Indonesian Exploration & Mining Spirit Shines Bright. Vol 126
On the 27th April 2021, the Economic Geologist Association of Indonesia [MGEI] held its annual CEO forum for mining and exploration companies. The theme of this year’s virtual conference was “Reviving Indonesia’s Exploration & Mining spirit; Embracing Commodities Supercycle”. Some 200 attended to hear presentations in English from several of Indonesia’s leading Chief Executive Officers (CEO). Adi Maryono and Sukmandaru Prihatmoko took turns in the moderator’s role.
STB Budi Santoso, chairperson of the Indonesian Geological Association (IAG), welcomed speakers and guests. Budi outlined the purpose of this event is to ensure the next generation of CEO’s can carry the industry forward in a sustainable manner. Budi announced the new initiative of the IAG is to develop a forum to introduce investors and tenement holders to one another, and so stimulate the development of the exploration and mining industry on a business-to-business bases. The forum is called the Indonesian Explorers & Developers Collegium [IEDC], and is planned to be undertaken in the next few months.
Dr. Ir. Ridwan Djamaluddin; Directorate General of Mineral & Coal ESDM delivered a keynote presentation. Dr. Ridwan outlined Indonesia’s global position in the extractive commodities world, and as an investment destination for mining. Dr. Ridwan pointed out that Indonesia’s attractiveness was built upon abundant reserves, established global market player with first tier operating companies, low cash costs matched with good environment & safety standards, along with plenty of skilled and energetic labour. The demand for exploration and mining for copper, nickel, bauxite, iron, manganese and base metals shall grow over the next few years, to supply the growing smelter industry. Overall, the government is working to provide a safe and peaceful environment for business to grow in. Dr. Ridwan’s presentation was clear, logical, and to the point. He was very generous in the following question and answer session.
Alexander Barus; CEO PT. Indonesia Morowali Industrial Park (IMIP) spoke on “The downstream nickel mining industry’s game changer”. Alexander started his presentation with a history of the nickel parks development that has seen constant expansion over the last 8 years. IMIP now has a nickel cluster of 14 companies producing 3 million tpy Nickel Pig Iron (NPI), 3 million tpy SS-300 and 0.8 million ton of SS-200. The carbon steel cluster has 1 company with a capacity to produce 3.5 million tpy, a cathode Ni-Co-Mg cluster of 5 companies with a capacity of 240,000 tpy Ni, and a recycled battery cluster of one company with capacity of 20,000 tpy. IMIP has also built a significant supporting infrastructure, including power plants, ports, hospitals, schools and more. The estimated investment to 2020 is USD 9.8 billion, and contributes IDR 4.6 trillion in tax, with exports estimated at USD 6.6 billion. Development of skilled manpower, environment concerns and social harmony are important ongoing activities. [tpy – ton per year]
The mode of operation is that the China lead technical program is to ensure production and viability (15% ROI) of the business, while the Indonesian lead management program is to handle all non-technical matters of social, environment, government compliance etc. One unexpected aspect of this development was the great diversity in social norms of the manpower, between the Chinese experts, Western Indonesian professionals, and local Eastern Indonesia workforce. IMIP is working to have Indonesians take a larger presence in the running of the operation. IMIP found that the local sources of Mn & Cr were unreliable, and now imports these minerals for its smelter products. MIPI have looked at the governments request to build an EV battery cluster, however this is not possible until issues over waste slag can be resolved. The MIPI cluster is also approaching a fresh water supply environmental constraint, that may limit the further growth of MIPI.
