（Monday, 20 Oct 2014）Brazil’s Vale said that a revised nickel mining contract with Indonesia will raise maximum royalties, cut land holdings and require its Indonesian unit to sell another 20% of its shares to local investors.

Mr Nico Kanter, CEO of Vale’s Indonesian subsidiary PT Vale Indonesia said that “Royalties were set at 2% in the deal and could rise to as high as 3% more than double the previous 0.6% and 0.7%. The royalty hike will definitely affect our bottom line.

Vale preferred shares, the company’s most traded class of stock, have lost about 20% in Sao Paulo in the last 12 months. The shares rose 0.3% to 23.08 reais in Sao Paulo on Friday.

Vale, which owns 59.2% of Vale Indonesia, controls the subsidiary in partnership with Japan’s Sumitomo Corporation, which owns 20.1%. Indonesian investors have already purchased 20% of Vale Indonesia.

The sale of the additional 20% will be done within five years and come out of Vale and Sumitomo’s stakes. The increased costs and obligations come as Vale and other nickel miners face rising intervention by Indonesia’s government. The country has banned the export of raw nickel ore, requiring miners to process ore in local smelters.

Mr Kanter said that Vale plans to invest USD 4 billion in Indonesian smelters. Smelters use heat and chemicals to remove oxygen and other elements from the ore, leaving pure, metallic nickel behind. The money will be spent upgrading smelters on the island of Sulawesi, half at Vale’s plant at Pomala and the other half at its Sorowako facility.

The company is also considering an additional USD 2 billion investment to increase smelting capacity on Sulawesi.

Vale executives have recently expressed the belief that increasing costs in countries such as Indonesia would be offset by rising prices for nickel, at least in the short term, as Indonesian policies reduced world supplies of metallic nickel.

• [Editor:Juan]