Fear of Indonesia's new law having impact on company
By LYNETTE KHOO
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MARKET jitters stemming from Indonesia's new mining law sent shares of Straits Asia Resources reeling yesterday.
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| Risky: Some investors see Straits Asia as the most vulnerable among Singapore-listed groups with links to the Indonesian mining sector |
The stock of Straits Asia, which owns and operates two mines in Indonesia, slumped 10.8 per cent to close at 83 cents, with some 43 million shares traded, as some investors saw the company as the most vulnerable among Singapore-listed groups with links to the Indonesian mining sector.
The new mining law - passed by the Indonesian government after three years of deliberation - requires companies to acquire a mining licence from local governments and obtain new permits for each mining stage from exploration to production.
Abterra, which sources for coal in Indonesia, does not conduct mining activities there.
Manhatten Resources CEO and managing director Ho Soo Ching told BT that the new mining law will not affect his company as it is not directly involved in mining. The group provides logistics, mining equipment and other support services to the coal mining and oil and gas industries in Indonesia.
Further denting sentiment on Straits Asia was a rating downgrade from Credit Suisse on the stock from 'neutral' to 'underperform'. It cited increasing regulatory and operating risks.
Credit Suisse also cut its target price to 80 cents from $1.20.
The brokerage noted that the regulatory changes could raise the risks of higher costs from royalties paid to the local government or potentially require all foreign investors, including Straits Asia, to partially divest their ownership in mines.
'While some uncertainties with respect to the language, intent and potential legal challenges to the new mining law remain, we are quite concerned over inclusion of certain provisions in the new law requiring existing mining concessions to be in compliance within one year from the promulgation of the new law,' Credit Suisse analyst Haider Ali said in a report yesterday.
He noted that the new regulation potentially allows the Indonesian government to unilaterally change terms and conditions of any existing mining concession.
'There is material risk in our opinion, especially in view of upcoming parliamentary and presidential elections,' he said.
A dealer with a European brokerage thought otherwise, saying he does not expect the new mining law to affect existing mining operations.
Earlier this month, Straits Asia's major shareholder, Straits Resources, said it is making a strategic review of its 47 per cent stake in the company after receiving unsolicited approaches from several parties on the possibility of acquiring the stake.
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