Indonesia, a major importer of iron ore for Vale S.A (VALE), has announced its intention to impose a tax or quota on mineral ore exports, ahead of a planned regulation to ban all exports of raw minerals by 2014.
As per the industry ministry of Indonesia, the tax imposition will work as a transition before the export ban, which seems to be a major move to ensure protection for the country’s nickel firms, INCO and Antam, and copper miners Freeport McMoRan Copper & Gold and Newmont Corp.
The planned 2014 export ban is part of a mining and coal law already introduced in 2009 in Indonesia. According to the law, the miners are required to process coal and minerals into higher value products before exporting them to boost the country’s mining sector revenue. This move of the Indonesian government is anticipated to give Vale a tough blow going forward.
The new transitional reform to impose a tax or quota is estimated to be high on mining products like iron ore, bauxite, and other metals like nickel and copper. The new regulation is also anticipated to take the form of an obligation to sell part of the firms’ output to the domestic market. However, risk remains as the new government regulations may take a longer time to be approved or even may fail to materialize.
Of late, Vale was trying to force its partner Aquila Resources to vote on a bid plan for developing the Eagle Downs coal project, in order to ensure secured access to rail and port capacity in Australia. However, The Queensland Supreme Court in the Australian court has blocked the move.
Rio de Janeiro-based Vale S.A. is one of the world’s largest producers and exporters of iron ore and pellets. The company keeps improvising its competitiveness against rival companies like Rio Tinto plc (RIO) and BHP Billiton Ltd (BHP).
We currently maintain a long-term Neutral recommendation on the stock. Vale has a Zacks # 3 Rank, which translates into a short-term Hold rating (1-3 months).
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