Taliwang IUP Issued
July 12, 2010
Southern Arc has received a Mining License (IUP) for its Taliwang property. See the News Release at:
http://www.southernarcminerals.com/news/news_releases/index.php?&content_id=234
Please see, below, an email from Hamish Campbell, reproduced in its entirety, arrived just this evening.
Kevin,
Thanks for your email. In regards to your query on local ownership:
- The original Contract of Work application (which would later become the IUP license) was 90% Indotan Inc and 10% PT. Puri Permata Mega ("PPU"). PPU is owned by an Indonesian-Chinese businessman. As part of the Option Agreement with Indotan-PPU, "...at any time after a joint venture company is formed with respect to the Taliwang JV and that company enters into a Mining Business License (“IUP”), previously stated as a Contract of Work, the Company can acquire a further 5% interest in the Taliwang JV by providing funds to the Taliwang JV in the amount of US$300,000..." The Company has funded the respective US$300K and thus has acquired 5% of PPU’s 10% shareholding. On this basis the shareholding became 95:5.
- As part of the agreement with the West Sumbawa Regency ("WSR") the Company has agreed to gifting them a free-carried 10% equity position, which cannot be diluted. In the case of PPU it's free carried to a bankable Feasibility Study stage and then PPU must contribute its share of costs (5% of accrued exploration costs + capital requirements).
- The need to divest a minimum of 20% ownership after the 5th year of production is defined in government regulation No.23/2010. It must be offered first to the central Government, followed in priority by local governments and lastly Indonesian businesses. In the case of the Taliwang property assuming a production scenario (and no changes in shareholding) then there is only a requirement to divest a further 5% to be compliant with the regulation. For any production we are still at least 2.5-3.0 years away.
Regards,
Hamish
Here's my take, for what it's worth, and perhaps worth what you've paid for it:
This move is a stroke of brilliance, truly.
The Company has 'gifted' the 10% to the West Sumbawa Regency. What's the sacrifice here? In dollar terms, this is yet to be determined, and because of the 'soft' issues, may be immeasurable. The Company has given up both 10% of five years of profits from production, along with the currently indeterminate value for sale of this 10% share.
What has it received in return? In my view, Southern Arc has invested in a partnership with the local government, rather than setting itself up for a potentially (read: probable) adversarial relationship.
What does this mean? For full context, just Google the key words, "Newmont", "NNT" (Newmont Nusa Tenggara), and "divestment". You'll learn about forestry permits, logistical nightmares, bureaucratic delays, arbitration in the international court, and a Company pondering its future in Indonesia. In its 1986 Contract of Work (CoW) agreement, NNT was obliged, by 2010, to have divested a minimum of 51% of its interest in the Batu Hijau project (located not coincidentally, in the West Sumbawa Regency). Note the difference between that 51% figure and the current 20% divestiture requirement. I won't get into the gory details, but suffice to say that the relationship has not been altogether one of peace and tranquility… and the beat still goes on.
This is what I mean by the 'soft' issues. By bringing WSR in as a partner at the outset, the Company has, together with the Regency, created an environment of cooperation, rather than one of conflict. Alignment of interests should go a long way to smoothing the path for advancing the Taliwang property. "Better inside the tent, pissing out, than outside the tent, pissing in," to more or less quote Lyndon Johnson. This is why it would be difficult to quantify the dollar cost of this 'gift'. We will never know what might have been the cost of the experience in Taliwang in the absence of such a gift.
As has been articulated by many people on numerous occasions, the bureaucratic risk of operating in Indonesia is perhaps the greatest risk of all for foreign investors. Moving along a 'reasonable' timeline in Indonesia has always been the greatest source of frustration for Southern Arc investors, myself included. This "bold new relationship" addresses that risk and frustration in a way previously untried by foreign investors. Southern Arc has declared itself as committed to a long-term stay in Indonesia. This move would certainly appear to reflect such a commitment. Some have commented on the cultural need in the East for a state of 'harmony'. It's clear to me that this Taliwang IUP partnership is the result of much consideration of a need for harmony, in the context of the overarching goal of the Company, "to become the premier mineral exploration and development company in Indonesia."
All companies working as 'guests' in developing countries talk about being invested in the future of a nation. Indonesia is a nation historically subjected to the rape and pillage of foreign 'investors'. Talk is talk. The walk is something else altogether. What I see in this move by Southern Arc is a match of the talk with the walk. Southern Arc is, in deed, invested in Indonesia.
Cheers,
Kevin Graham