Misconceptions in the exploration & mining industry. [Coal Asia Vol 60 Oct-Nov 2015]

Misconceptions in the exploration & mining industry.

In the mid 1980’s I was setting up a gold exploration project in South Kalimantan. Early in the project’s life our local joint venture partner’s son requested to borrow the car on a Sunday. This was OK, though I asked him to move the car out of the garage for its warm up period, as there was a sick geologist in the room next to the garage. In a surprise response the JV owner burst into the mess waving a pistol at my face and ranting that his son was not a lowly driver to receive such instructions. Fortunately his wife followed him into the mess a few minutes later and calmed him down by saying this was just a miss communication. Wow- this was a lesson in simple miss communication, and emphasized how important misunderstandings or misconceptions can be.

Some current public misconceptions about the exploration and mining industry are outlined here.

Mining is essential to save Indonesian forests.

When I arrived in Indonesia in 1975 to work in the South Sumatra coal exploration program, I traveled extensively about Indonesia. At that time most houses were made from wood, including wood roofs (sirap). Good hardwood was preferred to resist the termites, and the wooden roofs were considered coolest in this hot climate. Such wooden houses combined with Indonesia’s spectacular population growth placed an ever increasing environmental pressure on Indonesia’s forests, with regulations brought in to restrict and manage the flow of timber from forests to urban areas. Demand for housing continued to increase, with wood being replaced by brick and cement houses, while wood roofs were replaced by tin and baked clay tiles. Now Indonesia has a 50% urban population, with the tall apartment buildings, along with our infrastructure of roads, bridges etc all requiring cement, crushed rock, steel, aluminum, glass, copper wiring and plastic in many forms etc. All of these materials are derived from mining. By mining in selected small locations we can supply the needs of a growing population rather than cutting down ever larger parts of Indonesia’s forests for basic housing and infrastructure, thus mining prevents extensive forest destruction.

The same story applies for our energy needs. Industrialization is here in many forms, from factory made clothes, factory made forms of transport, factory made solar cells and batteries, to the endless gadgets we increasingly rely upon to communicate with one another. Such factories need efficient power supply. At the beginning of the industrial revolution huge forests over Europe and Russia were cut down for steam boilers, but fortunately the development of coal & oil provided a more efficient means of energy release, and a few mines saved millions of hectare of the remaining northern forests. In the 1970’s virtually all Indonesian meals were cooked on wood fires, wherein only a few urban areas had access to, or could afford, gas for cooking. Fortunately Indonesia’s prosperity has included a strong government push to expand the mining and processing to produce domestic gas and electricity networks to replace wood fire cooked meals and night lights, thereby saving huge areas of Indonesia’s forests.

We don’t know it all.

There is a common misconception that the geology of Indonesia is known as reflected by the 1:250,000 series of published geology maps of Indonesia. Much of this regional geology is correct, but some of it is definitely incorrect. However, at the more detailed scale there are often many significant differences or variations in geology that are critical for the exploration of minerals, coal plus oil & gas, and also critical for civil uses of geology, for example land slip prediction etc.

Most of the government geological maps were produced around 30 years ago, and were compiled through a good combination of historic Dutch geological mapping, regional wide spaced Indonesian geological traverses plus some air photography etc. There have been no significant revisions of these maps to incorporate the data from thousands of geological reports submitted to the government from the extensive exploration and mining industries statutory geological reports. Updating has also not been undertaken with the more detailed images available from satellite technology, or advances in the science of geology.

The present government geological map is the starting point for most exploration programs, wherein resource exploration programs seek to discover new aspects of the geology that may host the various ore bodies.

There is a common misconception that all the coal and minerals in Indonesia are “known”, through the extensive coverage of COW & IUP tenements. However this is definitely not correct. Many tenements have been incompletely or poorly explored, wherein resource potential may have been missed. There are many cases throughout the world where resources are found only after several exploration efforts are undertaken over the same ground. God placed the minerals and coal in the ground, and sometimes he did a good job at hiding such wealth. Multiple phases of exploration over the same area are often undertaken by the same company, but using different approaches. Multiple phases of exploration can be undertaken by different companies over a longer period, say 50 years. The different approaches can relate to simply more thorough exploration programs, new exploration technology, new geological theories, changes in mineral & coal economics, by applying more sophisticated geologists or simply the discovery of new outcrops that may be exposed due to new roads, recent land slips etc.

