REPUBLIKA.CO.ID, JAKARTA - Indonesia could terminate Newmont Mining Corp's copper mine contract if the US-based firm does not withdraw a legal challenge to the country's export taxes, a government official said on Tuesday.

Newmont earlier this month filed for international arbitration over an escalating export tax the government imposed in January that the company says is in breach of their mining contracts.

The firm, along with US miner Freeport-McMoRan Copper & Gold, has halted copper exports for the last six months. Both firms have also significantly reduced domestic operations, and Newmont last month declared force majeure on shipments.

"By stopping production, they are making our state revenues decline so we can say that they have defaulted," Sukhyar, director general of coal and minerals at the mining ministry, told reporters. "Stopping production is just the same as negligence."

Newmont said that it was forced to halt production at its Indonesian operations, PTNNT, because it had still not received an export permit from the government and that its copper concentrate storage facilities had reached full capacity in early June.

"PTNNT's contract of work with the government of Indonesia explicitly grants the company the right to export copper concentrate," Newmont spokesman Omar Jabara said in an email.

"As such, PTNNT remains in compliance with the contract of work and is prepared to resume production upon receiving an export permit from the government."

Jabara added that Newmont's preference was for talks with the government to continue to seek a resolution outside of arbitration. While Sukhyar said Newmont's contract could be revoked 90 days after the government declares it to be in default or negligent. It was not clear when the government might make such a declaration against Newmont.

Indonesia has also threatened to sue Newmont for breach of contract. Newmont has said it wanted interim, injunctive relief to allow it to resume copper concentrate exports so that Batu Hijau copper mine operations can be restarted.

Critics have said Newmont's challenge was a risky option in a country where open confrontation is often frowned upon. Freeport, on the other hand, has continued to hold high-level talks with the government in the hopes of avoiding a lawsuit.

Both companies, which account for 97 percent of Indonesia's copper output, have previously argued they should be exempt from the tax, which kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017. The tax on concentrate exports is part of the outgoing government's drive to force miners to build smelters and processing plants in Southeast Asia's largest economy.

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