Indonesia Mining Report Q2 2008

In December 2007 the Indonesian government said it expected significant increases in mining output during the course of 2008. According to the energy ministry, 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 ease back somewhat 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 ten 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 gross domestic product (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 terms of 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.

Indonesia's mining industry is heavily regulated at the central, provincial, regional and municipal levels.

Often, the 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.

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 of 6.1% in 2008-12. The industry is also forecast to be valued at nearly US$30bn by 2012.