Mining in Indonesia: Investor’s Guide

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(July 18 2012- GEOnomic Investing)

Indonesia is an archipelago made up of approximately 17,508 islands; it is currently the largest economy in Southeast Asia and maintains membership within the G-20.  Mining makes up about 11.9 percent of the economy in Indonesia. Foreign direct investment in in Indonesia’s mining hit $3.6 billion last year. It is the world’s top producer of tin and nickel, and the world’s fourth largest copper producer.  Other commodities produced in the country include gold, coal, oil, gas, silver and bauxite.

Mining in the country has suffered many setbacks due to protesting and corruption.  Other problems that have posed challenges to the development of mining in the country include a lack of infrastructure, unequal resource distribution, poverty and a complex regulatory environment. The Department of Energy and Mineral Resources, tasked with regulating the country’s mining industry is currently working hard to clean up the Indonesia’s mining business.

Despite the negatives, foreign investors continue to flock to the region to develop new mines and expand old ones. Indonesia’s mining industry is currently undergoing a period of rapid growth, and is expected to post double-digit growth percentages for the coming years.

 Mining Regulation in Indonesia

 A mining law passed in 2009 promised to improve the investment climate for foreigners, but recent government discussions have taken a more protectionist tone. Indonesia recently passed a new law limiting foreign ownership in Indonesia’s mines. The regulation, applicable only to new contracts, stipulates that foreign ownership should be no more than 49 percent by the 10th year of production.  After the fifth year of production 20 percent of the ownership must be divested, with the amount gradually reduced over the next five years.

The move has been met with sharp criticism, saying that it will limit foreign investment in the country’s mining industry.  The main critique is that it takes miners a fair bit of time make back the huge amount of investment required to start a mine, and by transferring ownership before a company becomes profitable it will deter investment in new mines

Proponents of the new law say that foreign companies have long raked in huge profits without returning enough back to the country, and that despite the new rules limiting ownership, foreign investment in the country’s mining will continue because even if these miners hold a smaller share, they will still make large profits

 

Mining Investment Opportunities in Indonesia

There is a great deal of miners in Indonesia, here are some examples.

Freeport-McMoRan Copper & Gold (NYSE:FCX)

Owns the Grasberg mining complex, the largest gold mine and the third largest copper mine in the world. Open-pit mining of the Grasberg ore body began in 1990 and is expected to continue until mid-2015, at which time the Grasberg underground mining operations are scheduled to begin.  Exploration to expand the current resource base is ongoing.

Newmont Mining Corporation (TSX:NMC) (NYSE:NEM)

Newmont is involved in poly-metallic mining joint venture on the island of Sumbawa along with the PT Newmont Nusa Tenggara at the Batu Hijau mine facility. This mine has been producing copper concentrate, with a gold byproduct since 2000 and is expected to operate for another two decades.

East Asia Minerals Corporation (CVE:EAS)

Holds interests in six advanced gold and gold-copper properties in Indonesia, also owns uranium and phosphate properties in Mongolia

Intrepid Mines (TSE:IAU, ASX:IAU)

Operates the Tujuh Bukit exploration project in eastern Java, Indonesia.

Kalimantan (CVE:KLG)

It is engaged in acquiring and exploring mineral properties in Kalimantan, Indonesia. Current interests in Indonesia include gold, coal, and copper prospects.