INDONESIAN MINING ASSOCIATION
INDONESIAN MINING INDUSTRY IN THE PERIOD OF TRANSITION, BETWEEN 1997-2001
by:
B.N. Wahju, Chairman
Indonesian Mining Association (IMA)
Gedung Gajah Unit A,B,C, 5th Fl. No. A2
Jl. Dr. Saharjo Raya No.111, Tebet, Jakarta Selatan 12810, Indonesia
“International Convention, Trade Show Investors Exchange”
Prospectors & Developers Association of Canada (PDAC)
Toronto, Canada, March 10-13, 2002
INDONESIAN MINING ASSOCIATION
CONTENTS
Page
ABSTRACT …………………………………………………………………………………………………………………….. 1
I. INTRODUCTION …………………………………………………………………………………………………………. 2
II. INDONESIA IN THE EYES OF MINING EXECUTIVES ……………………………………………………………… 2
Table 1: World Investment Risk Survey 2001 …………………………………………………………………………. 3
III. MINING INDUSTRY IN THE PERIOD OF TRANSITION ……………………………………………………………. 4
Table 2: Mining Production of Indonesia ………………………………………………………………………………. 4
Figure 1: Gold-Copper Deposit Occurrences in Their Indonesian Geological Setting ……………………………. 5
Figure 2: Mining Activities in Indonesia ………………………………………………………………………………… 6
IV. SOME OF THE MAJOR MINING OPERATIONS AND PROSPECTS …………………………………………….. 7
1. PT. Newmont Nusa Tenggara (NT), Batu Hijau copper-gold mine ……………………………………………. 7
2. PT. INCO …………………………………………………………………………………………………………….. 7
3. PT. Aneka Tambang (Antam) ……………………………………………………………………………………… 8
Table 4: Production Highlights of Antam ………………………………………………………………………… 9
Table 5: High Quality Ore Reserves/Resources of Antam …………………………………………………….. 9
Table 5.1. Nickel ……………………………………………………………………………………………………. 9
Table 5.2. Gold ………………………………………………………………………………………………………. 9
Table 5.3. Bauxite …………………………………………………………………………………………………… 10
Table 5.4. Iron Sand ………………………………………………………………………………………………… 10
Table 5.5. Diamonds ………………………………………………………………………………………………… 10
4. PT. Freeport Indonesia Company (FIC) …………………………………………………………………………… 12
Table 6: Freeport’s summary financial highlights ………………………………………………………………… 12
The Indonesian Coal Industry ……………………………………………………………………………………………. 13
Table 7: Coal qualities, five largest Indonesian coal producers ……………………………………………………… 13
Figure 3: The Distribution of Indonesian Coal Reserves ……………………………………………………………… 14
5. Kaltim Prima Coal (KPC) ……………………………………………………………………………………………. 14
6. PT. Adaro Indonesia ………………………………………………………………………………………………….15
V. CONCERNS AFFECTING THE INDONESIAN MINING INDUSTRY ……………………………………………….. 16
VI. INDONESIA AS A DESTINATION OF FUTURE INVESTMENT IN MINING ………………………………………. 22
VII. SUMMARY AND CONCLUSIONS ……………………………………………………………………………………… 23
VIII. ACKNOWLEDGEMENTS ……………………………………………………………………………………………….. 23
IX. REFERENCES ……………………………………………………………………………………………………………. 24
Appendix 1 ………………………………………………………………………………………………………………… 25
Appendix 2. Mineral Potential Index ……………………………………………………………………………………. 26
Appendix 3. Model Gold Mine – After Tax Rates of Return ………………………………………………………….. 27
Appendix 4. Current Effective Ad Valoreum Royalty Rates …………………………………………………………. 28
Appendix 5. Comparison of Proposed Royalty Rates with Major International Competitors …………………….. 29
INDONESIAN MINING ASSOCIATION
INDONESIAN MINING INDUSTRY IN THE PERIOD OF TRANSITION, BETWEEN 1997-2001
B.N. WAHJU
Chairman of Indonesian Mining Association
ABSTRACT
Indonesia is blessed with a diverse mineral resource base. Compared with other countries of Asia from Kazakhstan
to the Philippines, Indonesia is a leader in copper, gold, silver, nickel, tin and coal production.
Activity in exploration and development in coal contracts of work increased in the period between 1997 and 2001,
production increased in the metals sector but exploration declined. The geology of the country remains very attractive
for future exploration activities. The continuing interest of investors in mining must be further stimulated by the
Government to sustain mining in the long term.
While the Indonesian mining industry has survived the Indonesian economic crisis that began in 1997, the industry
face challenges of the recent era of political/economic transition.
Recent Government legislation could put the prospect of future mining investment in doubt. For example, if the
Forestry law (UU 41/1999) restricting open cast mining in protective forests is not revised, many exploration efforts
will have no future and potential billion dollar capital projects will be not materialize. The Indonesian Mining
Association (IMA) and others with vested inter est in the future of mining have lobbied to amend this law or to
reclassify the status from “protective forest” to other type of forest which does not restrict mining.
Other challenges arose in 1999, the year that will be noted in Indonesian history as witnessing the most ambitious
and hastily initiated process of decentralization. The ensuing decentralization process places Indonesia’s provinces
and regions under enormous pressure to raise their own revenues.
The mining Law of 1967 is about to be replaced. The new mining Law will be compatible with Indonesia’s Law #22,
1999 on decentralization-regional autonomy that became effective on January 1, 2001.
With numerous moves to overcome the economic crisis, some new problems will have to be contained. Positive
measures from the government of Indonesia are being taken in this regard. For instance, the Department of Energy
and Mineral Resources has issued a Standard Operating Procedure on the transfer of mining supervision from the
Central Government to the decentralized regions. In the Government Regulation (PP # 75, 2001) it is clearly stated
that all contracts signed prior to the issuance of Law # 22, 1999 on Regional Autonomy, will continue to be
administered by the Central Government. New mining contracts will be administered through the now empowered
regional governments with full assistance of the Central Government. A “Task Force” has been set up by the
Minister of Energy and Mineral Resources to assist in transferring mineral title technology and mining administration
to the decentralized regions.
In this era of reform, decentralization is changing the basic decision making and problem solving from top-down to
bottom-up.
Under regional autonomy and decentralization, regional governments will earn 80% of total mining royalties, land
rent, and water levies while corporate and income taxes will still be 100% collectable by the central government.
All existing contracts such as Contract of Work for Minerals, Coal Contracts of Work and Mine permits for domestic
companies/individuals already in place prior to the implementation of law # 22, 1999 will be honored until they reach
expiration. Active “Mining Permits” (KP’s) are honoured but inactive KP’s has to be renewed through the local
government.
The mining industry has been supportive of regional decentralization.
resolutions based on mutual respect are bridging the gap.
Misunderstandings cannot be avoided but
Law #22, 1999 is currently being reviewed for possible amendments by a special committee to make it more
workable.
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INDONESIAN MINING ASSOCIATION
I.
INTRODUCTION
Indonesia’s experience clearly shows that prevailing investment climate plays a dominant role in shaping a mining
industry. Since 1967 economic development policies and political stability encouraged participation of the private
sector, especially foreign mining companies, into the Indonesian mining sector. Indonesia now ranks as leader
amongst Asian countries in selected mineral reserves and mineral production, thanks to foreign investment.
Challenges for the Indonesian domestic mining sector include the shortage of capital, and reluctance to accept highrisk investment. . Therefore, major mining developments in Indonesia have largely depended on foreign investment.
The economic crisis now experienced by Indonesia has indeed served as an eye opener to many of those who
oppose development of the mining sector. The natural resource export goods provide payments in strong US dollars
as compared to the weakening Indonesian Rupiah. The question faced by the government is how to promote foreign
mining investment while minimizing the negative perception of mining in the mind of the general public that is fueled
by anti-mining NGOs
Geologically, Indonesia is blessed with mineral resources. However, even a country with vast reserves will not have a
robust and healthy mining industry if government doesn’t support it properly. Therefore, efforts to attract foreign
investors in the mining sector must be supported by good governance, a stable economic system, and political and
legal certainty.
II.
INDONESIA IN THE EYES OF MINING EXECUTIVES
The cardinal criteria to select prospective exploration activities should be geology.
Dr. C. Feebrey (1998) in his paper presented in Yangon in 1998 pointed out that one of the first steps acompany will
take when considering investment in any country is to determine what information is already available. In this case
Indonesia has a complete set of geological maps covering all the major islands. Access to available data is possible
but the system still has to be improved.
In 2002, a Geographic Information System (GIS) is planned to be introduced to East Kalimantan and South
Kalimantan provinces as a pilot project financed by government. Eventually all mineral rich provinces will be
furnished with all the modern equipment to help investor’s access available land for mineral exploration.
