International Geological Consultants Continue to Lead the Industry [Coal Asia Vol. 29]

International Geological Consultants Continue to Lead the Industry

By Ian Wollff

The author is an expatriate principal geologist of about 28 years experience in the Indonesian exploration & mining industry, and is employed by an international consultant company.

 

Introduction

In the beginning of the modern Indonesian mining industry, international consultants were an initial source of proven geological skills. For example the World Bank project in the 1980’s to revitalize Bukit Asam. The COW & PKP2B title system prompted the growth of the private exploration industry, and with it the rise of the international geology consultants. The industry has continued to mature, including the development of many international and Indonesian consultancies resident in Indonesia.

There are consulting services for every aspect of the exploration & mining industry, from exploration, construction, production, management, OHS, environment, finance, legal etc, and most players in the industry use consultants from time to time. There are many types of consultants, from single retired professors to established larger companies. This commentary looks at the Indonesian based international geological consultants and the role they play in the ongoing development of the Indonesian coal & mineral industry.

Why international consultants?

Industry players look to international geological consulting companies principally for their high professional standards, specalist expertise, independence, confidentiality and accountability. The range of professional services can vary between the consulting companies, reflecting the skills of individuals engaged on various projects, but it is their company organizational structure & protocols that drive the ethical aspect of such companies. These consultants build their reputation based on the nature of projects successfully completed, and it is this branding that enhances their accountability.

Brand is particularly important to international and local financiers, as it reflects a proven track record of having prepared previous reports that have demonstrated reliability and independence. Some investors have a preferred list of geological consultants to prepare reports, and another list of consultants to cross check the first consultant. Many financial institutions will spread their investment risks amongst other institutions, and any one of these risk sharing investors may further impose their requirements for independent consultants.

Government agencies, financial institutions and some large companies place various criteria on pre selection of geological consultants. Despite the likely higher rates, it is the attributes of the international consultants that generally meet their high industry requirements. Private individuals and companies seeking assurances of a quality and independence will often prefer to engage international consultants.

There is often little practical redress where an under resourced small local consulting company does not perform well. The international geological consultants are concerned about their brand image, and have more resources and are more likely to redress issues with follow up measures.

Where investors place great emphasis on the ethical aspects of reporting, then the international geological consulting firms are often preferred. This is unfortunate for some local consulting companies, who are sometimes viewed as a reflection of the broader perception of local acceptance of working in “grey” areas. It is through open competition between the local and international consultants that the local consultants can draw strength to proceed along the higher ethical path.

Indonesian culture sometimes places social emphases on family or ethnic associations that can possibly compromise business or professional outlook. Investors often look upon the international geological consulting companies as providing a stronger assumption of independence, and thus free from such potentially bias in reporting.

International geological consultants can often provide the best expert to address a particular aspect of a project, not simply a professional with a broad knowledge to cover all aspects. Therein the client can be more assured of a higher quality report.

Who wants international consultants?

Many Indonesian project owners look for sources of international financing as a means of cheaper and more manageable credit to develop or expand their projects. Alternatively they may be able to raise funds from stock exchanges, local banks or private placements. In all these cases the project owner, or investor, are seeking to lower the risk of the investment through engaging suitable consultants with the rational that the higher confidence in the consultant, that leads to higher confidence in the report. The owner does not want the project undervalued, and the investor does not want the project over \valued. Generally the business to business parties can best agree when they both have confidence in the independent consultants. Often the international consultants can more readily meet this balanced requirement.

The various international capital investors rank projects from all over the world, and it is their standards derived from a broad and long history of investing that has lead to their present business plan, where they place their confidence in a select list of international consultants. Indonesian banks and investment institutions follow a similar business path of acknowledging selected consultants.

Increasingly coal & minerals buyers have strict delivery and sophisticated quality criteria to optimize their coal boilers or metal product specifications. These consumers often seek assurances through international consultant reports.

The Indonesian mining industry is maturing, where many project owners genuinely strive for industry best practices. A number of project owners are adopting ISO certification and other forms of international and Indonesian certification. Such companies also look to international consultants to train staff in the higher standards for undertaking exploration and resource management activities.

