An international arbitration panel ordered Newmont Mining Corp. (NEM) and Sumitomo Corp. (SSUMY) of Japan to sell a 17% stake in a subsidiary that runs one of the world's largest gold and copper mines in Indonesia but affirmed Newmont's right to operate the mine.

Newmont and Sumitomo must divest the stake in PT Newmont Nusa Tenggara to the Indonesian "government or its designee" within 180 days, Denver-based Newmont said in a statement.

The arbitration panel of experts in Geneva also found Indonesia's government has no right to terminate the Newmont unit's contract to operate the massive Batu Hijau mine on Sumbawa Island, it added.

"We are currently reviewing the decision and look forward to outlining a path forward with the government to implement the arbitration panel's decision," said Richard O'Brien, Newmont's president and chief executive.

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The dispute over the sale of the stake, which erupted last year, is the latest contract dispute between the Indonesian government and foreign mining companies. Amid concerns among miners over legal uncertainties related to operating in Indonesia, the country has failed to draw any major new mining investments in the past decade, despite being home to some of the world's largest untapped reserves of coal, copper and nickel.

Newmont's original contract with Indonesia's Energy Ministry, which allows it to operate the mine until 2030, stipulates the company has to divest a 51% stake in its local unit to Indonesian investors in stages by 2010, with the government having first right of refusal.

The U.S. company claims it offered to sell a 3% stake for $109 million in 2006 and 7% for $282 million in 2007. But the government did not go through with the purchase due to a lack of budget funds, Newmont said. Indonesian officials have not commented on why they didn't buy.

Local governments in Sumbawa then moved to purchase a stake, but Newmont declined to sell to those parties, claiming they were funded by unnamed private businesses at a time when the discussions were still supposed to be between governments. In the end, Newmont, a year ago, sold a 2% stake to one of the local governments in Sumbawa.

Indonesia's Energy Ministry claimed Newmont had broken its contract in failing to sell the stakes according to the timetable and threatened to withdraw its right to operate the mine. Both sides filed for arbitration.

Energy Minister Purnomo said the arbitration ruling showed that Newmont had to divest the stakes and "the source of the funds to be used to buy those shares is not (Newmont's) business."

Now, the missed stake sales from 2006 and 2007 plus a further 7% due for sale in 2008 - worth around a combined $700 million, based on previous agreements between the government and Newmont over pricing - must be offloaded within 180 days, the panel ruled. Newmont also has to sell a further 14% stake over the next two years, according to the timetable laid down in the original contract. (Currently Newmont has a 45% stake in Newmont Nusa Tenggara, while Sumitomo holds 35% and PT Pukuafu Indah, a local Indonesian investor, 20%).

The Batu Hijau mine, which has estimated reserves of one billion metric tons of copper, one of the largest in the world, would be a prize for a number of Indonesian mining companies. Large state-owned mining companies or listed companies like PT Bumi Resources, which is controlled by Indonesia's welfare minister, Aburizal Bakrie, could attempt to buy the stakes, analysts said.

Bumi Resources successfully won control of Indonesia's PT Kaltim Prima Coal amid a similar dispute over divestiture in 2003. BP PLC (BP) and Rio Tinto PLC (RTP), who originally controlled the company, sold their entire stakes after a drawn-out fight involving local authorities over the divestment of a 51% stake.

For Newmont, its latest problems add to a series of recent entanglements with Indonesian authorities. In 2007, a district court acquitted an American expatriate working for Newmont of charges that another mine run by the company, on Indonesia's Sulawesi Island, had polluted local waters with mercury, poisoning local villagers. Public prosecutors are appealing that ruling at the nation's Supreme Court.

-Deden Sudrajat also contributed to this story