The Fraser Institute-Canada has been surveying mining companies each year to assess how mineral endowments,
public policy, taxation and government regulation affect exploration investment. Survey results represent the opinions
of exploration managers in mining companies operating around the world.
Policy Potential Index: A “Report Card” to Governments on the Attractiveness of their Mining
Policies. While geological and economic evaluations are always requirements for exploration, a region’s
policy climate is also an important factor in attracting investment. The policy potential opinion index serves
as a report card to governments on how attractive their policies are from the point of view of an exploration
manager.
The policy potential index is a composite index that measures effects on exploration of government policies
including taxation, environmental regulations, duplication and administration of regulations, native land
claims, protected areas, infrastructure, labour and socio-economic agreements as well as political stability.
The highest possible score on this index is 100. In 2001/2002 survey, Chile and Nevada tied for top place
on the policy potential index with score of 85. Other top-rated jurisdictions include Alberta (82), Arizona (80),
Ontario (78), Quebec (76), Brazil (75), Australia (75), Manitoba (74) and Mexico (70). The worst performing
jurisdictions, based on policy, are British Columbia (14), Russia (20), Kazakhstan (21), Zimbabwe (22),
California (24), Indonesia (27), Washington (27), China (28), Wisconsin (30), Yukon (32) and Papua New
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INDONESIAN MINING ASSOCIATION
Guinea (32). British Columbia has been the lowest-rated jurisdiction on the policy index for each of the five
years that the survey has been conducted (see Appendix 1).
The Mineral Potential Index. The mineral potential index rates a region’s attractiveness based on
company’s perceptions of geology. Survey respondents were asked to rate the region’s mineral potential
assuming no land use restrictions are in place, but further assuming that any mine would operate to industry
“best practice” standard. In other words, respondents were asked to rate the region’s mineral potential
independently from any policy restrictions (see Appendix 2).
Another survey conducted by the World Investment Risk Survey is based on sovereign risk, land access, green tape,
land claims, red tape, social risk, infrastructure, civil unrest, natural disasters and labor relations. In the 2000/2001
survey, Australia and Chile tied for top place on position with a score of weight totals 12.4 – 12.6. Indonesia placed in
ranking 18 with a score of weight totaling 22.5 compared to the total of 19.0 in the 1999/2000 survey and both worse
than the ranking in the early 90’s.
Green Tape
Land Claims
Red Tape
Social Risk
Infrastructure
Civil Unrest
Natural Disasters
Labour Relations
5
4
3
4
3
3
3
4
2
3
I.
Investment Risk
II.
Weighting (risk weighting: 0 – least important 5 – most important)
III.
RANKING / COUNTRY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Australia
Chile
Canada
United States
Argentina
Brazil
Ghana
Tanzania
South Africa
Mexico
Peru
Malaysia
India
Vietnam
China
Philippines
Russia
Indonesia
PNG
Zimbabwe
1
1
1
1
2
2
2.5
2
2
2
2
3
3
4
4
3
4
4
4
5
3
2
3
3
2
2
2
2
2
3
3
3
3
3
4
3
3
3
3.5
3
3
2
3
2
2
2
2
2
2.5
2
2
3
2
2.5
2
3
3
3
3
2.5
4
2
3
2.5
2
2
2
2
2
2
2
2
2
2
2
3
2
3
4
4
2
2
2.5
3
3
3
3
3
3
3
3
3
4
3.5
4
3
4
3
3
4
1
2
1.5
2
2.5
2
2.5
3
3
2
2
3
3
3
3
3
3
4
3.5
4
1
2
1.5
1
2.5
3
3
3
2
3
3
2.5
3
3
3
3
4
3
4
3
0
2
1
0.5
2
2
2
2
3
2
3
2
2
2
2
3
3
4
4
5
1
2
1
1
2
2
1
2
1
2
2
2
2
2
2
3
2
3
3
2
2
2
2
2
2
2
2
2
2.5
3
3
2
2
2
3
3
3
2.5
3
3
Weight Totals
Land access
Investment
Risk
Categories
Sovereign Risk
Table 1: World Investment Risk Survey 2001
12.4
12.6
13.3
13.4
14.8
14.8
15.2
15.4
15.8
16.2
17.0
17.5
17.8
18.8
20.2
20.4
21.4
22.5
24.3
25.3
Source: Resource Stocks, May/June 2001
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INDONESIAN MINING ASSOCIATION
III.
MINING INDUSTRY IN THE PERIOD OF TRANSITION
Given present known indicated mineral reserves of Indonesia, coupled with economics, decentralization, population
growth, and past mining history, the Indonesian mining industry can only grow. For instance the demand for coal is
expected to increase for power generation and cement manufacturing. There are newly reported expansions of coal
projects at the feasibility or construction stage in Kalimantan and Sumatra, contributing to this growth. The demand
for gold, copper and nickel in Irian Jaya, Sulawesi, Kalimantan and Sumatra is also expected to grow, given these
regions now have to generate their own regional revenues.
Since most if not all mining activities are located far from the focus of recent Indonesian political turmoil (generally
concentrated in big cities), the mineral production process in 1998-2000 was not significantly affected. But in the first
half of 2000 some disturbance in the form of false (i.e., land) claims from people around the mining areas, probably
influenced by the new wave of democracy and the resulting euphoria of newly found power. With time, patience and
trust, these matters are being solved.
In Table 2 below, are figures on mineral production of Indonesia which demonstrate that stability is fairly well
maintained across the industry during these years of transition.
Table 2: Mining production of Indonesia
Minerals
Coal
Tin
Bauxite
Gold
Silver
Copper Concentrate
Nickel Ore
Ni in Nickel matte
Ni in Ferronickel
Ferronickel (Ingot)
Iron sand concentrate
Unit
tons
tonnes
tonnes
kg
kg
tonnes
tonnes
tonnes
tonnes
tonnes
tons
1997
54,603,396
55,174.69
793,036
89,978.65
279,000.16
1,882,776
2,449,876
32,000
9,998.79
469,972
1998
60,320,951.7
53,959.41
1,055,647
124,018.69
348,973.83
2,640,040
3,233,374
35,697.4
8,451.50
41,542.59
560,524
1999
64,602,051.1
47,753.00
1,116,323
129,032.05
292,331.02
2,645,180
3,235,286
45,901.3
9,385.10
44,067.60
562,312
2000
76,790,185.7
51,629.00
1,150,776
126,556.55
305,646.35
2,270,538
3,038,809
59,934.10
10,110.57
47,748.10
489,132
Gold production by PT. Aneka tambang. PT. Freeport (in Cu concentrate), PT. KEM, PT. Indo Muro Kencana, PT. Barisan Tropical Mining and PT.
Newmont Minahasa Raya
Silver production by PT. Aneka tambang. PT. Freeport (in Cu concentrate), PT. KEM, PT. Indo Muro Kencana, PT. Barisan Tropical Mining and PT.
Newmont Minahasa Raya
Coal production by PT. Bukit Asam and private companies
Tin production by PT. Tambang Timah, PT. Koba Tin and Other companies
Nickel ore production by PT. Aneka tambang Pomalaa, P. Gebe and P. Gee
Nickel matte production by PT. INCO
Source : Departement of Energy and Mineral Resources
Hopes for acceleration of mining investment in Eastern Indonesia
One main investment generator hoped for in Eastern Indonesia regional development plan is the mining industry,
especially in development of isolated areas.
Multiplier effects of the mining industry include the development of basic infrastructure, increase in regional revenue,
job opportunities, improvement of employment skills, development of supporting activities, and community
development in cooperation with the regional government. Sustainable development as a result of mining will
hopefully continue after mining activities have ended.
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INDONESIAN MINING ASSOCIATION
Geological and Major Mining Activities in 1997 - 2000
The Indonesian archipelago is a region where three geological tectonic plates are interacting. These are the Indian
Ocean-Australian (Indo-Australian), Pacific and Eurasian plates. In part, it is these interacting plates that make
Indonesian geology so prospective.
The central Irian Jaya magmatic arc contains porphyry copper mineralization with associated gold and silver. An
example is the Grasberg deposit. Copper mineralization is found in the Tambulilato area in the Sulawesi Eastern
Mindanao magmatic arc and at Batu Hijau in Sumbawa in the Sunda Banda Magmatic arc. In Central Kalimantan
porphyry style copper zones have recently been found in NW striking fault zones at Beruang Kanan, and associated
with the central Kalimantan magmatic arc. The gold deposits of Kelian and Mt. Muro (see Fig. 1) are associated with
the same arc.
Epithermal gold deposits are found in the Sunda Banda magmatic arc, as shown in discovery at Pongkor in West
Java and on Wetar Island in eastern Nusatenggara (Lesser Sunda Islands).
