As investors in commodities we are often confronted with political risk. Governments have witnessed the gradual increase in the value of raw materials over the past ten years, and have seen the margins of mining companies rise accordingly. A large number of countries increasingly seek to profit from this development, and we are seeing higher profit taxes, and even incidental cases of nationalization.
Indonesia has decided to ban the export of a large number of raw materials, with the goal of building a national industry around the more value-added smelting and refining of metals, in the country. The measure comes into effect as of Monday, and includes the base metals, precious metals and a number special metals. Companies can be exempted from the measure if they prove they will have built such secondary processing capacity by 2014.
Indonesia is a large exporter of nickel and iron to China, and the expectation is that this measure will have considerable impact on the availability of these raw materials in China. For gold projects in Indonesia, this has no impact, since gold is never exported as an ore but it is always processed on site to a concentrate or into gold bars.