There is a common misconception that a particular area is prospective for only one commodity. However there are many cases where this is not correct. The 80’s & 90’s gold rush in Central Kalimantan included a focus of alluvial gold exploration. However, several of these gold exploration areas ended up as zircon mines. In East Kalimantan some large areas mapped as more recent sediments were successfully explored and became good coal mines, with the coal hiding just underneath very thin layers of recent sediments. Minerals are typically found in zoned ore genesis systems, for example epithermal gold may have mercury and silver at the surface, gold underneath, and base metals (Cu,Pb,Zn) at lower depth.

There is a common misconception that all geologists are the same, or that all exploration programs are the same, and that one geological report is the same as another, this is not correct. Just like parents who seek out the best schools for their children (with better teachers), or a company will seek out the best COO, so too does the exploration industry seek out the best geologists to optimize their chances for success.

Exploration & Mining are not the same business activity.

The mining and other laws correctly recognizes that exploration activity for commodities is the first step of finding (or more commonly not finding) resources, along with defining mineral and coal resources, while mining is a follow up activity to extract and transport the commodities. There are many mining companies that conduct secondary exploration works to extended or more accurately define existing known reserves. However primary exploration (grass roots exploration) to discover a new deposit can be a significantly different work activity, and is certainly a different business activity with a higher risk profile. Some companies that start out as explorers, and then mature into mining companies, as is the case of most of the COW’s.

The common misconception is that all exploration is carried out by mature mining companies or companies wishing to become miners. There is a long history of exploration only companies focusing on primary exploration only, with increasing project value and decreasing project risk by completing good exploration works. Such exploration companies typically sell out all, or part, of their projects prior to feasibility or production. Some years back, while working for a foreign joint venture party I met the owners of several hundred coal IUP’s. In nearly all the cases the IUP owners did not have the capacity to carry out their exploration commitments, and certainly did not have the capacity to undertake production. The IUP system was an immense stimulus for the exploration entrepreneur, with most Indonesian owners seeking very short term profits by selling out to investors. Some of the investors (both foreign and domestic) were looking at spending their money on primary exploration to raise further money for ongoing exploration and development along with short term share capital / share profit gains. We may look for parallels in many other industries, for example the palm oil seedling nurseries are often completely separate businesses to the palm oil producers, and the nurseries have no intention of waiting around for several years with large land tracts in order for their palm trees to make a profit. Chicken hatchling farmers sell the day old chicks to chicken meat / egg farmers, and a small family brick factory does not need to build the houses, and so on.

Singgih Widagdo’s article in the recent Coal Asia (Vol 58) suggested “the Geological Agencies should be separated from the Ministry of Energy and Mineral Resources (ESDM), and directly responsible to the President”. Perhaps the President is busy enough without having to deal directly with the complex issue of exploration, but certainly the notion that exploration should receive a more prominent and individual administrative roll in the ESDM is supported.

Mine now, or maybe later?

I am surprised that a number people entertain the recent popular outlook towards conserving natural resources of minerals and coal. I witnessed firsthand Indonesia’s development from a nation of simple villages some 40 years ago to a thriving modern urban society of today. This growth was funded largely by the development of the primary industries, first by the oil industry, then the plantation and timber industry, and more recently by the minerals and coal industries. The wealth from such primary industries has been spent by the Government in the development and uplifting of all Indonesians, and produced a broad middle class. This educated and healthier population is the bases for the broader phase of development from the manufacturing and service sectors. Indonesia clearly needs to continue with its maximum development of the exploration and mining industry to continue the underlying support of successful growth.

Other oil rich countries chose to develop a sovereign wealth fund as a form of insurance for long term development. However Indonesia has adopted the policy of “spend it all now for prompt development”. This development of cheap fuel, schools, hospitals and infrastructure underpins today’s modern Indonesia. By governments simply banning or severely restricting the mineral industry, and allowing exploration to falter, then there is no expansion of Indonesia’s resources. To hinder exploration and mining is to slow down or reverse Indonesia’s development.

