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Brazilian Miner to Also Pay Higher Royalty Rate to Extend Its Contract in the Country
RIO DE JANEIRO—Brazilian mining giant Vale SA VALE5.BR -3.55% said Friday it will have to sell a stake in its Indonesia nickel subsidiary and pay higher royalties as part of an agreement to extend its contract in the country.
The agreement entitles Vale, the world’s second-largest nickel producer behind Russia’s MMC Norilsk Nickel, GMKN.MZ +1.79% to continue operations in Indonesia for up to 20 years after its existing contract of work expires in late 2025, the company said in a news release.
But it will have to pay the Indonesian government a significantly higher royalty rate of 2% to 3%, depending on the price of nickel, effective immediately. The company’s subsidiary, PT Vale Indonesia, INCO.JK -0.27% paid an average 0.63% royalty on nickel revenues between 2010 and 2013.
Vale currently owns 59.3% of PTVI, as the subsidiary is known. The rest is split evenly between Japan’s Sumitomo Metal Mining Co. 5713.TO +0.15% and the Indonesian public.
As part of the agreement, Vale will also have to sell an additional 20% of PTVI’s shares to Indonesian participants on the country’s stock market. The divestment, which Vale has more than five years to execute, is necessary to comply with a government requirement for mining companies to be 40% owned by Indonesians.
Vale will keep its right to 80% of PTVI’s production, however. Nickel output from Indonesia stood at 37,600 metric tons in the first half of this year, equivalent to 29% of Vale’s total production of the base metal.
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