Derian Sakmiwata; President Director PT. Ceria Nugraha Indotama, spoke on “Strategic planning on how PT. CNI became the next reputable national nickel producer”. This presentation outlined the planning and ongoing construction of a Rotary Kiln Electric Furnace (RKEF) and High-Pressure Acid Leach (HPAL) lateritic nickel project development. The project is located in an isolated south east corner of Sulawesi, with under-developed public access. Derian outlined the careful planning and research that was undertaken prior to the decision to develop a stand-alone mine mouth nickel smelter project. This included drone topography surveys, drilling and GPR surveys to support a JORC style report on resources and reserves (2019). Resources are estimated at 101 wet Mt limonite with 1.26% Ni & 0.13% Co, plus 168 wet Mt saprolite with grades of 1.53% Ni & 0.04%Co, and reserves of 34.5 wet Mt of 1.28% Ni & 0.12%Co plus saprolite of 18 wet Mt at 1.59% Ni & 0.04% Co, with significant upside of more than 500 million ton remaining. Project credibility was sought for the reserve estimation, and design of the smelter, through awarding such works to well recognized expert western consultants. The mine, smelter and supporting infrastructure (including ports) are located within the tenement. PLN has guaranteed the supply of 350 MW electric power. Construction of the project is well underway, with smelter scheduled for completion in 2024 at a cost of around Rp 15 trillion. As a national strategic project, Ceria is eligible for various tax and non-fiscal incentives, including rights to water, forest with building & location permits. The project is based on consultants’ bullish projections of the future nickel price, China financial support, and government support.
Suseno Kramabidrata; CEO Bumi Resources Minerals (BRM), spoke on “Road to become one of the emerging prominent national mining houses – BRMS Development planning 2021-2025”. Suseno also holds a key position with the International society for Rock Mechanics and Rock Engineering [ISRM], wherein parts of his presentation emphasized the role of rock mechanics in mining. Another theme running through Suseno’s presentation was the appreciation that society owes geologists in finding the resources upon which the human culture depends for its materials. BRM has several significant projects, gold at Citra Palu Minerals (CPM), gold & copper Gorontalo Minerals plus zinc & lead at Dairi Prima Minerals located on several magmatic / mineralized belts that run across Indonesia. BRM conducts staged exploration programs wherein reporting of resources & reserves follows the JORC and KCMI reporting codes. Suseno noted that project financers presently seek JORC compliant reports, wherein Suseno would like to see the KCMI reporting code equally accepted by financial institutions.
The open cut gold project at CPM is in production, with the other projects scheduled to start between 2022 and after 2025. A brief outline of each project was presented. There is great attention in the procedure to develop a mine, including permits, environmental & social approvals, technical & financial viability, applying industry 4.0 to improve operational performance, and the development of human capital.
Rock mechanics contributes to the engineering risk management system, and contributes to green mining business through improving safety and reducing environment impact as well as increase efficiency and profit.
Bronto Sutopo; Business Alignment Lead Specalist PT. Antam Tbk (an Indonesian State-Owned company – BUMN), spoke on “Brief and short-&-long term strategic planning of ANTAM Embracing supercycles”. Bronto is also chairman of MGEI. Antam’s long terms strategic plan is to improve its reserve position, and develop strategic alliances in the development of downstream businesses. The main focus will be in the commodities of nickel, gold and bauxite, where Antam has 13 IUP’s in operation stage, 1 IUPK and 7 IUP gold exploration projects. Antam’s nickel strategy is to develop partnerships with companies that have strong financial and technical capabilities, develop a shareholding structure with a flexible funding strategy, where Antam retains management control. Antam’s strategy is to transform its gold business by securing more reserves through brownfield exploration and acquisition, improve present operational efficiency and profitability and to review and innovate upon its business model. Antam’s bauxite strategy is to continue development under global downward price pressure through further developing its reserves, develop alumina refineries (option metallurgical or non-metallurgical) and seek strategic partnerships.
Hal Loevy; CEO Carsurin, spoke on “Technology as the catalyst to support the diversification in the Indonesian mining industry”. Carsurin’s has been operating principally as a survey company (inspect, test, certify, report) since its inception in 1968. It is now broadening its scope through a program of “Transformation to support diversification” to grow as a technical solution provider (reduce risk). This transformation is undertaken by embracing cloud technology with drone surveys for real time output, and a variety of data processing options. Applications are suitable for the exploration, mining (pit, roads stockpile, reclamation & environment surveys) to improve safety and reduce various risks.
