C H I N E S E I N V E S T M E N T I N T H EI N D O N E S I A N M I N I N G I N D U S T R Y

Michael S. Carlmichaelcarl@ssek.com

HISTORICAL INDONESIAN NICKEL PRODUCTION

Sources: Indonesian Coal Mining Association, U.S. Geological Survey, Indonesian Directorate General of Mineral andCoal 2018 Performance Report (Laporan Kinerja Direktrorat Jendral Mineral dan Batubara tahun 2018), PwC Analysis

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Indonesia Nickel Mining Resources and Reserves

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PT Tsingshan Steel Indonesia (“Tsingshan Indonesia”) is part of

Tsingshan Holding Group (“Tsingshan”), based in Wenzhou, China.

▪ 2017: Tsingshan invests $2.8 billion to build a high-capacity

ferronickel smelter plant in Indonesia with annual production

capacity of 2 million tons of stainless steel.

▪ 2019: Tsinghan works with PT Vale Indonesia Tbk to build a $700

million battery-grade nickel plant in Indonesia with annual nickel

production capacity of 50,000 tons. The project is expected to be

completed in 16-18 months.

TSINGSHAN SMELTER

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Zhejiang Huayou Cobalt Co., Ltd. (“Huayou”) manufactures, processes

and sells lithium-ion new energy materials and cobalt new materials. It

also engages in the mining, selection and metallurgy of non-ferrous

metals.

▪ 2019: Huayou cooperates with PT Aneka Tambang Tbk (“Antam”)

and Shandong Xinhai to develop nickel projects that will require an

investment of about $6 billion to $12 billion.

HUAYOU COBALT SMELTERS

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Company Sponsor Location ProductInput Capacity

(in Tons)

Output Capacity

(in Tons)

1. PT Vale Indonesia China

Tsingshan Holding Group

Bahodopi, Central Sulawesi and

Pomalaa, Southeast Sulawesi

Matte (NPI) 8.000,000 80,000

2. PT Aneka Tambang Tbk China

Zhejiang Huayou Cobalt

and Shandong Xinhai

West Kalimantan Ferronickel 2,716,948 135,000

3 PT Indoferro

China National Machinery

Import

Cilegon, Banten NPI 800,000 25,000

4 PT Wanxiang Nickel Indonesia China

Wanxiang

Morowali, Central Sulawesi Ferronickel & NPI 8,900,000 900,000

5. PT Bintang Smelter Indonesia Fujian Pan-Chinese Mining

Co. Ltd.

Konawe, Southeast Sulawesi NPI 992,000 80,000

6. PT Virtue Dragon Industry Jiangsu Delong Nickel Ind.

Co., Ltd.

Konawe, Southeast Sulawesi Ferronickel 4,560,000 600,000

7. PT Huadi Nickel-Alloy Indonesia China

Huadi Nickel-Alloy

Bataeng, South Sulawesi NPI 530,000 5,300

8. PT Sulawesi Mining Investment Tsingshan Holding Group Morowali, Central Sulawesi NPI 1,600,000 300,000

This list is not exhaustive. A more extensive list is available at https://akcdn.detik.net.id/community/media/visual/2019/08/22/58f091c7-365d-4136-a4f1-54273b8e138a.png?a=1 S S E K I N D O N E S I A N L E G A L C O N S U LTA N T S | 7

LIST OF NICKEL SMELTERS IN INDONESIA*

2 0 0 9Indonesian Mining Law puts a total export ban on nickel ore andall other raw materials, set to take effect in early 2014

Ea r l y 2 0 1 4

Government reschedules smelting policy – raw nickel exports are

re-permitted

Ea r l y 2 0 1 7Smelting policy is tightened to force nickel miners to build

smelters; total export ban now set for January 2022

E n d o f 2 0 1 8Indonesia no longer dominant player in nickel exports as

Philippines takes its place.

A u g u st 2 0 1 9

Indonesia issues Minister of Energy and Mineral Resources

(MEMR) Regulation No. 11 of 2019 to expand on MEMR 25/2018

and announces total nickel export ban to take effect in early 2020.

