sale of minerals under different terms, such as FOB Barge, Cost and Freight, and Cost Insurance Freight, is allowed but shall be subject to price adjustments as stipulated by the DGMC. Under DGMC 630/2015, the metal mineral benchmark price and any price adjustments may be calculated in Indonesian rupiah or United States dollar. The exchange rate for such calculation shall be the Bank Indonesia middle rate on the date as agreed between the mining company and the buyer.
DGMC 630/2015 only stipulates the formula for calculating the benchmark price. The actual benchmark price will be issued by the DGMC every month. Nonetheless, mining companies are only obligated to use such benchmark price as a reference. This means that mining companies can sell below the benchmark price as long as the royalty is paid according to the benchmark price.
DGMC 630/2015 provides a six-month transition period for existing spot mineral sale contracts (having a period of one year or less) and a one-year transition period for existing term mineral sale contracts (having a period of more than one year) to follow the formula stipulated in DGMC 630/2015.
For further information, please contact:
Florence Gracia Santoso, Soewito Suhardiman Eddymurthy Kardono
florencesantoso@ssek.com
