Certainty in a mineral name. [Coal Asia Vol.66 ]

Certainty in a mineral name.

Background.

One key element of the future new mining law is to raise the level of the exploration and mining industries confidence in Indonesia. For 33 years (1976 to 2009) there was one working stable mining law. Then the post 2009 implementing regulations destroyed industry confidence , first with the  sudden change from an initial 20% to 51% divestment, then the realization that district issuances of IUP’s was a nightmare of overlapping and poorly recorded tenements, and finally with the value adding regulation (along with the non Mines Department regulation of excessive export taxes), that bought about a sudden effective ban on raw ore exports. Recent political spats between ministers over the future of the Freeport extension & smelter, and the Masela oil & gas development (on shore /off shore) further reduces the level of confidence in the exploration and mining industry. Commodity prices are down, production is typically down and clearly taxes & non tax revenue from the mining sector will contribute less to GDP. The lower the GDP, then the more difficult and expensive it becomes for the government to issue bonds or seek other forms of funding to develop Indonesia’s future. The lower the GDP, then there is less services for the Indonesian people, or the tax régime needs to be broadened to include greater contributions from the less fortunate. To reinvigorate a well established profitable exploration and mining enterprises, industry confidence need to be lifted through a more practical mining law, and more importantly, through a clearer set of implementing regulations.

Why defining minerals is important.

In undertaking exploration, investors tend to focus on a mineral commodity which appeals to their business interests. Some seek coal, others look for gold or simply sand & gravel to support the soon to be booming infrastructure construction industry. It is essential from the outset of exploration that the investor will be confident that once they find the mineral, they will be able to develop a mine and sell a product. Any form of uncertainty over the mineral rights, or of possible interference in having full and exclusive mineral rights will deter investment. The C&C process has been introduced to eliminate spatially overlapping claims for the same mineral. However there are potential gaps in the definition of minerals to confirm full exclusivity or non encroachment by competitors. For example the government earlier quashed one attempt to apply for sand and gravel license over a coal mines overburden area, as it was a scam to extort the coal miner. Thus a clear definition of mineral rights is an important factor in building industry confidence.

Regulation 23/2010. Article 2 – listing of minerals for mining.

The proposed new mining law (currently in discussion & drafting phase), and subsequent implementing regulations can update and improve upon the definition of minerals to give greater certainty to the industry.

Radioactive minerals (Regulation 23/2010) has 3 elements and one mineral listed as “radium, thorium, uranium, monazite and other radioactive minerals”. There is now the opportunity to review and update this clause:1) Perhaps to include Rare Earth Minerals as a diverse collection of minerals, some of which can be radioactive, 2) Potassium as found in most clays or feldspar minerals common to igneous rocks is an “other radioactive mineral” as is well know by oil & gas plus coal mining geologists evaluating down hole geophysical logs. Clearly the regulation or elucidation may specifically mention an exclusion of potassium materials. 3) Radium is typically a gas that may be difficult to consider as a recoverable mining product and thus may be excluded from this list.

Monazite is an ore of thorium, that is used to improve the strength of magnesium, as incandescent gaslight mantles, some forms of glass (camera lenses), and a catalyst in the cracking of petroleum products, plus other chemical uses. Its radioactive properties are stable with a half life of 14 billion years. Monazite is typically mined from black sands, and can be a common minor component of Indonesia’s black sand beaches. One story goes that BATAN found relatively high radiation on one beach in Sulawesi that scared the local community who sought transmigration away from their village. Indeed a NGO could abuse this radioactive classification of Monazite (or low levels of radium, or traces of radioactive decay minerals in some zircon etc) to scare the tourist industry. Note that Article 2 has thorium listed as both a metal and a radioactive mineral, so it may be prudent to declassify Monazite as a radioactive mineral. This should be a similar non radioactive classification for Potassium (common feldspars/clays) minerals. It is also interesting to note that there is no regulation specifically obliging radioactive minerals to have an increase of value adding / processing.

Perhaps the definition of radioactive minerals could be included in the elucidation by prescribing the exploration and production of such minerals is for their radioactive component and go on to define the level of radioactivity. This would be designed also to eliminate acceptable background levels of radiation in almost all rocks, and nullify investor, community or NGO concerns.