Fig. 1: Gold-Copper Deposit Occurrences in Their Indonesian Geological Setting
The nickel laterites of eastern Indonesia have an extensive distribution. The laterite is derived from weathering and
leaching of ultramafic rocks of the Pacific plate. There are nickel laterite deposits on Sulawesi, Halmehara, Gebe,
Gag, Waigeo and Papua.
In addition to the above-mentioned mineral deposits are coal deposits. Large resources are located particularly in the
southern part of Sumatera and eastern Kalimantan. Coal deposits are currently drawing significant attention from
local entrepreneurs.
There were several big expansion projects finalized and several new developments in the period of 1997-2000: (See
Figure 2 on Mining Activities in Indonesia).
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INDONESIAN MINING ASSOCIATION
Fig. 2. Mining Activities in Indonesia
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INDONESIAN MINING ASSOCIATION
IV.
SOME OF THE MAJOR MINING OPERATIONS AND PROSPECTS
1.
PT Newmont Nusa Tenggara (NNT), Batu Hijau copper-gold mine.
Batu Hijau is located on the island of Sumbawa, 950 miles east of Jakarta. It was discovered in 1990 and consists of
a large copper/gold porphyry deposit that is expected to produce over three billion pounds of copper in its first five
years of operation, representing 2.5 percent of the world’s supply. Batu Hijau is a joint venture between Newmont,
Sumitomo Corporation, and an Indonesian Company, in which Newmont currently holds a 56.25 percent economic
interest.
In 2000, the Batu Hijau mine produced 521 million pounds of copper and 320,100 ounces of gold. Production
continued to ramp up in 2001, with steady state production of approximately 600 million pounds of copper and
480,000 ounces of gold in 2001. Costs declined to 45 cents per pound in 2001, and further reductions are
anticipated.
Reserves at Batu Hijau at yearend 2000 were 9.9 billion pounds of copper and 11.7 million ounces of gold. A drilling
program is under way to assess the deposit’s deeper mineralization. In addition, there is a significant amount of
material in the current pit that, with further definitions, may be added to reserves.
The project consists of a large open pit mine that sits at an elevation of 1,475 feet, approximately nine miles from the
port at Benete Bay.
At Batu Hijau, Submarine Tailing Placement (STP) was selected by PT. NNT and the Indonesian Government as the
preferred tailings management alternative during the AMDAL (environment study) process.
This decision was based on many factors such as:
Ø On land disposal would disturb an area of about 1,900 ha of virgin jungle,
Ø The high annual rainfall (>2500 mm/year) at Batu Hijau would create a difficult water management with a
land-based disposal system,
Ø The island of Sumbawa is earthquake-prone. Earthquakes could potentially cause a failure of a land-based
tailing impoundment and threaten the safety of nearby residents,
Ø Tailing placed in the deep sea will not generate ARD because of the natural buffering capacity of seawater
and low oxygen environment.
In addition to its submarine tailings system, Batu Hijau has an extensive, ongoing effort to reclaim disturbed land,
with 287 acres already reclaimed since mine opening.
The mine employs approximately 4,000 people, 96 percent of whom are Indonesian. Of this group, most come from
the local province. Batu Hijau has an extensive community development program aimed at assisting communities in
the area surrounding the mine through improved health, education, infrastructure and small business development.
2.
PT. INCO
PT. Inco is one of the world’s premier producers of nickel and produces nickel in matte, an intermediate product, rfom
lateritic ores at its integrated mining and processing facilities near Soroako on the island of Sulawesi. The company is
owned 58.7 percent by Inco Limited of Canada, 20.1 percent by Sumitomo Metal Mining Co and 20.0 percent by
public shareholders. The balance of shares of 1.2 % is owned by four other Japanese companies.
Production rose 30 per cent in 2000 to 59,200 tonnes, or 130.5 million pounds of nickel in matte-well above the
45,400 tonnes (100.0 million pounds) produced in 1999. Increased production and higher nickel prices, partially offset
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by increased fuel prices, resulted in a net profit of US$80.5 million, or US$0.32 per share, compared with $21.3
million, or $0.09 per share in 1999.
Table 3. Nickel in matte production of PT INCO
Pounds (millions)
Tonnes (thousands)
2000
1999
1998
1997
130.5
59.2
100.0
45.4
77.7
35.3
71.0
32.0
PT. Inco’s commitment to the future includes a balance of economic growth with good stewardship in protecting the
health and the environment for PT. Inco employees and local communities.
PT. Inco conducts extensive re-vegetation programs involving leading research and academic specialists. The
company re-vegetated 288 hectares in former mining locations in 2000-remaining ahead of schedule in its plan to
reduce the land exposed during mine operations to less than 350 hectares by year-end 2002, after taking into
account the substantial increase in production capacity.
Community assistance is not a new concept for PT. Inco. From its establishment some 30 years ago to the present
day, the company has dedicated resources to helping to meet the needs of the local people and nearby communities.
PT. Inco was involved in a total of 40-community projects in 2000, reflecting a spectrum of community development
opportunities.
PT Inco addressed these needs primarily in four development areas within the north Luwu Region of South Sulawesi
province, Soroako (district of Nuha) and the district of Nuha, Malili and Towuti. The company spent US$986,000 on
community development projects in 2000, including US$241,000 in Southeast Sulawesi and US$145,000 in Central
Sulawesi.
3.
PT Aneka Tambang (Antam)
PT Aneka Tambang transformed itself from a state owned mining company into a public company through its listing
on the Jakarta and Surabaya stock exchanges. To further increase its exposure to the global capital market, in
August 1999 Antam became the first Indonesian company to list its shares on the Australian Stock Exchange.
Production and sales of ferronickel and gold in 2000 reached five year highs. Total nickel produced was 10,111
tonnes (22,290,912 lbs) and total sold was 10,200 tonnes (22,487,124 lbs). Gold production bounced back from 1999
and reached 4,021 kg (141,836oz) with sales of 4,172 kg (147,136 oz). With the illegal mining problem brought under
control at Pongkor, technical issues concerning stope development and ventilation were resolved, and gold
production increased 36%. With increased export of gold and the higher nickel price, the 2000 foreign exchange
revenues of Atam were US$174 million, and reached a five year high.
Antam community development programs include hiring locals, providing small business loans, funding construction
and infrastructure projects as well as environmental initiatives that have fostered a good understanding between the
mine and community. Antam believes this is unparalleled anywhere else in Indonesia observing that its efforts are
reflected in the absence of civil disputes, protests or disruption of work at ANTAM mines during 2000.
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Table 4. Production Highlights of Antam
Description
Ferronickel
Nickel Ore
High Grade (Saprolite)
Low Grade (Limonite)
Total Nickel Ore
Gold
Silver
Bauxite
Iron Sand
Unit
Ton Ni
Wmt
Wmt
Wmt
Kg
Kg
Wmt
Ton
2000
1999
1998
1997
10,111
9,221
8,451
9,999
2,107,514
931,355
3,038,869
4,021
27,650
1,150,776
489,126
2,094,467
1,140,818
3,235,285
2,956
21,064
1,116,323
584,428
2,039,810
1,193,564
3,233,374
1,569
12,392
1,055,647
560,524
1,820,172
1,011,214
2,813,386
2,004
15,350
808,749
487,378
Table 5. High Quality Ore Reserves/Resources of Antam
Table 5.1. Nickel
No.
Location
Company
1
2
3
4
P. Gag (Island)
Teluk Weda (Bay)
Pomalaa
Gebe
5
P.Obi
Antam
6
Buli-Halmahera
Antam
7
P. Gee
Antam
8
Sulawesi Tenggara
(Bahubulu & Maniang)
Antam
Grade (%)
Gag Nickel (BHP-Antam)
Weda Bay (Strada-Antam)
Antam
Antam
Ni
Co
1.35
1.37
2.34
2.59
1.66
2.61
1.69
2.36
1.45
2.38
1.54
2.49
1.37
2.35
1.42
2.44
1.49
0.12
0.12
0.06
0.15
0.06
0.15
0.06
0.14
0.04
0.13
0.04
0.16
0.06
0.14
0.04
0.11
Reserves
Resources
(000 Wmt)
(000 Wmt)
3,302
7,851
8,753
30,584
36,302
3,179
1,398
-
240,000
202,300
1,534
432
9,135
32,000
42,159
52,134
7,752
36,020
Table 5.2. Gold
No.