The ongoing new horizons

The 1990’s gold exploration rush was driven largely by recognition of new models of mineralization and new laboratory analysis methods. The nickel industry grew from new technology of processing lateritic ores, and now we have the coal bed methane and shale gas revolution. Typically it is experts associated with international consulting firms that are amongst the first to apply new exploration techniques throughout the world in association with such new industry advances, and Indonesia has often benefited greatly from such advances.

As with all professions there are specialists from various nations that provide experience and leadership for the ongoing development of the industry.Indeed, as exploration looks in more hidden geological settings, and mines progress into more difficult ground, then industry professional experts are increasingly called upon. International consultancies often provide a pool of highly skilled human resources to tackle these new industry boundaries. Such skills have been acquired from experience in international settings, and are generally not readily available in Indonesia. There is also the maxim, that it is better to learn from someone else’s mistakes than learn from your own mistakes !

Indonesia is blessed with a variety of minerals, and often they are initially mined by traditional methods and sold in small packages. The early tin enterprises have been turned into a mechanized commercial industry of national importance. This process of developing responsible mining industry is ongoing, with the manganese industry in east Indonesia as one current example. Some Indonesian entrepreneurs are turning to international geological consultants to provide the specialist skills to examine a range of non mainstream minerals, such as zircon, rare earths etc.

Local consultants can benefit

Indonesian staff working for an exploration or mining company shall usually get to know their few projects very well, whereas staff working for consulting companies may have shorter intense experience over many different projects. There are other benefits for staff working for international geological consulting companies. Experts working with the local branch provide the unique opportunity for local staff to learn the more sophisticated aspects of their industry from international industry leaders. The experts in turn learn about the Indonesian perspective of implementing the geological sciences. Projects come in over the internet from overseas branches requesting local staff to participate on parts of the work, and so provide a window for local staff to experience geological settings from throughout the world.

At present much of the investment industry seeks JORC compliance for the quality of exploration work and reporting. Here the international geological consultancies have a competitive edge over local consultants largely through their brand recognition, their high professional standards and proven track record of ethical reporting. The new 2012 JORC code requirements for prefeasibility & feasibility studies for Resource or Reserve estimation needs a team of qualified professionals from different disciplines to work together. This can be easier for international consultants with their linkage to a broader range of highly experienced human resources, plus in country operational experience. Some local consultants are working hard to build their business and reputations to compete in this field, and may develop into the next phase of international consultants.

A new direction for the Indonesian mining companies is exploration and acquisition outside of Indonesia. This move is prompted by the moratorium on issuing new coal and mineral concessions, the ongoing uncertainty in the Indonesian mining regulations, and the shareholders desire for continued growth. Pertamina and Timah are leading this general industry trend. Although this will have an initial high risk capital outflow effect, it may also provide opportunities for Indonesian professionals to work as expatriates in these new destinations. Indonesian geologists are now sought for work in Australia, Vietnam, Mongolia etc. The Indonesian branches of the international consultants are uniquely positioned to facilitate this new development.

Direction of industry

There has been a moratorium in place for no new concessions to be issued, which has stopped the opportunities to conduct exploration in new areas. Some investors have screened through hundreds of IUP’s with little follow on interest. Many of these IUP’s have limited time remaining, where in it is becoming less attractive to start meaningful exploration. Many of the IUP owners have little appetite to conduct extensive exploration themselves. Some concession owners and investing companies (both local and international) are reacting to this industry situation by reducing their exploration expenditure and terminating staff. Many professionals will leave the industry, just like others did the end of the gold boom in 1997. The new business approach to these circumstances is often for investors and owners to engage geological consultants only when needed. However if the government policy is extended, then even these professionals may be forced to leave the exploration industry. The long term effect for Indonesia exploration & mining development industry is to lose its strong and broad local professional base. If it is too much later, when the government policy and industry are in a position to stimulate growth in the exploration and mining sector, then the industry may again need to turn to the international geological consultants to kick start the exploration industry.

Should the exploration and mining industry be able to continue with a strong business to business foundation that has brought so much success to date, then we may see the Indonesian industry continue its expansion. Some Indonesian mining businesses may create successful off shore ventures. A part of such expansion may be the ongoing maturity of local geological consultancies, and maturing to becoming the next generation of Indonesian companies to develop as international consultants.