SMELTER & MINING SUSTAINABLE.
A half day Indonesian Mining Conference “Smelter and Mining sustainable” was held in Jakarta on 16 December 2015 and attended by about 150 people, including key players from the various mineral & smelting associations. The half day conference was sponsored by Tambang magazine, Inke Maris Associates (strategic communications consultant) and Oxford Business Group. The conference was held in bahasa Indonesia, and comprised several short 20 min presentations followed by discussions and questions & answers.
I apologize if some of the following notes are incomplete or inaccurate;
Ibu Inke Maris (CEO of Inke Mares & Ass) opened the conference with a logical outline of the present status of the minerals and smelter industry.
- Indonesia is a major producer of several metals with much exploration potential remaining.
- Responsible mining takes due consideration of social & environmental concerns, however ongoing illegal mining tends to destroy the environment and has social issues.
- Implementing regulations are still in process, particularly with overlapping areas such as forestry imposing limitations on mining.
- Much of the government’s regulatory approach is “ad-hock” where a more systematic approach is required.
- Investors are looking for more certainty in the industry.
- Commodity prices and volumes are down around the world, including in Indonesia. This has some positive & negative impacts on Indonesia, particularly for the future of industrial minerals.
- There is growth potential in the Upstream & downstream areas.
Atep (Tambang Magazine) addressed the conference;
- It is now nearly 2 years since the start of the smelter program (11th January 2014) and this is a good time to review the present status of the mining & smelter industry.
- There are some 16 smelters due to be finished by the end of 2015, with another 6 more scheduled in 2016.
- Several issues are identified by the industry, including security of supply, finance, local laws etc are of concern.
- The various minerals have different emphases on certain issues.
Sudirman Said (Minister of ESDM) did not attend, whereupon his prepared speech was read out in an excellent manner by Ir. Bambang G. Ariyono (Dir Gen Mineral & Coal).
- Brief outline the importance of Indonesian mineral production on the world scale. Law 4/2009 is the mining law and reminder of constitutional direction that minerals are for the people and are to benefit the economy. Plan 70 smelters from which there has been some good progress. Compliance with environment and social development goals. Expecting smelters to deliver at least an 11 fold (blasan) increase in revenue for the state compared to that of raw ore exports. Government is monitoring exports and monitoring the industry. The downstream development to be further developed, with infrastructure, energy to be developed by the government to support mining & smelters and the Indonesian economy. Synchronization needs to be improved.
- The familiar theme of the government sitting at their desks making regulations for a mature industry, while about 20% of the audience fiddling with their hand-phones.
Ir Bambang Gatot Ariyono (Dir Gen Mineral & Coal, ESDM) spoke with series of slides.
- National resources & reserves in the bulk commodities [Cu, Ni, Al, Fe ]tabulated along with smelter sites and consumption leading to graphs showing draw down of national resources over next 20 – 50 years. Assumes static resources & smelter throughput. Conceptual “Resource Balance” where large resources could justify more smelters, plus estimates of future domestic consumption of such metals. Plus general table of resources & reserves for 10 metals.
- Categorization of 5 stages of development of smelters, and 87 planned smelters ( Ni 44, Al 11, Fe 8, Mn 3, Zircon 13, Pb & Zn 4, Kaolin & zeolite 4), plus table of 3 types of Ni smelters capacity (NPI, FeNi, NiOH) plus 2 types of Fe smelters (Pig iron, Sponge) and 2 types for bauxite (CGA, SGA).
- Smelters challenges are financial (high risk, capital intensive), sources of energy & water, need for infrastructure and material input requires security of supply. This introduces various tabulated government lead industry strategies and issues for the present and short term future of the program.
- Of concern is;
- Each District Government still want each smelted to be built in its domain, to enhance their district. However it is unrealistic and many districts will end up sending their ore to centralized smelters where suitable power and resources can support such investment. This is further complicated that multi sourced ore delivered to a smelter will raise issues for the District mines that want royalty based on ore-out (volume & grade) and not based on smelter recovery – and how to back calculate.
- Smelters need to consider the long term negative impact on the environment.
- Deciding if each present resource should be developed now, or some form of national long term sequential development plan in conjunction with national aspirations of off take etc.
- Not enough thought and planning to optimize the smelter products – how much to be/can be exported and how much for domestic consumption. What type of end product – simply ingots or finished products?
- National resources (underpin such national planning) need to be updated regularly, as economics of mining & commodity price fluctuate.
- Some parties are arguing that minerals should follow a DMO case similar to coal. How to manage the possibility of a DMO on smelter output, and how to allocate proportion of export?
Dr Ir R. Sukhyar (Head of Indonesian Smelter Association) spoke with a series of slides.
- Confirmed government position that balance exports and DMO commodity of smelted minerals.
- Several aspects of the regulations relating to smelting need to be clarified and revised, but the government is taking far too long, even small adjustments involve talking lots and doing little.
- Smelters need security of resources, but some long delays in the revised mining law and other regulations reduces investor confidence. Many past issues (introduction of smelters in Jan 2014 for mining companies that started production before such new regulation formulated, thus old FS inadequate) – but now just focus on looking forward.
- Need to think of the 240 million Indonesians development, and not just sporadic development in selected areas such as minerals.