Location
Company
Grade (gr/ton)
Au
1
Pongkor – Jawa Barat
2
3
Cikidang – Jawa Barat
Gosowong – Halmahera
4
Cibaliung – Jawa Barat
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Antam
Antam
Nusa Halmahera
(Newcrest – Antam)
Austindo-Antam
Ag
Reserves
Resources
(000 Wmt)
(000 Wmt)
11.18
11.24
10.69
25.33
130.01
137.69
50.99
32.40
5,909.947
279.508
381.123
1,427.584
-
9.14
68.89
-
1,231
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INDONESIAN MINING ASSOCIATION
Table 5.3. Bauxite
No
1
2
3
Location
P. Bintan
Tayan – Kal Bar
Kendawangan – Kal Bar
T.SiO2 R.SiO2
Grade
(% )
Fe2O3
14.20
5.55
5.33
9.47
14.24
14.00
28.60
Company
Antam
Antam
Antam
6.47
4.13
4.86
3.49
TiO2
0.69
1.06
0.38
0.69
Al2O3
53.89
46.44
51.22
41.10
Reserves
Resources
(000 Wmt)
(000 Wmt)
2,982
-
115,776
9,718
32,285
Table 5.4. Iron Sand
No.
Location
Company
1
2
Cilacap – Jateng
Kutoarjo – Jateng
Antam
Antam
3
4
Wates – Yogyakarta
Lumajang – Jatim
Antam
Antam
5
Cipatujah - Jabar
Antam
Grade (%)
Reserves
Resources
Fe
(000 Wmt)
(000 Wmt)
51.57
49.41
49.61
50.70
50.59
48.62
55.17
57.57
1,240
1,763
756
698
-
678
5,525
262
1,800
Table 5.5. Diamonds
No.
1
2
Location
Danau Seran-Kal Sel
Cempaka – Kal Sel
Company
Galuh Cempaka (Ashton-Antam)
Galuh Cempaka (Ashton-Antam)
Grade
Carat/m3
Resources
000 wmt
0.099
0.74
5,600
44,500
The handling of the problem of illegal miners at Pongkor gold mine was successful in reducing the number to around
200 persons by the end of 2000. The problem was handled with a multi pronged approach including: replacing the
security force with a Police Mobile Brigade (Brimob) force, educating the locals on the dangers of illegal mining and
mercury poisoning through town-hall meetings (one such meeting was recorded by Australian television program
Dateline), hiring would-be illegal miners for development projects and generally focusing more attention to the
community.
It is Antam’s belief that strong community relations and value to the local people will mitigate the possible downside
risk of greater regional autonomy. Certainly Antam cannot change the autonomy, forest and mining laws and how
they are developed and implemented but through lobbying efforts with the Indonesian Mining Association, Antam
hopes forthcoming legislation will help maintain close working relationships with surrounding communities.
For local community facilities and infrastructure development Antam provided Rupiah 4.51 billion (US$453,000) of
assistance, funded by a routine budget for the year 2000. Assistance of this sort included the renovation and
construction transportation and commerce infrastructure such as roads, bridges, fishermen’s wharves, and small
market places. Renovations for schools and the provision of school stationery and teaching aids and the renovation
and construction of mosques and churches formed the educational and religious infrastructural assistance.
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INDONESIAN MINING ASSOCIATION
In 2000 Antam planned to commence building its third ferronickel plant in Pomalaa, North Sulawesi, but this has
suffered delays.
In line with its corporate strategy, Antam actively established strategic alliances to conduct various nickel and gold
exploration projects throughout the archipelago. Antam’s non-core mineral development focused on bauxite.
Antam’s joint venture projects are PT. Weda Bay Nickel, PT. Nusa Halmahera Minerals, and PT. Gag Nickel,
summarized below.
Ø PT. Weda Bay Nickel
The Weda Bay Contract of Work covers some 90,000 Hectares on Halmahera Island in East Indonesia. The
concession is held by PT. Weda Bay Nickel, in which a Toronto listed company, Weda Bay Minerals Inc., holds a
90% interest. The Balance of shares is held by PT. Antam.
The Contract of Work is located in an area of extensive ultramafic rock with potential for lateritic nickel deposits.
Exploration commenced in 1996 and drilling to date has defined a resource of 219 million tones grading 1.37% Ni
and 0.11% Co. Less than half of the potential resources have been drilled and it is estimated that the total resources
in the area will prove to be in excess of 400 million tonnes of lateritic nickel of similar grade.
The established resource comprises both limonite and saprolite in roughly equal proportions. Extensive batch
metallurgical test work has shown that both laterite types are exceptionally reactive and this has enabled a combined
pressure acid leach-atmospheric leach flow sheet to be developed which effectively utilizes all available ore. The final
product is a high grade mixed Ni/Co sulphide for which a sales agreement has already been signed with a Finnish
refinery.
The logistics of the project are excellent with the majority of resources located close to the coast where a sheltered
deepwater and natural port site is available. Plentiful fresh water and limestone for process purposes are also
available on the site. An airstrip has already been established for external access and local labour is available to
support the operation.
Pre-feasibility studies progressed throughout 2001 with the objective of optimizing alternatives prior to proceeding
with a bankable feasibility study. These have shown the project to be economically robust and should be completed
in mid 2002. The studies are being undertaken by independent world-class engineering firms and the company is
confident they will meet the standards for financing the major capital investment required.
Ø PT Nusa Halmahera Minerals
PT Nusa Halmahera Minerals has a sixth generation CoW joint venture that operates the Gosowong gold mine on
the island of Halmahera in North Maluku. The joint venture is held by Newcrest Singapore Holding Pty.Ltd (82.5%)
and Antam (17.5%), within an area of 449,300 hectares.
In 2000, gold production totaled 244,579 ounces or around 7.6 tons. Total production since the opening of the mine
on July 14, 1999 up to and including December 2000 was 368,275 ounces (11.45 tons). Total mineable reserves
were 381,123 tons, with a gold grade of 25.33 gpt and a silver grade of 32.40 gpt containing 310,378 ounces of gold
and 397,009 ounces of silver. Previously, the mine’s life was estimated to be five years with an average gold
production of 154,000 ounces/year.
Ø PT Gag Nickel
PT. Gag nickel is a joint venture company between BHP-(Billiton) Asia Pasific Nic kel Pty. Ltd (75%) and PT Antam
(25%). This JV is a generation VII Contract of Work, covering 13,136 hectares on and around Gag Island, Sorong
Regency, Irian Jaya. In anticipation of the lateritic expertise required for the implementation of the pressure Acid
Leaching, PT. Gag Nickel attracted a possible investment of US$ 75 million from Falconbridge in return for 37.5% of
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INDONESIAN MINING ASSOCIATION
BHP’s shares. The Falconbridge investment hinged on resolution of matters related to the legal status (Re: Forestry
Law 41/1999) of the tenement and other commercial considerations. Because the formal legal status was not
clarified, Falconbridge has since withdrawn from the agreement.
The latest evaluation result indicates existing nickel resources total 240 million tonnes with 1.35% nickel, which is
among the world’s largest deposits. The measured resources total 12 million dry tones with 1.33% nickel and 0.09%
cobalt grade, the indicated resources total 93 million dry tones with a 1.46% nickel grade and 0.07% cobalt grade as
well inferred resources of 135 million tons with 1.30% nickel grade and 0.09% cobalt grade.
4.
PT. Freeport Indonesia Company (FIC)
In Irian Jaya, PT. Freeport Indonesia Company is facing some social and environmental issues associated with
Grasberg. On the financial side, the following FIC summary on financial highlights for 1997-2000:
Table 6: Freeport’s summary financial highlights
Year ended Dec.31
Financial data in Thousand, Except Per Share Amounts
2000
1999
Revenues
Operating Income
$1,868,610
$1,887,328
$ 1,757,132
$ 2,000,904
478,700
583,170
574,281
664,215
39,500
100,787
118,317
208,541
.26
.61
.67
1.06
3,950,741
4,082,916
4,192,634
4,152,209
2,148,256
196,880
2,456,793
103,416
2,388,982
278,892
Net income appl. to common stock
Diluted net income per common share
At Dec.31
* Total assets
* Longterm debt, incl. current portion &
short term borrowing
* stockholder equity
2,190,025
37,931
1998
1997
In the past few years, PT Freeport Indonesia has continued to implement its mission of working toward sustainable
development. The company has embarked on a series of social programs aimed at benefiting the people of Mimika
Regency, in the province of Irian Jaya (Papua) where its operations are located. Through its payment of royalties,
taxes and dividends, its voluntary economic development, its infrastructure and employment programs, the company
is also impacting on the economies of the province and the country as a whole.
PT. Freeport Indonesia has frequently been the largest taxpayer in Indonesia. In addition, it pays royalties on all
minerals removed from the ground. Since 1991, these direct benefits to Indonesia have totaled US$1.6 billion.
PT.Freeport is also one of the largest private employers in Indonesia and by far the largest in Irian Jaya. At the end of
2000, PT Freeport directly employed 6,934 people and another 1,953 contract workers were employed by companies
that provide services locally and exclusively to PT Freeport. Of this total of 8,887 employees, 2,186 or 25 percent
were Irians. In addition, approximately 5,000 persons worked for private companies providing services within PT
Freeport’s operations area. Finally, PT Freeport uses as many local and national produced goods as possible.
