THE INDONESIAN MINERAL MINING SECTOR: PROSPECTS AND CHALLENGES

Djoko Widajatno, Irwandy Arif Association of Indonesian Mining Profesional

GERMAN INDONESIA MINING TECHNOLOGY SYMPOSIUM 2011

Hotel Borobudur, Jakarta Indonesia 13-04-2011

Agenda

PROSPECT OF INDONESIA MINERAL RESOURCES

2 3 4 5 6

INDONESIA MINING MAP IN THE GLOBAL CONTEXT

INDONESIA MINING MAP IN THE INDONESIA INVESTMENT CONTEXT NEW MINING LAW (UU MINERBA) CONDITIONS AND ACTUAL CHALLENGES OF INDONESIA MINING INDUSTRY

CONCLUSION

PROSPECT OF INDONESIA MINERAL RESOURCES

DISTRIBUTION OF COPPER AND NICKEL DEPOSIT IN THE ASIA PACIFIC REGION

7 6 28 4 5 9 16 27 2 1 3 8 18 25 24 23 21 20 22 10 11 13 Porphyry deposit > 1.0 Mt Cu Nickel deposit > 0.5 Mt Ni 12 15 17 14

26 0
kilometers

2000 19

27
4

DISTRIBUTION OF GOLD DEPOSIT IN THE ASIA PACIFIC REGION

6 7 1 2 3 4 5

11

12 14 13 15 16,17 Gold deposit (> 5.0 Moz) Gold deposit or occurrence

22

19 18 21 0
kilometers

23

25 24 26

27 28
5

2000 20

Source: Ministery of Energy and Mineral Resources Indonesia - 2010

MINERAL RESERVES AND RESOURCES IN INDONESIA

NOTES Bauxite Gold Plaser Gold Manganese Nickel Iron sand Silver Copper Tin

MINERALS AND COAL RESOURCES

(As of December 31st 2007)

COMMODITIES Tin (metal) Nickel Ore Copper (metal) Primary Gold (metal) Silver (metal) Iron Sand (concentrate) Bauxite (metal) Manganese (metal) Diamond Granite (non metal) Coal

UNIT Ton Ton Ton Ton Ton Ton Ton Ton Carat Ton Ton

RESOURCES 622,627 1,650,418,000 68,960,881 4,163 505,151 267,337,519 469,879,260 866,795 539,800 54,731,230,000 104,943,590,000

RESERVES 462,402 585,209,103 41,473,267 3,394 23,026 4,732,000 23,999,901 105,000 93,565 21,131,840,000
8

Data from : Directorate of Mineral Resources Inventory

Indonesia Metaliferous Mineral Resources 2007

Million Tonnes
1800 1600 1400 1200 1000 800 600 400 200 0

1650.42

1565.20

741.30 267.34 10.58

Nic kel Iro n Or e

382.24 5.78 1.64 71.31 23.70

Pla Pla La Se Pri Pri La Ma ter ter dim ma ma ng cer cer i tic i tic an ry ry en Ch T it es Iro Ch Ti t tar Iro an rom e n rom an yI n iu m ite ium ro n ite

Or e

Precious Metal Resources

Ton
700000 600000 500000 400000 300000 200000

622626.93 505151.07

13031.00
100000 0 Tin Platinum

4162.55

123.00
Placer Gold Silver

Primary Gold

Indonesian Mineral Resources for Metaliferous 2007

Base Metal Resources
Million Tonnes
70 60 50 40 30 20 10 0 Mercury Copper Zinc Lead Molibdenum Cobalt

68.96

0.00008

5.99

3.00

0.21

1.30

Rare Metal Resources

Million Tonnes

648.87926

700 600 500 400 300 200 100 0 Bauxite Monazite

0.01

IRON PLACER

Indonesian Mineral Resources for Metaliferous 2007

Millions 302.00

252.00

202.00

152.00

102.00

52.00

IRON ORE
Millions

2.00

2004

2005

2006 4,732,000

2007 4,732,000

Resources 73,050,035.47 165,075,794 5,332,000 4,732,000 Reserves

165,108,739.9 267,337,519.3

402 302 202 102 2 Resources Reserves

2004 320,462,611

2005 320,462,611

2006 368,493,173 2,216,005

2007 382,243,211 2,216,005

RESOUCES AND RESERVES METALIFEROUS INCREASE

MANGANESE
Millions 35.00

30.00

25.00

20.00

NICKEL
Millions

15.00

10.00

1,500 1,300 1,100

2004 2,471,243.55 284,000 2005 8,273,052 884,000 2006 9,091,105.05 32,738,682 2007 10,583,756.98 32,703,889

