Reuters - Australia's Kupang Resources Ltd finds itself in a sweet spot after Indonesia passed a mining law banning raw mineral ore exports.

Even before Indonesia made exporting certain ores illegal on Jan. 12 in the hope it will lead to development of a homegrown smelting and refining industry, Kupang was in the final stages of constructing a factory to process manganese ore into a semi-manufactured form in West Timor in Nusa Tenggara province.

Kupang's manager of operations, Simon Youds, said locals have long mined the rich endowments of manganese ore found in West Timor and shipped it to places like China where it is refined and sold onwards for greater profit. Manganese is mostly used to harden crude steel.

"Everyone in West Timor with a shovel is a manganese miner and exporter, and all of a sudden, no one can get if off the island but us," Youds said. "The new legislation is a real game changer for us on a positive note."

The new law requires that to be exported manganese must be processed into a concentrate exceeding 49 percent contained manganese metal. The exports are also subject to an escalating tax, but the government has said it will ease the tax rule for firms that build smelters in the country.

Kupang has a processing plant and testing facility capable of producing such a concentrate near the deep-water port of Tenau, where the company's bulk ship-loading facilities await the first processed manganese for export, according to Youds.

Indonesia's manganese reserves in West Timor have long been known to geologists, but a lack of modern mining practices have left it under-exploited compared to big producing countries like Australia, South Africa, Mexico and Brazil.

Stockpiles of the ore started building in West Timor over the past few months as the miners held back their shipments fearing it would be confiscated by the government.

"Now we go to the holders of the various high-grade resources around the island and suddenly we have the ability to make a globally significant addition to the manganese market," Youds said. Kupang's plant will process enough ore to yield up to 16,000 tonnes per year of manganese.

The construction of the factory, which took a year to complete, was not directly linked to the ban, Youds said.

"We didn't go into this with the ban in mind. It just played nicely into our hands," he said, adding that Kupang is exempt from the export tax because it already has a processing plant.

AWAITING WRITTEN APPROVAL

Manganese sells for about $2.35 per kilogram, little changed since early January, according to metals traders. Over the past 12 months the price has fluctuated between $2.10 and $2.90 per kilogram, they said.

Kupang is now awaiting written approval from Indonesia's Energy and Minerals Department to start turning ore into concentrate that falls within the guidelines of the law.

"What we need to do next is go around to the holders of those stockpiles, who are everywhere on the island - even the local police have a stockpile - and convince them that their material will not be confiscated," Youds said.

Shares of Kupang Resources, which has a market value of around $15 million, have risen 12 percent in February so far to A$0.075 as of Wednesday's close, but are down 6 percent since the export ban began. Some 241,000 of its shares on average have been traded daily over the past three months.

Before the ban, Indonesia was the world's biggest exporter of nickel ore and a major supplier of refined tin and copper.

The mines ministry predicts production of nickel, iron and aluminium ores are set to plummet this year, while industry estimates suggest around $500 million a month in ore and concentrate exports from Indonesia have stopped.

At the same time there are signs the law is working.

Freeport-McMoran Copper & Gold and PT Aneka Tambang (Antam) have agreed to study constructing a 300,000-tonne smelter at a cost of $2.2 billion to process copper.

In manganese, though, Kupang's domination of the Indonesian market may not last.

Asia Minerals Corp, an Indonesian company, has outlined a plan to build eight electric-arc furnaces in West Timor with a production capacity of 128,000 tonnes of manganese alloy per year. Along with its own power station, the company estimates it will cost $150 million and take three years to complete.