Companies are to settle remaining contracts.

J a n u a r y 1 , 2 0 2 0

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INDONESIAN NICKEL EXPORT BAN

FOREIGN SHAREHOLDING LIMITATION AND DIVESTMENT REQUIREMENT

❑ Divestment -> Requirement to sell shares to Indonesian parties, which include:

▪ Central Government;

▪ Regional Governments;

▪ State-Owned Enterprises;

▪ Regional-Owned Enterprises; and

▪ Indonesian private business entities (in the form of limited liability company).

❑ Divesting party cannot provide loan to the Indonesian parties to purchase the divested shares

❑ Prohibition on pledging shares that must be divested

❑ Stipulation of the price of divested shares: fair market value and without consideration of the mineral

reserves at the time of divestment

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FOREIGN SHAREHOLDING LIMITATION AND DIVESTMENT REQUIREMENT

❑ Smelter Companies

▪ 100% open for foreign ownership

▪ No share divestment requirement

❑ Mining Companies (IUP and IUPK holders)

▪ 100% open for foreign ownership if establishing a new company to bid for a mining license

▪ Divestment requirement after 5 years of commercial production

▪ Divestment requirement is gradual from 6th through 10th year after commercial production

▪ Divestment procedures and the stipulation of the price of the divested shares are set out in MEMR

Regulation No. 9 of 2017 regarding Procedures for Divestment and Mechanisms for the

Determination of the Price of Divested Shares for Mineral and Coal Mining Businesses, as amended

by MEMR Regulation No. 43 of 2018 (MEMR Reg 9)

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FOREIGN SHAREHOLDING LIMITATION AND DIVESTMENT REQUIREMENT

❑ Acquiring Existing Mining Company

▪ 75% -> maximum foreign ownership if acquiring an existing mining company in the exploration stage

▪ 49% -> maximum foreign ownership if acquiring an existing mining company in the operation

production stage

Note: Foreign ownership includes both foreign companies and Indonesian companies with direct or

indirect foreign shareholders

Year after commercial

productionDivested shares

6th 20%

7th 30%

8th 37%

9th 44%

10th 51%

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FOREIGN SHAREHOLDING LIMITATION AND DIVESTMENT REQUIREMENT

Gradual divestment from the 6th through 10th year after commercial production for mining companies

(IUP or IUPK holders) with foreign ownership:

▪ A smelter may be licensed by the Ministry of Industry (MOI) or the Ministry of Energy and Mineral

Resources (MEMR)

▪ The principal differences are as follows:

Difference Smelter licensed by MOI Smelter licensed by MEMR

Location

Must be located in an industrial estate or an area zoned for

industrial activities, unless due to its raw materials and/or

production process a special location is required (i.e., if the

smelter is to be located near the mining area)

Must be located in an area zoned for mining

activities

Reporting obligation

Only periodic reports (LKPM) to the Investment

Coordinating Board (BKPM)

Besides LKPM, there are additional reporting

obligations to the MEMR:

• Annual work plan and budget

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SMELTER LICENSES (MOI vs. MEMR)

SMELTER LICENSES (MOI vs. MEMR)Difference Smelter licensed by MOI Smelter licensed by MEMR

• Monthly, quarterly and annual reports

• Term sheet/MOU for any mineral sale agreement

Term As long as the smelter company continues

in business

30 years and can be extended, each for a maximum 20 years

Transfer of shares Does not require recommendation from

the MOI

Requires recommendation from the MEMR

Application procedures Additional requirements:

• MOU or cooperation agreement with ore supplier

• Experts in mining or metallurgy having at least 3 years of experience

• MOU with the refined products purchaser

• Feasibility study approved by the MEMR or relevant Governor

• Corporate documents and mining license of ore supplier

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Michael S. Carlmichaelcarl@ssek.com

SSEK INDONESIAN LEGAL CONSULTANTSMayapada Tower I, 14th Floor Jl. Jend. Sudirman Kav 28, Jakarta, 12920, Indonesiawww.ssek.com