There are 59 listed metallic minerals named according to the element, or genetic mineral, and sometimes both are listed, for example “magnetite & iron”, “lead & galena”, “bauxite & alumina”. There are 43 listed non metallic minerals also named according to the element or genetic mineral. It is noted that zircon occurs as a non metallic mineral and zirconium occurs as a metallic mineral. It is also intriguing that arsenic, magnesite and phosphate are considered as non metallic wherein their principal mineral elements are metals.

There are many thousands of natural mineral names that suggest defining the metallic & non metallic commodities by their mineral names will always leave some potential loopholes, such as mining for chalcopyrite, but forgetting to include malachite. Perhaps it would be clearer to specify ores by their target elements, for example “copper and associated elements”. This would automatically include the weathered oxidized minerals and the underlying fresh sulphide or silicate primary mineral complexes.

There are 47 rock names mentioned on the bases of specific mineral (Perlite), or broad rock type (Granite), or according to geological setting (river gravels) or mine processing (river gravels sieved without sand). The description also endeavors to distinguish between rocks for commercial purpose in terms of potential included other minerals; (“sand not containing elements of metal minerals or elements of nonmetal minerals in considerable amounts when sighted from the perspective of mining economy”).

A new rock definition may chose to follow the mining character of the rock and the intended purpose of the rock product. Rocks tend to fall into 2 categories, those of a loose nature (clay, sand, gravel, friable tuff etc) and hard nature (insitu granite, andesite etc). The purpose of the rock product appears to be 1) construction [road, base, concrete mix, brick], 2) ornamental stone [polished marble], 3) semi precious stones [onyx, jade] or chemical uses/create an different commodity [Limestone for lime or cement]. Thus rocks could have a definition with an option for further description, such as; “Hard construction rocks, including but not limited to Andesite” or “semi precious stone, including but not limited to Jadite”.

There are 5 rocks listed with coal (coal, solid bitumen, asphalt rocks, peat). Clarification regarding the contained coal bed methane or oil shale may improve certainty. Also there is some research ongoing looking at the option to recover Rare Earth Minerals from the waste of some carbon rich sediments (carbonaceous claystone etc) that often accompany coals and such.

List of 10,790 IUP as at Feb 2013.

Once the new mining law has been passed, and then the IUP’s may need to be reissued, to restate their legal bases according to the Central government instead of the District government. This reissuance can also take the opportunity to be more consistent and legally clear about the nomenclature of the minerals.

The list of 10,790 IUP (C&C plus Non C&C) as at Feb 2013 contains some 263 different names of mining commodities, compared to the 158 listed under regulation 23/2010 Article 2. Some of these IUP mining items are simply variations on spelling (Tras & Trass), others are mixtures of English and Indonesian, or mixture of element and mineral (Zircon, Zirkon, Zirkonium). It would seem that the regional officers recording the exploration / mining commodity may have followed some local naming and often included more than one mineral commodity in the license (Pasir Darat Sirtu dan Batu Belah) or (Timah dan Mangan DMP) and (“Emas, Perak, Tembaga, Zeng, Timbal dan Logam Tanah Jarang”). Unfortunately there are also some very broad and apparently all encompassing minerals (Logam, Non Logam, Batu dan clay). In contrast there are some general terms that may be too limiting, should a closer geological scrutiny be applied (Granite may exclude Granodiorite), or (Andesite may exclude Dacite).

A more complex issue seems to be the inclusion of “associated minerals”, often listed as DMP (Dan Mineral Perikut) The regulation 23/2010 does not seem to adequately address the issue, but implies associated minerals are included in the principal specified mineral. Article 44 (1) “Where other non-associated minerals mining commodities are found…” The IUP’s mineral description address this issue in a variety of ways, (1-Tembaga, 2-Tembaga DMP, 3-Tembaga, emas DMP, 4-Tembaga, Emas dan Perak). It is unclear if IUP’s for single minerals is to include associated minerals (Timah, and Timah DMP), indeed it would be impractical in most cases to mine only one mineral without the associated minerals. The issue goes further, wherein mining and recovering one commodity may be practical and economical in some cases, but in other cases associated minerals may /may not be economical to recover, or may impose a processing / financial penalty on the principal mineral, for example phosphorus in iron ore is a significant penalty. In some cases it may be near impossible to extract one mineral without including an associated mineral, for example some magnetite sands contain minor crystal inclusions of ilmenite. Sometime the secondary elements will lower profit margins, and contribute to less tax to the state.