Besides the US$1.6 billion paid in direct benefits to the Government of Indonesia under PT. Freeport’s new Contract
of Work from 1992-2000, operations have provided another US$7.0 billion in indirect benefits in the form of wages
and benefits paid to workers, purchases of goods and services, charitable contributions and reinvestment in
operations.
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INDONESIAN MINING ASSOCIATION
At the Deep Ore Zone underground mine, initial production of ore commenced in September 2000. Production
averaged 2,700 tonnes ore per day during the fourth quarter of 2000 and has reached 14,000 tonnes per day by the
end of 2001 and heading for a production level of 25,000 tonnes of ore per day in the next few years.
Freeport believes that mining will continue to be important for a long time to come because metals and minerals are
essential to economic development. The direct benefits of that development are clear. It is equally clear that
responsible mining has environmental and social impacts that must be managed carefully. The indirect benefits of
mining, including facilitating educational, health care and community development advances in the areas of mining
operations, are part of these considerations.
The Indonesian Coal Industry1), Indonesia has gained recognition as a substantial Asian coal producer with
attractive coal quality specifications (see Table 7).
Estimated Indonesian coal reserves are 38.0 billion* tonnes. These are located in Sumatra and Kalimantan (see
figure 3). Approximately 58.0 percent of reserves are classified as lignite, 27.0 percent as sub-bituminous coal and
15.0 percent as bituminous coal. The large lignite resource has not been developed because the Indonesian coal
industry has concentrated on mining sub-bituminous and bituminous coal.
Based on the increasing potential of coal, Indonesia plans more coal power plants. The power plants will be
privatized. Coal mines will be encouraged to link with Indonesian power generation plants.
Production of bituminous coal has been limited to the longer established mining companies – Kaltim Prima Coal,
Arutmin Indonesia, Ombilin and Allied Indocoal operations.
Other companies have concentrated on sub-bituminous coal reserves in close proximity to river and road
infrastructure.
Table 7: Coal qualities, five largest Indonesian coal producers
Kaltim Prima Coal (a)
PT. Adaro (b)
Production (Mt)
13.97
13.60
Coal rank
bituminous
sub-bituminous
Kcal/kg (gad)
6700
5800
Moisture (%) (ar)
12
25
Ash (%) (ad)
5
1
Volatiles (%) (ad)
39
40
Sulfur (%) (ad)
0.6
0.1
HGI
47
48
(a) Simple average of Prima and Pinang reserves
(b) Tutupan (reserves 570 million tonnes)
(c) There is a wide range of coal qualities (Tanjung Enim)
(d) Washed coal
(e) Simple average of North and South Roto reserves.
PTBA
(state
company) (c)
11.21
sub-bituminous
5500
23
8
38
0.6
50
PT Arutmin (d)
8.65
sub-bituminous
6500
9
12
40
0.7
38
PT Kideco (e)
7.30
sub-bituminous
5500
21
2
42
0.2
50
Source: C. Johnson, APEC Experts Group 1998, Swabara, APBI 1999
1)
Graeme Robertson; PT Adaro Indonesia * Realistically, in the future a total of 5 billion tonnes of coal reserves
may prove to be of economic grade and economically viable in Indonesia depending on future markets-editor.
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INDONESIAN MINING ASSOCIATION
Figure 3. The Distribution of Indonesian Coal Reserves
5.
Kaltim Prima Coal (KPC)
Kaltim Prima Coal is an Indonesian company jointly owned by BP of the United Kingdom and the Rio Tinto Group
(UK and Australia). The JV’s Coal Agreement expires in 2021. KPC is one of Indonesia’s largest thermal coal mining
operations. It is also one of the world’s largest exporters of coal with an annual production capacity of 15 million tons.
Operations are located at Sangatta, the capital of Kabupaten Kutai Timur, which is 50 km north of the equator on the
east coast of Kalimantan. Situated just 20 kilometers from the East Kalimantan coastal port of Tanjung Bara, the
open pit mine enjoys the benefit of reasonable overland transportation costs and low shipping expenses due to the
port’s proximity to major Asian markets.
The Community Development programs sponsored by KPC are significant. In Sangatta, the third stage of the Senior
High School has been completed, as were additions to the Elementary School and Kindergarten in Swarga Bara. The
KPC exploration camp at Bengalon was upgraded to become the “Bengalon Community Development Centre”.
Seven kilometers of road were upgraded in 2001.
In 2000, KPC was awarded a Golden Certificate for environmental performance by the Governor of East Kalimantan,
the only such award to a coal mine. It recognized our overall achievement in:
Ø
Ø
Ø
Ø
Controlling sediment in runoff water from mining areas.
Rehabilitating areas after mining is finished.
Controlling potential for acid mine drainage.
Managing hydrocarbons and waste products.
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INDONESIAN MINING ASSOCIATION
6.
PT. Adaro Indonesia
PT. Adaro Indonesia agreement areas are adjacent to the town of Tanjung in Central South Kalimantan Province.
The trans-Kalimantan highway passes through the area connecting Banjarmasin, the provincial capital, in the south
to Balikpapan, a major oil production and refining center in East Kalimantan, in the north. The road distance from
both Banjarmasin and Balikpapan to Tanjung is approximately 230 kilometers.
In 1991, PT Adaro commenced production from a unique resource of coal located in Indonesia’s South Kalimantan
Province which contains reserves in excess of two billion metric tones contained in major huge coal seams ranging
from 10 to 70 meters in thickness of possibly the lowest sulphur and ash content coal in the world.
Production and sales in 2000 were more than 16.0 million ot nnes. This will be followed by increases to at least 20.0
million tonnes in 2002, a result of the conclusion of a number of contracts for long term supply to both public and
private power utilities.
Coal production has increased each year over the past decade, from both new mines and expansion of existing
operations. In 1998, coal production commenced from Bahari Cakrawala Sebuku and Bentala Coal Mining in South
Kalimantan. In 1999, additional production came from new mines – Gunung Bayan Pratama Coal, Antang Gunung
Meratus, Jorong Barutama Greston, Bukit Bara Utama as well as several smaller operations and local Cooperatives.
Adaro Indonesia, Arutmin Indonesia and Kideco Jaya Agung expanded production in 1999 in response to market
demand by more than 7.0 million tonnes over the previous year. These companies were continuing to increase
production in 2000 with Adaro Indonesia alone targeting 16.0 million tonnes production. Existing producers Berau
Coal and Indominco Mandiri are expanding production and Multi Harapan Utama is developing a new mine to
upgrade its production capacity.
Coal development is driven by demand. Indonesia offers a favourable climate for coal investment. Within the past two
years the Department of Energy & Mineral Resources has ssued
i
more than 100 exploration and mining contracts for
coal, (CCoW) many located in remote areas but with long-term development potential.
With input from new coal producers and expansion of existing mining capacity, subject to resolution of issues related
to regional autonomy and coal prices, it is possible for the Indonesian Coal Industry to produce 120 million tonnes of
coal by 2004. Of this amount, 30-35 million tonnes would be for domestic markets and 85-90 million tonnes for
export, making Indonesia a major thermal coal exporter. Additional productive capacity will be achievable only with
increased exploration and development, which will be dependent on encouragement of particularly foreign
investment which has funded nearly 90% of major Indonesian mining developments to date.
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INDONESIAN MINING ASSOCIATION
V.
CONCERNS AFFECTING THE INDONESIAN MINING INDUSTRY
CoW and Regulations
Mining investment in Indonesia was stable from 1967 to 1997 because investors were convinced that the right
framework for investment was the Contract of Work, (CoW) and that its terms would be respected from the top of
the government to the lowest levels. Several Ministerial Decrees declared that a Contract of Work was “lex
specialist” and the bureaucracy administered the Contract of Work according to its terms. With the adoption of the
“6th generation” Contract of Work, the rules changed.
First the 6th generation CoW began the process of abandoning “lex specialist”. The Cow has always been
considered a strong mining agreement, because the basic Mining Law of 1967 requires the government to consult
the parliament before approving and signing any CoW.
The bureaucracy also began questioning whether even the Contract of Work was to be respected. Laws and
regulations were passed that made continuing mining operations difficult and expensive and demonstrated to the
mining investment community that the policy of the Central Government was changing.
The “Lex specialist” treatment of the CoW assures that once approved by the government the term and conditions
of the CoW, which have been agreed upon by both parties, shall prevail. (In Canada and the USA this is can be
compared to as Grandfathering clause-ed). This assurance is very important to the foreign investor in mining
undertakings, since by nature investment is high risk and long yielding. Any changes or amendments should only be
made by mutual agreement.
The term and conditions of the various generations of CoW also reflects the changes in incentives granted by the
government to the investors, to make them competitive with the conditions available in neighboring countries.