5.00

Resources Reserves

900 700 500 300 100

Resources Reserves

2004 1,428,582,200 450,590,000

2005 1,681,655,200 437,504,950

2006 1,415,058,000 588,887,776

2007 1,650,418,000 585,209,103

Indonesian Mineral Production Survey

Data from : DPPMB - 2011

Resources and Production of non-metaliferous 2007

Indonesia non Metaliferous Production and Resources 2007

INDONESIA MINING MAP IN THE GLOBAL CONTEXT

16

INDONESIAN MINING IN THE WORLD CONTEXT

1. 15th rank of world coal reserve: Coal resources estimated around 104
billion tons with mineable reserve approximately 21 billion tons

2. 7th rank of world gold reserve: Gold resources estimated around 4,163
tons with mineable reserve approximately 3,394 tons

3. 7th rank of world copper reserve: Copper resources estimated around

68.96 million tons with mineable reserve approximately 41.47 million tons

4. 5th rank of world tin reserve: Tin resources estimated around 0.622 million
tons with mineable reserve approximately 0.462 million tons

5. 8th rank of world nickel reserve: Nickel ore resources estimated around
1,650.4 million tons with mineable reserve approximately 585.2 million tons

(Source: Indonesian Mining Association, 2007)

17

COMPARATIVE ADVANTAGES (NATURAL RESOURCES)

18

Policy Potential Index

Fraser Institute Index 2010-2011

19

Mineral Potential Index

Fraser Institute Index 2009-2010

20

Exploration and Spending Conditions based on Countries

(PricewaterhouseCoopers-mine Indonesia 2007)

21

Indonesia Mine Profitability versus Global Average

(PricewaterhouseCoopers-mineIndonesia 2007)

22

INDONESIA MINING MAP IN THE INDONESIA INVESTMENT CONTEXT

23

STATE OBJECTIVE 2010 - 2014

Key Indicators
Economic Growth Inflation Unemployment Poverity Investment

Target
6.3 6.8% average per year 7 % average, 7.7 % by the year of 2014 4 6 % average per year 5 6 % by the end of 2014 8 10 % by the end of 2014 Rp. 1.950 trillion
Source : RPJMN 2010-2014 (Govt Reg. no 5, 2010)

2009 Growth (%) GDP (Rp Trilion) Infrastructure Demand 5% GDP (Rp. Triliun) 5.1 5,206.5 260.3

2010 5.5 5,989.5 299.5

2011 6.2 6,718.3 335.9

2012 6.8 7,632.3 381.6

2013 7.3

2014 7.7

8,611.0 9,523.3 430.6 476.2

Total Infrastructure Investment Demand (2010 2014) Rp. 1,923.8 Trilion

Source: Bappenas, Paparan Menteri Bappenas dalam Rakor Menko Ekonomi tentang Investasi Infrastruktur Agustus 2010

Trends in the Indonesian mining industry

(PricewaterhouseCoopers-mine Indonesia 2007)

The mining industry is important to Indonesia. It is a substantial provider of export earnings, economic activity and employment, and support regional development. The government remain passionate about the potential untapped mining reserves in Indonesia. With some further improvements to the business environment there is no reason why this resource would not be developed and Indonesia could once again attracts more share of global mining exploration allocation. 2006 was another spectacular year for the mining industry, both in Indonesia and globally-and with the commodity prices at their current highs, 2007 and 2008 will see even better financial results. Globally, investor confidence in the sector and its prospects has remaining strong, fuelled by a sustained rise in commodity prices, and as witnessed by a year of significant growth in market capitalization on both international bourses and the Indonesian 25 exchange.

To be an important contributor to the Indonesian economy

The mining industry is important to Indonesia. It is a substantial provider of export earnings, economic activity and employment, and support regional development. The government remain passionate about the potential untapped mining reserves in Indonesia. With some further improvements to the business environment there is no reason why this resource would not be developed and Indonesia could once again attracts more share of global mining exploration allocation. The mining industry contribution to the overall Indonesian economy increased significantly in 2011 in comparison with previous years. Owing to the high commodity prices, mining products accounted for approximately 6.2% of the total Indonesian GDP, up from 1.1% in 2009 (Badan Pusat Statistik26 Indonesia).

REALISATION AND ESTIMATE OF INDONESIA COAL PRODUCTION

400
280 Million tonnes 320 220 150 130 170 150

370

300
193 196 147 198 148 50 150 75

225 145 48

240 150 90

200 100 0

150

49

2006
Export

2007
Production

2008

2009

2010

2015

2020

2025

Domestic

begining of Electricity acceleration PLN

Notes : - Production realization 2006 (32 PKP2B = 162 M ton, KP- PTBA = 9.2 M ton, 130 local KP = 22 M ton); - Production Increase at 2006 due to production capacity increase of PKP2B 10 M ton ( PT Adaro Indonesia, PT KPC and PT Indominco Mandiri) and production increase of local KP 12 M ton; - 2007-2010 acceleration of generating coal Powerplant 10.000 MW - Government Reg No.5/2005 about National Energy Policy, 2025, coal domestic market for 33% of production
27

CONDITION OF MINING COMPANY IN INDONESIA - 2006

PU.
KK PKP2B

EKS.

