Indonesia Mining Report Q3 2009

Investment Expected To Slump In 2009 Investment in Indonesia's mining sector could drop below US$1bn in 2009. With global commodity prices falling, many major mining companies have shelved investment plans, which could impact on the sector. At the same time, companies are also awaiting details of a new mining bill introduced to the country late last year. In 2008, mining investment in Indonesia was US$1.6bn, up from US$1.2bn in 2007, according to data from the energy and mines ministry.

New Mining Laws Introduced In December 2008, a new mining law passed through parliament. The legislation has been keenly anticipated by investors, as legal uncertainties - particularly concerning whether local or central government has jurisdiction over certain mining areas - have plagued the mining sector in recent years.

Under the new laws, there will be an over-arching permit system for all foreign and domestic mining in the country. Previously, there were two separate agreements: one for foreign miners (the Contract of Works - CoW), and one for domestic operators (Kuasa Pertambangan - KP).

However, foreign investors liked the CoW because it gave them good protection, despite the myriad of legal changes since the Suharto regime fell in 1998. Therefore, they may be cautious and wait to see how the new system pans out before they start committing large-scale resources in the mining sector. Also, some investors are concerned about a new requirement that all mined minerals be processed and smelted in Indonesia, rather than exported in raw form.

Industry Forecast The proposed mining law is not likely to bring about any revolutionary change in the industry's investment climate, despite the switch to a mining permit system, reminiscent of Australia. There may, however, be a short-term drop in investment as companies wait for the new laws to bed in. Despite the problems in the global commodities market, BMI still forecasts robust growth in Indonesia's mining sector, which is testament to the sheer scale of resources that the country has got.

Global Overview On page 8 of this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector, and what this means for the industry moving forward.