Mining Law No. 11/1967 has been effective before the process of decentralization and needs to be replaced by a
new law. The regional government needs experts in general mining to ensure all regional government policies
passed are not contradictory and in accordance with the available fundamental law.
Mining investors are currently watching carefully the review of several Indonesian laws and regulations. If they are
not amended to encourage mining investment, the Indonesian mining industry will begin to decline from its present
leading Asian position. Laws and Regulations being watched are:
1.
2.
3.
4.
5.
6.
7.
Law on Regional Autonomy (1999)
Law on Forestry (Law # 41, 1999)
Regulation on Mineral Royalties (1999)
Toxic Waste Regulation (PP # 18 and 85) issued in 1999
PP (regulation) # 75, 2001
PP # 82, 2001
PP # 104, 2000
Indonesia must compete as never before to attract investment capital to sustain its minerals and metals industry. In
this environment, the central to region governments must work together to ensure that a positive investment climate
is maintained. As a consequence, the government is making a series of commitments in the sphere of regulatory
efficiency through restructuring of laws and regulations. Special attention will be given to update mining law No.
11/1967 to recognize significant changes, principally the fiscal decentralization and regional autonomy which has
been brought about by laws 22/1999 and 25/1999. This new mining law will also elaborate on Indonesia’s
commitments to a sustainable development by providing a greater level of environmental protection, and
incorporating a greater recognition of local community rights, such as human rights and land rights.
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INDONESIAN MINING ASSOCIATION
With the issuance of Laws # 22 and 25 on autonomy to the regions and the financial implications, a drastic change
occurred on governance on 1st January 2001. Essentially these laws were enacted in 1999 by the Habibie
Presidency, leaving an exceedingly short transition period from centralized governance to regionalized governance.
The end result now requires patience and a period of discomfort.
The autonomous regions do not have in place the manpower or expertise to deal with the complexity of the mining
industry administrative demands. In some cases, there have been false hopes of provinces and regencies enacting
additional taxes on mineral production at the regional level. This example of regional legislation, ( Perda) if enacted
would be in direct contravention to CoWs, at least up to the 7th generation. Such topics have become on-going
subjects for discussion in seminars and workshops in Jakarta and around Indonesia, since 1999.
More immediate is the status of the new mining legislation to replace Mining Law # 11 year 1967 on mining, which
needs revision with the application of Law # 22, 1999 on autonomy.
Specifically Law 22/1999 Article 10 on Regional Administration states: “regional government has full authority
to promote and develop the national resources available in its region and is fully responsible to maintain the
sustainable environment based on the existing regulation”. This autonomy has been given to Indonesia’s 32
provinces and 364 Kabupaten/Mayoralties (regencies/mayoralties). Previously only the responsibility of the central
government, now regional governments will be authorized to decide, rule and administer resources development in
their regions, including negotiation of the resources development agreements.
Indeed, not all of the provinces, kabupatens/mayoralties have mining potential but still most of these administrations
will need experts familiar with the Contract of Work system, the existing mining Law and enacting regulations and the
new proposed mining Law and required enacting regulations.
Under the new regulations of autonomy, 80% of proceeds from royalties will allocate to the Provinces hosting mining
company projects. From the 80% royalty received, 32% is allocated to the Kabupaten (regencies) where the mine is
located, and another 32% is to be distributed equally to all Kabupatens within the province and the remaining 16% to
be retained by the province.
Large mining projects have socio-economic effects on local and regional economic development. Some local
contribution indicators are: changes in average household income and standard of living, new investment and
economic activities that can relate to job creation, improved public facilities, increased health and education services,
etc.
Compensation procedures and adherence to national land tenure regulations may give mining companies legal right
to the use of land. However concepts of individual ownership of land (Hak Ulayat), transfer of title of land or right to
change the face of the land, may be totally unacceptable ot some indigenous cultures. Solutions to these matters are
still being formulated by the central government.
The Indonesian mining industry supports the principle of regional autonomy. But mining companies still need more
information and proper clarification on the further course of action to be taken by the government in preparation of the
full implementation of regional autonomy, now possibly being revised. The mining community would have expected
that the industry be consulted in the drafting of the various regulations for the implementation of law No. 22, 1999,
where pertaining to the mining sector. In the opinion of the mining community, regional autonomy should have only
been implemented with clear regulations in place with a well-developed technical ability in the regions to administer.
This never happened.
The Indonesian Mining Association (IMA) has been actively involved with a team set up by the Directorate
General of Mining formulating, drafting and discussing the New Mining Law since 2000. Until today, the final draft has
not been brought up to the Parliament but probably will be debated upon later in 2002.
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INDONESIAN MINING ASSOCIATION
Government’s legal, regulatory and tax policies play a critical role in attracting and retaining mining investment. Just
as important are the capabilities of the government institutions to effectively and fairly administer the legal regulatory
and fiscal regimes. In this respect, it was noted that the strengthening of the sector institutions would require a
sustained effort over a long period-in-training on the use of modern technologies and procedures for mining title
administration, storage and dissemination of geo-data, as well developing appropriate legal and fiscal regimes.
Transparency in the decision-making and the free flow of information are considered essential to mining
development. The trust and confidence, which exist among investors, host countries government and other parties
involved in a mining venture, is fragile and easily damaged by misunderstandings or poor governance.
The development of the local equity market for mining shares began in 1997. There is a continuing need to raise
domestic capital for mining exploration and development. There is also a need to increase local awareness and
involvement of Indonesian stakeholders in the industry through the equity market.
Law on Forestry (Law # 41, 1999)*
The Forestry Law No. 41/1999 was made with little consultation with the Department of Energy and Mineral
Resources.
Article 38, paragraph 4 states: Mining with an open pit pattern will be prohibited in a protective forest area, (Ed).
Definition of a Protective Forest under the law states: a Protective Forest is a forest area whose chief function is
to protect a life buffer system in order that the water system may be regulated, flood prevented, erosion put
under control, sea water intrusion prevented and soil fertility maintained, (ed)
Substantial areas where mining contracts of work (CoW) had already been awarded have been affected by this piece
of legislation. Protective Forests, that permit open pit mining on existing CoWs have now become off limits to new
mining projects. Overlapping conditions between potentially mineralized areas in Indonesia and protective forests are
alarming. In Sumatra 53% are overlapping, Kalimantan: 33% and Sulawesi: 39%. Maluku: 50%, Irian Jaya: 68%,
NTB/Lombok: 24%, NTT: 27%.
Public negative perception on mining probably has influenced the issuance of Law #41 of Forestry. This law was
drafted during the transitional government of President B.J Habibie, without any proper notice to the Department of
Energy and Mineral Resources. The draft was discussed only among forestry experts and typical to the mode of
governance at that time, without meaningful consultation among the stakeholders, the draft was then considered
sufficient and again the Parliament of the period put their rubber stamp as a sign of approval without thorough crosssector considerations.
The public perception that commercial mining causes widespread environmental destruction is only applicable to
illegal mining but is at odds with reality if it concerns the formal mining industry. The total land disturbed and utilized
as The total mining-infrastructure project areas for the 38 current mines in Indonesia amounts to less than 1,350 sqkm or less than 0.1% of the Indonesian land mass (1,980,000 sq. KM) and represents a smaller area than that
covered by Jakarta and surrounding suburbs. As a contrast, since 1997, timber companies have deforested some
66,000 sq km equal to 33% of Indonesia’s landmass. (Ref: The Clive Aspinall Report-2000).
It is officially estimated legal logging in Indonesia consumes a footprint of some 15, 000 sq. km. per year. That would
mean for each year, legal logging cuts down 11.1 times the area mining has disturbed since 1967, or in 35 years,
(Ref: The Clive Aspinall Report-2001).
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INDONESIAN MINING ASSOCIATION
The remaining timber production forest amounts to 200,000 sq. km. that at current rates of production, assuming no
reforestation, will be depleted by 2015.
Illegal logging in Indonesia consumes about the same amount of trees being felled as legal logging. Therefore
destruction of Indonesian forests is taking place at 30,000 sq. km. per year. Illegal logging does not discriminate
between conservation forest, conservation forests or protective forests.
IMA has proposed the following in response to Law 41-1999:4):
•
Article 38 paragraph 4 of Law Number 41 prohibits any open pit mining in protective forests. But this ruling
should not be applied to existing contracts.
•
New mining ventures are allowed to conduct activities within protective forest areas under certain
requirements ruled by government regulation.
•
CoW and domestic mine lease holders (KPs) are to return their relinquished CoW areas and mine lease areas
to the Government after rehabilitation.
•
Prevailing forest areas, which belong to the government, must respect existing CoWs and mine leases and are
not to be converted into new conservation or protective forest status.
