Indonesia Mining Report Q3 2008 - www.companiesandmarkets.com adds new report.

2008-09-12 23:33:03 - Indonesia Mining Report Q3 2008 - a new market research report on www.companiesandmarkets.com

www.companiesandmarkets.com/Summary-Market-Report/Indonesia-Mini ..

In a development that will do little to enhance the reputation of Indonesia’s mining industry on the global stage, it was reported in the Jakarta Post in May 2008 that the domestic unit global mining giant Rio Tinto intends to sue the Morowali District in Central Sulawesi. Rio has been in negotiations with the local government since 2006 over a potential nickel mining contract at Lasamphala. However, despite negotiations still taking place, Morowali decided unilaterally to begin issuing mining permits to local firms in mid-2007. Rio believes this move breaches a 1999 federal government decision which approved the company’s application to start mining in the area. Certainly, the government itself is disappointed with the local authority’s move, with the head of the country’s investment coordination board, BKPM, and Muhammad Lutfi calling the move ‘irresponsible’.

Certainly, BMI remains of the opinion that more needs to be done to coordinate the regulation of the domestic mining industry. Regional regulations are not aligned with central laws, and are hence, subject to review and cancellation by the central government. These inconsistent legislative interpretations result in procedural delays and increase uncertainties for mining companies. Despite ongoing regulatory uncertainties, the government remains confident that there will be significant increases in mining output during the course of 2008. According to statements from the energy ministry in December 2007, copper output would rise by 23% to reach 1.04mn tonnes, while tin output was expected to surge by over 40% to reach 90,000 tonnes. Indonesia has some of the world’s largest deposits of coal, copper, tin, nickel and gold, and is set to benefit from the strong demand from China and India that has been driving up commodity prices.

Copper demand, while healthy, was expected to somewhat ease back during 2008 as consumption in China grew by 6%, a less spectacular figure than the 23% registered in 2007. In other metals, the government said it expected gold production to gain around 10% to reach 134.56 tonnes. Ferronickel output by state-owned company Aneka Tambang would gain nearly 10% to 17,980 tonnes. Nickel-in-matte production by International Nickel Indonesia would remain virtually flat at 79,450 tonnes. Separately, also in December, the Chairman of the Indonesian Coal Producers Association, Jeffrey Mulyono, said total production of coal would increase by 9% to 234mn tonnes in 2008.

Around 75% of that, or 179mn tonnes, would be exported. ‘The market is waiting, and the coal producers have the capacity. So there is no reason why the production cannot be upped’, Mulyono told the Jakarta Post. The mining industry is crucial to the Indonesian economy. Globally, Indonesia features among the 10 leading mining industries in the world in terms of mineral and metal potential. Ranked second in the production of tin, third in copper and fourth in nickel, the industry is forecast to contribute more than 10% to Indonesia’s GDP in 2007. Indonesia’s gold mining industry also has great potential with huge resources available in west, central and east Kalimantan.

Coal mining is another significant sector and the country ranks only behind Australia in export of thermal coal. Indonesia’s coal production has grown twenty-fold since the 1990s and at present, more than 70% is exported. Reserves of coal are primarily sourced from Sumatra, Kalimantan, Java, Sulawesi and Papua. Even though the geology of Indonesia offers tremendous potential for both local and overseas mining companies, only 0.5% of the global exploration funds on greenfield sites is dedicated to the southeast Asian nation. The low scale of exploration activity is of serious concern for the long-term success of the industry.

On the positive side, the Indonesian government is planning to introduce measures to encourage the domestic mining equipment industry by offering incentives to local companies that fulfil the state’s mandate in this regard. However, illegal mining remains a major concern for the nation, and as a step towards precluding illegal extraction, the government introduced stringent export regulations in early 2007. This crackdown on illegal mining is having a particularly hefty impact on the country’s tin industry, with two sub-contractors working for the archipelago’s second-largest tin miner, PT Koba Tin, on trial in Bangka for deliberately selling illegally-mined tin to the company (see Tin: Latest Developments section for further details). This, in turn, is keeping upward pressure on global tin prices. Indonesia’s mining industry remains heavily regulated at the central, provincial, regional and municipal levels. New Company Profile BMI has added a new company profile to the Indonesia Mining Report this quarter, on Bumi Resources. Bumi Resources is the archipelago’s largest coal miner and recently unveiled an impressive 29% rise in the first-quarter net profits to US$103.3mn.

Industry Forecast

Increase in exploration, discovery and development of new metal and mineral reserves is essential for sustaining the Indonesian mining industry in the long term. According to BMI, the Indonesian mining industry is forecast to log an average growth rate of 6.1% in 2008-2012. The industry is also forecast to be valued at nearly US$30bn by 2012.

www.companiesandmarkets.com/Summary-Market-Report/Indonesia-Mini ..