The 23/2010 regulation does not clearly state the relationship between the different categories of mining products. Article 6 states that “one mining permit area may be granted one or several mining permits”. It would seem that one mining area can have adjacent or overlapping tenements for each of the mining products (metal mining, non-metal mining, rock mining, coal mining, radioactive minerals). Indeed this would allow optimum benefit for the government if one concession is targeting primary copper in the hills, while another concession is targeting alluvial rocks in the river for construction. If these tenements belonged to the same private group we might expect good coordination, but if they belong to separate parties, then there could be difficulties in implementation. It would be unworkable if one company mined the metallic minerals of copper and associated metallic minerals, but another company sought rights over the non metallic sulphur minerals of the first metal mining company.

23/2010 Article 44 does consider other mining commodities in some cases; “Where other non-associated minerals mining commodities are found within a Mining Permit Area location given through a Mining Permit, the Exploration Mining Permit holder and the Production Operation Mining Permit holder shall be given first priority to commercialize the other mining commodities found. Elucidation of Article 44 Section (1): Other mining commodities in this provision are minerals other than nonmetal minerals that are found within a nonmetal mineral Mining Permit Area, for example, metal minerals or coal. For example, a river gravel mine for construction material may discover, and apply for, alluvial gold. This should also allow an alluvial gold mine to apply for and sell some of the river gravel and sand to the local construction industry, or the overburden hard rock of a primary gold mine may be applied for and sold as construction material. Exploration may start out looking for one set of minerals but end up finding or developing a different set of minerals. For example epithermal gold veins may be gold and silver rich at shallow depth, but such minerals are replaced by copper, lead and zinc at depth. In another case a hard rock tin skarn may be of interest to one party, but the same deposit could be of interest for iron ore mine to another party.

Alternative criteria.

There are some proposals to classify minerals according to their importance to Indonesia, using such terms as vital, strategic etc. In the past “strategic” has largely been associated with radioactive minerals, wherein the outcome seems that they are so important that they are not developed!! Strategic has also strangely been associated with tin, even though Indonesia does not seem to consume much tin. If the concept of strategic is to reflect employment or securing foreign currency, then surely Freeport’s copper and gold would be more “strategic”!! Strategic or vital is being discussed in relation to securing coal, oil & gas to secure Indonesia’s energy needs. Here the sense of national security is mixed with the need for these commodities to generate “strategic” foreign currency and settle the balance of trade. However developing Indonesia’s phosphate exploration industry, to offset the near 100% import needs for phosphate fertilizer, does not seem to be on the strategic horizon.

We have seen a land rush to obtain plots of land proposed for logistic bases for the Masela project. The next “rush” may be to secure the limited sites for suitable sand, gravel and hard rock for the various national infrastructure sites. This may urge certain sites to become “strategic” sand and rock sites.

It would seem that a revision of the concept and treatment of vital or strategic is required. Instead of not developing the minerals such as uranium, the connation of strategic may be to provide meaningful government encouragement in other mining commodities. Perhaps strategic mineral/rock exploration could be immune from all forms of forestry restrictions, plus tax incentives for production.

 Flexibility for good or bad intentions.

Regulation 23/2010 Article 2.3 contains a fairly standard phrase “Changes in the grouping of mining commodities as intended by section 2 shall be determined by the Minister”. This, and similar phrases through the regulation provide the Minister with the good ability to clarify or improve the regulations. However the present mindset of some domestic and international investors is one of uncertainty over the political motivations. In a nightmare scenario the Minister could use such clauses to act in a manner to place certain investors at risk, as was done when the foreign shareholding was raised from 20 to 51% etc. Confidence in the regulation can be instilled through 1) good legal & technical drafting, 2) using the elucidations to provide greater clarity of the intentions of the law, and 3) more detailed socialization of the regulations recorded on the ESDM web site.

Conclusion.

By having regulations that removes ambiguities or potential loopholes relating to the description of the rocks and minerals, then further confidence can be installed into the proposed new exploration and mining laws and regulations.