Ozmine provides some light.

Ozmine provides some light. [Posted 28 Sep 2015, 76 views, 10 likes, 1 comment]

The recent Ozmine seminar in Jakarta provided some indication of how the exploration and mining industry may be turned around, though the timing for such a change still seems to be some way off. Speculation about prospective investors and other points comes from informal chatting with some of the Ozmine participants. This seminar differed from several recent professional seminars on exploration, wherein Ozmine looked to market fundamentals, rather than seeking a magic bullet from the government to kick start exploration and mining.

How the turn-around may be driven.

• Commodity prices are considered to be near bottom of the cycle and likely to remain flat for a while. China and other markets are seen to continue with steady reasonable growth and underpin a huge market share. Commodity prices will increase in response to increased demand for energy and products. New growth is seen to come from the relatively youth-full age of Indonesia and many other Asean countries, particularly as such youth aspire to be income earners and lift growth / GDP.
• Many of the mines are capable of long term production in the present low price scenario. However there will be other mines that exhaust their present reserves and close, reducing pressure on oversupply. In the foreseeable future some commodities, including coking coal, may be in short supply and trigger some price recovery.
• New industries, particularly the coal fired IPP power projects of Sumatra & Java are of key interest for new coal mines to develop, and the power they generate will in turn improve GDP and drive consumer products that are ultimately derived from mines.
• The Government plans to clean up the IUP mess, and terminate many non performing IUP’s. This may provide areas for new exploration plays.
• There are a number of financiers looking for de-risked projects. The recent construction of G-Resources (gold in Sumatra) and BHP (coal in Kalimantan) are examples that good responsible mines can be built in Indonesia.
• India’s plan for self sufficiency in coal is thought to be seriously delayed due to internal matters, thus coal shipments to India are envisaged to continue for at least 5 years.
• Some other Asean countries exploration and mining regulations are seen as being less attractive than Indonesia (despite the worries in Indonesia), thus Asean focused investors shall still keep Indonesia options open.
• There has been a minor rush to new commodities (graphite), but there is limited appetite for such commodities from most of the investors, as there is not much business history behind such ventures.
• The new nickel smelters will require a limited number of mines for an extended period, and much of the exploration has been undertaken to underpin the few selected new mines. It is anticipated the commissioning phase may provide minor delays before full production is achieved. Some of the new nickel smelters may require the importation of coke. There is little public news about the lack of progress of the planned new aluminum smelters, so it is hoped this segment may be a long term target for change of status to permit limited raw ore exports.

1. The government is eager to start up many large infrastructure projects, wherein the cement & steel industry will see growth.

When the turn-around may come.

1. There are a number of mergers and acquisitions, signaling the present time period may be just past the bottom of the market, wherein buyers are seeking the best deals and do not expect to wait too long before values increase, reflecting commodity price increase or new efficiencies being implemented. There are a number of large Indonesian players looking for mining business’s that can earn export dollars as part of their currency hedging outlook.
2. The IPP coal fired power projects are needed now by the government, but the Coal Association is further negotiating for a more advantageous deal with PLN and the Government. The industry feels these matters may be settled before the end of 2015, but actual construction may start in 1-2 years time, and take 3-5 years to complete. The construction in this sector is hoped to stimulate a wider interest in the exploration and mining industry.
3. The Government’s plans to clean up the IUP’s is targeting end of 2015. However this is no different to previous plans (end of 2014, end of 2013 etc). The parliament is to revise the mining law, and the Provinces are to make themselves ready for this new responsibility, so it is not unreasonable to anticipate a further delay in this program.

Who will drive the turn-around.

Indonesian big investors are now looking for mergers, take over’s or expanding their mining business through a broader portfolio (including selective exploration) and through the processing or power plant sectors. Once the economy steadies, then the Indonesian Stock Exchange and other avenues for finance may lubricate the industry further. Indonesian entrepreneur investors may look to repeat their recent successes, particularly with the reintroduction of new concessions.

Investors from China are aggressive, and well funded. The apparent slump in China may encourage some public and private investors to look abroad for better investment opportunities. Australia is likely to be a long term risk taker in Indonesia, and their stock market is familiar with Indonesian exploration sector. The stock exchanges from Singapore and Hong Kong are becoming more cautious, thus investment from these centers may be more selective. However investors from Canada (BreX), UK (Rothschild) are less likely to be early players.

There will always be a few investors from India, Russia, Japan and America etc who will select their commodities of interest. The nature of Indonesia’s future free trade agreement may stimulate selective countries interest in Indonesia. The ASEAN free trade agreement is due to be implemented this year, and we may hope some of the increase in trade will go towards exploration and mining in Indonesia.