The popular misconception of conserving Indonesia’s mineral, coal & oil wealth presupposes that continuous mining will deplete the mineral resources available for the next generation to benefit from. When a known mineral or coal deposit is mined out, then supply may be less than demand, and the price of the commodity may increase, resulting in a stimulus for exploration and development of new deposits.

Prior to the recent coal boom, Indonesia’s national coal resource was estimated as sufficient for about 50 years, however the numerous private exploration programs have defined significantly more readily mineable coal, perhaps enough for 200 years. The boom also saw private companies researching the options of underground coal, ultimately leading to perhaps a thousand years of coal resources. Similarly the lateritic nickel and bauxite industries (along with Freeport’s Copper) have expanded the nations defined resources immensely, wherein there is more than enough of such metals to supply Indonesia’s future needs. PT. Timah has walked away from low grade tin deposits, but changes to local mining have now seen such resources available for Indonesians. These private and state companies have added significantly to the nation’s wealth, in coal and minerals, while at the same time paying taxes. On the international scale, research into efficient boiler systems has enabled lower ranked coal to become a viable fuel for power stations, opening up the idle the vast low rank coal fields of Sumatra and Kalimantan.

Smelter Pain.

The proponents of the grand experiment of processing plants indicate there will be 2-3 years of “pain” before the new jobs & income from processing replaces jobs lost and income from the mining sector. This is a nationwide gamble that short term pain of lost jobs and income will not turn into a longer term depression for Indonesia. The gamble will be lost if the implementation experiences delays or diminished jobs & profits. It is unlikely we will ever know if this gamble worked, as statistics on employment and tax / non tax income immediately prior to the effective raw export ban are likely to be not reliable. The loss of jobs and income is typically experienced from several widely dispersed areas employing low skilled workers, with more experienced professionals and management having an opportunity for direct social input to the remote communities. The process plants / smelters will likely require much fewer mines and only a modest number of low skilled workers in selected urban industrial plants.

It would seem the emotive nationalism behind the experiment to force change in the mineral industry is partially a political test. The government is not yet taking an “all or nothing” gamble, as it has not banned the export of coal and oil & gas, nor has it mandated that all oil & gas needs to be processed onshore. But watch out for the drafts of the new oil & gas law and similar natural resources laws.

A more responsible option is to lower the national development risk profile through a scheme of 1) pro exploration, plus 2) parallel development of mineral processing industry and allowing competitive exports of raw and semi processed minerals.


Mining now plays a much smaller roll in GDP, and there is some misconception that it is possible to do without mining. Indonesia, like all governments, needs to secure every industry as many small parts add up to the whole. The formal mining sector is based on world class feasibility studies that typically provide assurances the mine can operate under reasonable economic scenarios for perhaps 20 years. There are few other industries that can “document and prove” they are viable for such a period. These industries provide a unique aspect for underlying assurance against country risk (royalty etc) for governments to seek international finance in various forms.

There is some misconception that exploration and mining investors will always be anxious to come to Indonesia. Although Indonesia has great exploration potential, the cost and difficulty of doing business is a big factor for foreign and local investors. Investors tend to look at a wider international market for investing their capital, with even some Indonesian companies undertaking exploration outside of Indonesia. Exploration, and follow up mining, requires good stability in government implementing regulations (for mining & associated business). The recent spate of quick changes to the investment climate of Indonesia gives rise to uncertainty. Some “quick on your feet” investors will always seek to participate in the Indonesian exploration industry. However, only a period of demonstrated stability will attract the more mature exploration & mining investors.

The popular news media tends to promote the misconception that mining is mostly in the hands of the foreign investors, emphasizing Freeport & Newmont, and sometimes Vale. However the vast majority of the mining industry is in the hands of Indonesian investors. Most of the mineral COW and all the Coal COW is locally owned, and the vast majority of the 6,000 IPU’s with C& C status are Indonesians. The SOE sector of the mining industry (Timah, Bukit Asam, Aneka Tambang, along with various BUMM ) are clearly Indonesian. This is also reflected within the mining associations, where IMA is now overshadowed by PERHAPI.


That government, companies and professional associations need to use every means and every occasion to socialize the real nature of the exploration and mining industry. Misunderstandings and misconceptions should not be allowed to become a pistol (threat) in the face of the exploration and mining industries.

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