•
Investors are obliged to protect the environment and restore the reclaimed area upon mine closure.
Regulation on Mineral Royalty (1999)
Government Regulation no.13/2000 dated February 23, 2000 has also discouraged mining investors. The law placed
Indonesia as one of the highest royalty countries sending a negative signal to future investors and gave an
immediate impact on state owned companies and local mining companies, while existing CoW foreign investment
companies are exempted and protected by the “lex specialis” nature of the contract. In Appendix 3, a study by
Colorado School of Mines (CSM) in 2000, shows the pre- and post-government effects of Regulation 13/2000. It
illustrates the drastic change in perception of Indonesian mining investment.
This already has received the attention of the Director General and the Energy & Mineral Resources Minister and
both tend to agree that Indonesia should have a place in the middle of the chart, probably similar to Ghana and
Kazakhstan with an IRR (%) of about 13½. The Government was urged to review some of its current fiscal regimes
applied to the Mining industry. Some of IMA comments on the increase of royalty rate were conveyed to the
Government as follows: The new royalty rates represent significant increases over the previous rates.
The comparison is shown in Appendix 4. They are also high relative to other countries (refer Appendix 5). Even if
they were comparative with some countries, Indonesia should be giving tax incentives to encourage foreign
investment given the current investment climate, decentralization and the pressure being applied by the International
Monetary Fund. Studies show that the best “incentive” is a simple, competitive royalty rate.
A further concerning aspect is that it is not clear in the Government Regulation as to how the new “Ad Valorem” rate
will be applied. It states, “The new tariffs of exploration contributions/royalties are determined dynamically, based on
percentages (%) of selling prices, in this case the value which is obtained constitutes a certain tariff per unit of ore
*Editors notes: Clarification of Protective Forests: Indonesia has some 20.5 million ha. of forests classified as Conservation Forests. These have always
been protected from mining, to conserve biodiversity as their name suggests. Indonesia has also 33.5 million ha. of forests classified as Protection or Protected
Forests, to be “Protective” from erosion. Like the conservation forests, protective forests are generally located in hilly or mountainous terrains, and generally
where the most prospective geology exists. Except for coal and offshore tin, law 41/1999 has virtually shut down most prospective areas from future mineral
exploration in Indonesia. This is because it prevents access to new open pit mining projects.
4 ) IMA proposals on Forestry Law # 41 compiled by J. Hutagalung
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mined”. If this means that the method of calculating royalties is the same as currently used and not on “net smelter
return”, the “Ad Valorem” rate comparison with other countries in Appendix 5are not comparable. The method that
Indonesia uses in calculating royalties does not take into account mineral losses in processing, smelting charges,
freight and shipping charges etc. where “net smelter return” does. Take for example the 4% royalty on copper; if the
mining company only receives 80% of the value of minerals contained in the copper concentrate then the effective
rate on “net smelter return” is 5%. To calculate royalty on “net smelter return” is the internationally accepted
standard.
Some further comments on royalties are:
•
Any gross production-based royalty or gross revenue-based royalty has a regressive effect on the
economics of a mineral deposit. The higher the royalty rate then the smaller is the amount of ore which it is
economic to mine; higher royalty rates turn ore into waste.
•
Appropriate deductions need to be allowed for smelting and refining costs in determining the net realized
value of payable metal on all LME-quoted metals. This will ensure that the operation of the royalty regime
creates a level playing field for investors adding value to ore, concentrate or dore.
•
Appropriate deductions need to be allowed for transportation costs in determining net realized value at the
mine gate. Once again, this will ensure a level playing field for investors operating in different parts of the
country and more importantly will not discourage development in the remote regions of Indonesia.
•
Transport and insurance costs need to be allowed as a deduction from the FOB value of coal sold – so that
coal royalties are based on the arm’s length mine-gate value of coal sold – to avoid discrimination against
coal-miners working deposits further inland from the coast.
A simple and transparent royalty regime, one that it is easy to understand and administer, will enable quick
comparison by investors of Indonesia’s overall mineral taxation regime with that of its competitors. Lack of
simplicity or transparency only adds to uncertainty, and this can only deter, instead of attract investment. A
uniform basic 2% royalty on the net realized value of payable metal for all LME-quoted metals, instead of
the range of royalty rates currently proposed by the Government for different metals, will make for greater
simplicity and transparency.
Toxic waste regulation (PP # 18 and 85) issued in 19993)
In February 1999 the Government issued a law on Hazardous Waste Management, PP # 18/1999. The requirements
of this new regulation are so severe that most if not all industries and especially Mining industries cannot fulfill the
requirements as stipulated in the attachment II (attachment two) on Toxicity Characteristic Leaching Procedure
(TCLP) which is more stringent than the one used in developed countries (using EPA/RCRA standards of USA). The
reference used by Bapedal (Badan Pemeriksaan Lingkungan, or Indonesia’s Environmental Board) is the same as
RCRA (Resource Conservation and Recovery Act-USA) but modified to their interpretation.
IMA has been very active in trying to explain to the authorities how impractical the new regulations are: e.g.: TCLP for
copper in California is 80mg/l, in Australia and British Columbia 100 mg/l while in the PP 18/1999 it is 0.19 mg/l.
Another example: Fluoride which is not specified in USA is set at 0.004 mg/l while laboratory test methods can only
detect down to 2 decimal points.
When IMA noticed this, after several long discussions and negotiations between authorities (Ministry of Energy and
Mineral Resources. Ministry of Trade and Industry, and the Environmental Department), including state universities
3)
Written by P.L. Coutrier for IMA’s newsletter, Sept-Oct 1999
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all agreed this law need be revised. At the end, the Government was willing to review the regulation by revising its
attachment II. A draft revision was later proposed by BAPEDAL (Environment Board) in late September 1999. A
revision was made, and given the number PP 85/1999.
IMA noticed that the Revision PP 85/1999 was still problematic. Indeed BAPEDAL (Environment Board) revised the
offending Attachment II of PP 18/1999 and replaced it with the TCLP limits as used in the 1994 regulation. On the
other hand BAPEDAL created new problems:
a/. By also changing Article 6, Article 7 and Article 8 of PP 18/1999 to include the requirement of Toxicity Tests,
in addition lists TCLP. This is unnecessary for several reasons, i.e. Toxicity tests are only applied to
substances which will be consumed, inhaled. Mining waste will never be classified in this group. Many
forms of waste will easily be classified as toxic material and much waste can become hazardous but it will
unlikely enter the food chain, therefore is not relevant to toxicity tests. To prevent the leachate of a waste
entering the food chain, the TCLP requirement should suffice.
b/. BAPEDAL added to Attachment III a list of chronic toxic waste, to the PP 18 Revision.
This is a
misinterpretation of RCRA Appendix VIII. This list may cause concerns since there are a lot of Toxicity
Tests available with many discrepancies. The testing capability in Indonesia of the substances on the list
remains questionable. This is because no standard protocol for toxicity tests has been determined for
Indonesia, as yet.
A continuous effort to revise this law has been maintained and all concerned including the Oil & Gas industry and
general industry have expressed their concern about this regulation, which represents a serious disincentive for
current and future potential resource base investors.
Law # 75, 2001,
This law concerns the second amendment to Government Regulation Number 32 of 1969. It pertains to the
Implementation of Law Number 11 of 1967 on Principal Provisions of Mining. In essence it is an interim law, bridging
the gap between the old mining Law and the new proposed mining Law, while taking into account the autonomy decentralization process.
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INDONESIAN MINING ASSOCIATION
VI.
INDONESIA AS A DESTINATION OF FUTURE INVESTMENT IN MINING
The Current Mining Investment Climate
A recent Australian journal article ranked Indonesia 16th of 20 countries in terms of mining investment. Of 268
Contracts of Work signed since 1973, only 12 (4%) are still in operation. The latest CoW generation VII passed by
Parliament attracted only 38 signers, and 90% of these cancelled almost immediately after signing. However, the VIII
generation CoW, that is currently in draft process, has already attracted a few applicants.
Under the previous (Abdurrahman Wahid governm ent) courts were ordering mine closures for dubious reasons, while
the Environment Minister was recommending mine closures without legal basis. Routine permitting became a
tortuous process, and DPR members (Indonesian Parliament members) have been urging renegotiations of some
mining contracts.
Encouraging statements from some government officials, including the Ex-President Wahid do not change the fact
that the bureaucracy controls the process and will not change without a concerted effort.
The annual mining contributions to the Indonesian economy can be stated as follows:
–
US$801.8 million in Government Revenue
–
US$239.2 million in community Development/Charities
–
US$3.4 billion contribution to GDP
–
US$29.4 million on Reclamation
–
32,787 direct Jobs for Indonesians
The Indonesian Mining Association recognizes that:
–
Under Contracts of Work, companies are expected to build public housing, roads, hospitals and schools,
fund training programs and scholarships and use standard operating practices that in most cases are above
those generally used in Indonesia. At the end of a contract, all assets that cannot be removed become
public property.