- Should be mindful that some smelters are simpler & less costly, such as Ni, compared to others such as Al & Cu.
- Last week Indonesian delegation met in China and enquired about China’s outlook to competition in the smelter industry – Is Indonesia more competitive that China in the smelter industry?
- If the resource is in a remote area, then additional costs to provide support power & infrastructure etc. Perhaps the government could give incentive to the smelter industry by building the supporting power & infrastructure rather than some tax concessions.
- Various graphs showing value of exported mineral (Ni) is expected to increase over the next 2 years.
- Questions posed & unanswered about smelter associated minerals (for example Al has Ga & Sc). Acknowledge it is difficult to get process all the trace elements out of copper, as is done in only selected China smelters.
- Question where the national industry may go next – to convert smelted metal into final products. For example Ni-Fe is used for construction, but not yet made into stainless steel for cooking utensils etc. Supply and demand for end products is not researched yet.
Winardi Sunoto (Pres Dir PT. Indonesia Asahan Aluminium – INALUM) spoke with slides that looked like a company brochure.
- This SOE priority is domestic market, however in 2014 & 2015 continued to export about 15-20% of product.
- Indonesian consumption of Al is around 2.7 kg/person/year whereas Russia is around 28.7 Kg/person/year so there is significant growth potential. Most aluminum used in housing, power cables etc, and ambition to supply car manufacturing etc. Need to develop downstream manufacturing to turn ingots into consumer products. Long term trend domestic consumption will outpace planned expansion projects.
- Long term history of aluminum price is relatively flat and stable compared with copper. China consumes about 48-50% of worlds Al, and project past 2015 there may be a slight world shortage. Indonesia & Inalum are looking at the long term 4à 5 years before positive economic impact of present Al smelter policy. Price & availability of electricity of concern.
- Industry needs more integration, and more reliable / cheap freight, and Indonesia further regulation to encourage investment.
Dr Ir S. Witoro Soelarno (Aspect of smelters on environment) spoke with limited slides.
- Pointed out there have been limited demonstrations in some proposed smelter sites, with care for community health.
- Outlined a number of environmental areas to monitor for flue gas and particularly slag and known toxicity issues.
- Waste product and environment concerns must be addressed in the Feasibility Study for government approvals. Each smelter has different waste, toxicity & environmental concerns.
- However important for smelters to go ahead for the net benefits they bring to Indonesia.
Questions & Answers – Discussion, by moderator and audience. Most bravely answered by Bambang Gatot Ariyono.
- Should not stop at Ni pig iron, but process and fabricate to stainless steel, and similar final products for other smelter products.
- Take care smelter industry does not collapse, keep in mind the global economy. Altready have big investment, but want more along with speed up regulation road blocks (local regulations, availability of power & infrastructure). Sort out the dispute between district & central for permits, royalty etc.
- Remember the social impact, peoples pride and environment, and the wealth the program should bring to the people.
- There is too much duplication in the permit process – actually the 1 door policy also has many windows even within the one ministry.
- ESDM needs technical experts to enable investor’s technical related issues to be understood by the ESDM. For example the long life of the cement industry has built up some technical knowledge in the ESDM, but the ESDM don’t understand Ni / Al smelters.
- Some presentations made to the DPR & ESDM about the fiscal incentives of proposed tax holidays / tax allowance seems to be slow & tedious, with no significant progress (they don’t seem to understand or capable of making a decision).
- One Ferro Ni smelter has now been in operation for 2 months, and produces 30,000 – 40,000 tpm slag waste. But the government is not clear about the correct disposal of the toxic waste. The company needs direction / answers. The current toxic waste disposal regulations are not clear for this case.
- One smelter party wants clarity from PLN on power purchase terms. Apparently the initial proposal was for 60% direct payment to PLN, with the 40% paid by installments – but PLN slow in implementing such a payment process.
- One smelter party wants to build a power plant, but can’t get a location permit – has come to ESDM for help, but little progress, so project seriously delayed.
- Request ESDM clarify aspects of importing scrap metal as partial feed for the smelters.
- Indonesia has one door permit program, but this is not effective, as there are many windows even within one ministry.
- Indonesia – China association wants government funding to help small scale metal working industries etc.
- Harita has made a serious start to build an aluminum smelter, but the commercial investors ask if the company can export raw ore to offset the no income during the construction phase. Harita estimates the export ban has lost the industry Rp 14 trillion, plus lost royalty of Rp 6.7 trillion. Furthermore there are ample national reserves with production at 4.6 million tpy to last for 125 years! Note that if Indonesia does not make use of these reserves, then we may see in 50 years or so substitution and loose out the full benefit of the reserves. Answer – flat No.
- However it may be possible to argue for a change in the purity, as Romang Island are looking at Mn for battery market, that has a good commercial market for the lower %Mn specific product.
- There are 5 proposed aluminum smelters; however present international price of aluminum is too low for profitable smelters in Indonesia.
- RUSAL of Russia initially proposed a MOU (2007) with Aneka Tambang to build a aluminum smelter, but that fell through, then RUSAL formed a MOU with another company – how is the progress in this area?
- The government does not have plans for a consortium approach regarding the export of Al and Al production.
- Beg for relief in some mines, as some mines were well established before the new smelter implementing regulations were enacted, whereupon their business model is poorly affected. Answer – flat NO.