SK.

KONTR

EKT.

TERM.

JUMLAH

2 1
PU.

19 21
EKS.

6 24
EKT. A/J.

2 6

12 28
O/M.

194 61
TERM.

235 141
JUMLAH

KP

50

299

433

85

1186

2061

PU = General Survey; EKS. = Exploration; SK = FS; KONT. = Construction; EKT. = Exploitation/Production; TERM. = Termination; KK = COW Generation 1 7 (1967 1998); PKP2B= Coal Contract, Generation 1 3 (1981 2000);

KP = Mining License coal and mineral A/J = Transportation and sales; O/M = Processing and refining;

28

MINERAL AND COAL INVESTMENT

Coal and Mineral Investment Statistic
1,200.00 1,000.00 in US $ m illion 800.00 600.00 400.00 200.00 0.00 Mineral dan Batubara 2004 980.03 2005 880.40 Year
29

2006 1,125.91

29

STATE INCOME FROM MINING SECTOR

Source: Ministery of Energy and Mineral Resources Indonesia - 2010

NEW MINING LAW (UU MINERBA)

31

Basic Principles in the New Mining Law

l

Mining activities will be grouped into: mineral mining and coal mining Mineral mining will be grouped into: radio active mining, metal mining, non metal mining and rock mining Clarification of Central Government, Provincial and District Authority Establishing of Mining Zone; Mining Estate Establishing State Reserve for the special national interest. There are only mining license and mining special license, and mining agreement. There will be no more direct contract between company and government Foreign mining company may have an agreement with the State Owned Mining Company/Representative Agency to develop state 32 reserve

Basic Principles in the New Mining Law

License will be issued through tender mechanism based on equality and transparency Licensing system will be simplified and grouped into two: exploration license (general survey, exploration and FS) and operation license (construction, mining, processing, transportation and marketing) Puts more attention to environmental protection (reclamation) and post mining Puts more attention to the community development aspects The Existing of License Authority and Agreement will be honored vs 2-5 years transitional period (Commission VII DPR?) Processing and refining have to be conducted in Indonesia A clear sanction to mining players who violate the law
33

POLICY ON COAL AND MINERAL DEVELOPMENT IN INDONESIA (1)

To develop optimum economic benefit through optimization of production and income To provide much needed conducive climate for investment To create optimum value added for the development of extractive and energy industries To strengthen capability of local people as well as to promote technological development for Indonesian (clean coal technology, coal gasification, coal liquefaction, exploration technology, processing technology, etc)
34

POLICY ON COAL AND MINERAL DEVELOPMENT IN INDONESIA (2)

To respect contract sanctity To promote good mining practices To promote good corporate governance To enhance the domestic utilization of mineral and coal To strengthen community-based development program with more synergistic cooperation among the government, private sector and local people
35

CONDITIONS AND ACTUAL CHALLENGES OF INDONESIA MINING INDUSTRY

36

ACTUAL CHALLENGES
Law uncertainty and business operation Overlapping of mining area with forestry area (Law 41/1999) Regional autonomy: duplication and contradictions between central and regional government regulations;, etc Taxation issues (tax incentives, VAT on gold and coal, corporate tax rate) Regional demand on the equality of income between central and regional and reattribution which is not stipulated in the contract Illegal mining Paradigm shift to triple bottom line A more stringent environmental standard Unfairness in divestment of foreign interests and mine closures. Implementation of Good Mining Practice.

37 37

CONCEPT OF SUSTAINABLE MINING IN INDONESIA

Mining commodity is transformed into human resources development and sustainable economic potential People living in the vicinity of mining area must get benefit from the existence of the mining Sustainable mining should be based on 3 pillars: economic, social and environmental sustainability

38 38

Conclusion

39

Conclusion of Indonesia Mining Industry 2010

Indonesia is still abundant with mineral reserves and holds a promising geological potential. Improvement on the Indonesia mining business condition must be done immediately by all stakeholders. Mining activities must be conducted based on the principle of Good Corporate Governance and Good Mining Practice which is founded on triple bottom line approach Socialisation of a positive Indonesian mining industry image.
40

REFERENCE
1. Bambang Setiawan 2. Dedy Aditya Sumanagara 3. Fraser Institute 4. Irwandy Arif 5. Price WaterhouseCoopers 6. Purnomo Yusgiantoro 7. Simon Sembiring 8. Darwin Zahedy Saleh
41

Thank You