–
Unlike manufacturing, viable mining projects are long haul. Many deposits have lives in excess of ten years,
and some, potentially may have 50 or 100 years or more of mine life.
–
A stable mining industry can provide the most permanent “engines of growth” in Indonesia.
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VII.
VIII.
SUMMARY AND CONCLUSIONS.
§
New conflicting laws will have to be amended, eventually.
§
The mining industry will continue to be important to Indonesia because metals and minerals are essential to
economic development and the country is blessed with a rich, diversified mineral resource base.
§
Responsible mining has environmental and social impacts, and these must be managed carefully.
§
The indirect benefits of mining, including facilitating educational, health care and community development
advances will be of great benefit to the provinces, regencies, districts and sub-districts as decentralization
takes hold.
§
The Indonesian Government continues to take measures to streamline and de-regulate its various reform
era policies in an attempt to achieve a good business climate.
§
As the business of International mining developments are not understood by the general Indonesian public,
and often by government, special programs and media reports need be addressed more aggressively than
hitherto.
§
The Indonesian Mining Association will continue to be pro-active, to lobby and to mediate with respected
parties to achieve understanding, cooperation and partnerships.
§
Indonesia’s experience during its 50 years of independence has provided a very useful lesson, i.e., that
growth and development of a country’s mining industry are determined not by its mineral potential alone, but
rather, by the policies of government in creating the right business climate to encourage investment.
ACKNOWLEDGEMENTS
The Author would like to thank Mr. Fadjar Widijanta of the Indonesian Mining Association, Jakarta for researching this
paper, Mr. R.C. Osborne in Toronto and Mr. Clive Aspinall, M.Sc., P.Eng a Canadian geologist and Community
Development Consultant based in Indonesia, for reviewing and editing.
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INDONESIAN MINING ASSOCIATION
IX.
REFERENCES
Annual Report 2000, Antam
Annual Report 2000, Freeport-McMoran Copper & Gold Inc
Annual Report 2000, Newmont,
Annual Review 2000, PT Adaro Indonesia
Annual Report 2000, PT International Nickel Indonesia Tbk
B.N. Wahju, Indonesian Mining Industry in the Period of Transition, Between 1997 – 2000, Kuala Lumpur, November
2000
B.N. Wahju, Decentralizing Mineral Development Efforts; the Case of Indonesia, Mining Philippines 2001, 20-23
November 2001.
Emir Firdaus, The effect of Decentralization in The mining Industry; a legal Perspective, Indonesia Mining
Conference, November 7 – 8, 2001, Jakarta.
Hoediatmo Hoed, Legal Aspect of Contract of Work, Indonesia mining Conference, November 1997, Jakarta.
James R. Moffet, Looking to The Future: Indonesia as a Global Leader in The mining Industry, Indonesia Mining
Conference, November 1997, Jakarta.
Manuel Kaisiepo, Ministry Overview for Accelerating Development of Eastern Indonesia, Indonesia Mining
Conference, November 7 – 8, 2001, Jakarta.
M. Simatupang, The Indonesian Mining Potentials and Challenges into the Next Century, Indonesia Mining
Conference, November 1997, Jakarta.
Miranda S. Goeltom, Dr., Globalization, Investment, endowment: Capturing the Opportunities in The New Millenium,
Indonesia mining Conference, November 1997, Jakarta.
Simon F. Sembiring, Mineral Development and Mining Investment Policy in Indonesia, Indonesia Mining
Conference, November 7 – 8, 2001, Jakarta.
Social Report 2000, PT Kaltim Prima Coal
Soetaryo Sigit, Indonesia’s Mineral potential and The Awakening of its Mining Industry, Indonesian Mining
Association, 1996.
Tedy Badrujaman, Antam Future Nickel Downstream Indonesia Mining Conference, November 7 – 8, 2001, Jakarta.
Tino Ardhyanto, A.R. and Rudianto Ekawan, The Economic Aspect of Mining Activity Prospective to Conduct a
Bbetter Mineral Resources Management within Regional Autonomy Framework, Indonesia Mining Conference,
November 7 – 8, 2001, Jakarta.
The Clive Aspinall Report, Indonesian Mining Risk Analysis, 2000 and 2001 Editions. www.minergynews.com
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Appendix 1
Fraser Institute, Canada 2002
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Appendix 2. Mineral Potential Index
Fraser Institute, Canada 2002
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Appendix 3
Model Gold Mine - After Tax Rates of Return
Poland
China
Pap.New Guinea
Ivory Coast
Indonesia 2
Mexico
Canada(Ontario)
Uzbekistan
Indonezia 1
Bolivia
Tanzania
Kazakstan
Ghana
Greenland
Peru
U.S.A (Nevada)
Western Australia
Zimbabwe
Argentina
Chile
Philipines
South Africa
Sweden
0
5
10
15
20
IRR(%)
Global Mining Comparative Study - Second Edition March 2000
Colorado School of Mines
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Notes : Indonesia 1 - Before new royalty rates
Indonesia 2 - After Government Regulation 13/2000 increasing royalty rates
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INDONESIAN MINING ASSOCIATION
Appendix 4: Current Effective Ad Valoreum Royalty Rates
Total Production
per
LME Metal Calendar year
Current
Royalty
(US$)
< 2,000 kg
225.00/kg
> 2,000 kg
< 25,000 kg
235.00/kg
1.90/kg
> 25,000 kg
< 80,000 tonnes
2.00/kg
45.00/tonne
> 80,000 tonnes
< 6,000 tonnes
55.00/tonne
17.00/tonne
> 6,000 tonnes
< 4,000 tonnes
18.00/tonne
12.00/tonne
> 4,000 tonnes
< 50,000 tonnes
12.50/tonne
59.00/tonne
> 50,000 tonnes
Nickel Ore < 1,250 tonnes
(Garnierite)
> 1,250 tonnes
Nickel Ore < 750 tonnes
(Limonite)
> 750 tonnes
64.00/tonne
70.00/tonne
Gold
Silver
Copper
8,965/kg
168/kg
Lead
Zinc
1998 LME
Cash
Average Price
(US$)
1,573/tonne
502/tonne
Tin
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1,077/tonne
5,398/tonne
6,023/tonne
78.00/tonne
62.00/tonne
6,023/tonne
63.00/tonne
Current Ad
Valoreum
IMA's
Proposed
Equivalent
Government's
Reg.#13/2000
As of
Feb.23,2000
Rates
2.5%
3.75%
2%
2.6%
1.1%
3.75%
3.25%
2%
2%
1.2%
2.9%
3.25%
4%
2%
2%
3.5%
3.4%
4%
3%
2%
2%
3.6%
1.1%
3%
3%
2%
2%
1.2%
1.1%
3%
3%
2%
2%
1.2%
1.2%
3%
5%
2%
2%
1.3%
1.0%
5%
4%
2%
2%
1. 0%
4%
2%
Rates
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Appendix 5: Comparison of Proposed Royalty Rates with Major International Competitors
Country (+ State or Province)
Argentina
Australia (Queensland)
Australia (Western Australia)
Brazil
Canada (Ontario)
Chile
Ghana
Indonesia
Mexico
Papua New Guinea
Peru
Philippines
South Africa
Tanzania
United States (Arizona/Nevada)
Gold
3%*
2.7%
1.25%†
1%*
20%††
0
3%
3.75%
Copper
3%*
2.7%
2.5%‡
2%*
20%††
0
‡‡
4%
Nickel
3%*
2%
2.5%
2%*
20%††
0
‡‡
4-5%
Zinc
3%*
2.7%
2.5%‡
2%*
20%††
0
‡‡
3%
Tin
3%*
2%
**
2%*
20%††
0
‡‡
3%
0
2%
0
2%
0w
3%
0«
0
2%
0
2%
0w
3%
0«
0
2%
0
2%
0w
3%
0«
0
**
0
2%
0w
3%
0«
0
**
0
**
0w
‡‡
0«
*
Maximum rates only; lower or even zero rates may in many instances be levied or negotiated.
†
NSR rate, which will increase to 2.5% on 1 July 2000.
‡
Applied to “metal realized value”. Rates of 7.5% and 5% apply to “realized value on ore” and
“concentrate realized value”, respectively.
**
Unknown.
†† This is a net profit royalty under which virtually all expenses are deductible including mine development
costs and depreciation on mine assets.
‡‡ Negotiable
w Zero government royalty, but a royalty generally is negotiated with the holder of the mineral rights
« Zero federal government royalty, but state may apply a severance tax
Source: Institute for Global Resources Policy & Management, Global Mining Taxation Comparative Study,
Colorado School of Mines, September 1999
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