Reviving Indonesia’s exploration and mining spirit
The presentations were largely about the speaker’s companies, and rarely ventured outward to share their broader industry outlook. One repetitive theme was the need to proceed with the development of a project in a professional and cautious manner, emphasizing quality consultants over the quick fix. Maintaining credibility by not over promising to investors is recommended. Project viability was emphasized as a fundamental driver of the mining and smelting business, with the social and environmental aspects being essential to maintain the project’s smooth operations. Cultural diversity was emphasized as a significant, though manageable, issue.
The Mines Department is eager to support new exploration and development, with various fiscal and non-fiscal incentives. Investment in the mining and smelting sectors is up, though there was little data on the exploration sector in this forum. Separately it is understood the moratorium on issuing new metallic IUP’s has been lifted, though the bidding process has largely been unsuccessful, and a non-event. The requirement for Indonesian ownership and some elements of regulatory risk remains as discouraging aspects for foreign investors in Indonesia. This CEO forum did showcase local success stories, whereby giving encouragement to others to commit to investing in the Indonesian exploration and mining industry.
It is generally understood that meetings between investors and tenement holders have been undertaken on an unstructured bases, with limited success of developing joint ventures. For many under-developed IUP’s, the issue often comes down to investor resistance related to excessive asking terms from the IUP owner, or the IUP does not have enough time left on its permit to allow the project to generate a return on investment. Indonesian banks and investors prefer to invest in other business lines, with foreign investors being also concerned with regulatory and commodity price risk. MGEI is supporting Indonesia’s exploration spirit through the structured development of the IEDC initiative, to promote investors to meet with prospectors on a business-to-business bases
It was interesting to observe that Antam has a number of exploration and development projects that have been seeking investors for many years. Antam also has a number of profitable producing mines, wherein it seems there is some reluctance for organic growth. Antam is also seeking to acquire new projects. This would seem to reflect on the status of the broader industry, where tenement holders are retaining high risk projects for incoming investors, while seeking to invest their own money in other people’s more prospective projects.
Embracing Commodities Supercycle
The forum suggested a commodity super-cycle of nickel and perhaps gold, but not for bauxite that appears to be in a global over supply market. The old saying; “make hay while the sun shines”, is very appropriate for the Indonesian mining sector. The nickel industry is certainly getting plenty of sunshine now. The long-term strategy of Indonesia to ban raw nickel ore exports and to encourage the development of a domestic smelter industry means that Indonesian nickel is now basking in the sun.
This forum suggested the nickel super-cycle is strongly promoted by those keen to support the growth of the nickel EV business. However, others may be more cautious as this new EV battery industry has little history behind it. Some forums are beginning to show some concerns, reflecting recent speculators inflating the Ni market, while others are concerned that there may be an over-build of new smelters, particularly in Indonesia.
There is a general opinion that the super cycle of high gold prices shall continue for some years. The price of gold is largely influenced by politics, and in this case the global pandemic has placed a number of national economies under stress. Some Indonesian operating gold mines plan to go beyond the supergene rich open cut gold, and develop the underground larger low grade gold deposits. There is now a window of financial opportunity to justify developing some of these underground gold mines.
This forum suggested there is a global oversupply of bauxite being smelted to alumina. Other webinars suggest the growing global concern over carbon emissions place the West Kalimantan bauxite processing plants at a disadvantage due to their reliance on coal fired power. Bauxite producers are looking at developing hydro-electrical power-driven smelters in other parts of Indonesia, to become more competitive in this market.
Conclusion.
Indonesia’s coal and gold boom of the 80’s & 90’s was kicked off by foreign investors who were motivated by the success achieved by others in these fields. More recently the Indonesian nickel industry has followed this trend where the success of the trail blazers has incentivized others to follow, and grow the business. This forum emphasized the present-day success that is spilling over to other commodities and throughout Indonesia, therein wonderfully fulfilling its purpose in supporting Indonesia’s exploration & mining spirit.