Tin Troubles
Tin Troubles
Introduction.
In late November 2016, MGEI (Indonesian Society of Economic Geologists) undertook a KCMI Competent Person training seminar. The speakers presented short papers on their exploration fields that included alluvial tin. The discussion around PT. Timah (Presero) Tbk’s [Timah] tin exploration methodology suggested that some “old world” geological practices should be updated for an Indonesian Competent Persons to truly meet the new KCMI standards of reporting exploration results and resources / reserves. Timah is Indonesia largest tin producer is now the world’s 3rd largest tin producer (formally No.1), and retains a significant impact on the world’s tin production. This article looks into some professional reporting aspects that are essential to understand the stated resources and reserves which underlie the credibility of this Indonesian tin industry.
Tin Geology.
Tin forms in “hard rock” and “alluvial” deposits. Much of Indonesia and Timah’s mineable deposits are alluvial that form from the weathering of granites. The residual hard grains of quartz sand, Cassiterite (tin ore) and other resistant minerals were transported into old river channels and broader sand deposits that are now partially submerged in the “off shore” Malacca Straits, and form “on shore” deposits mainly in the Bangka & Belitung areas. These alluvial deposits are typically unconsolidated / loose sand that is easy for mining and processing, but difficult for taking reliable geological samples. The Cassiterite grains occur over a wide size range that further complicates the issue of sampling and resource estimation. Onshore drilling typically uses a Banka Drill while offshore drilling uses a locally made reverse circulation drill. Timah are now increasing their exploration effort for onshore “hardrock” sources of tin within relatively soft weathered bedrock.
The need for ongoing exploration.
Timah’s approach to resource and reserve determination over such a huge area is to undertake exploration each year, and so maintain a resource / reserve criteria for about 5-10 years in advance of production. Timah’s acknowledgement of the risks associated with this reasonable exploration approach is mentioned in most annual reports. The Timah 2010 annual report states;“In terms of raw materials availability, the declining tin reserves creates an inherent risk which is very crucial in nature for the Company’s business sustainability. This condition is worsened by the prevalence of tin reserves that are yet to be declared feasible for mining, due to technical and environmental factors. In order to mitigate the risk, the Company continually carries out systematic explorations in deep seas as well as evaluates its tin reserves.” The Timah 2015 commissioners performance assessment of the Company states; “the Board of Commissioners evaluates that is still need the improvement from the operational side of the business that has yet to be fully effective and efficient (operational excellence)”. The 2015 annual report on tin reserves includes “ One of the biggest challenges that faced the Company is the ability in terms of mastering of the reserves..”
Table: Summary of Timah resources.
Annual Report Resources Ton Sn Reserves Ton Sn Production of tin ore as Sn Comment
2015 801,938 328,392 26,361 Overall grade 0.33kg/m3
Resources given as Inferred, Indicated & Measured.
2014 695,029 313,238 32,319 Resources given as Inferred, Indicated & Measured.
2013 699,235 259,432 26,204 Cut off grade 0.2 kg/m3
2012 608,621 250,323 29,776 Cut off grade 0.2 kg/m3
2011 698,848 ? 279,895 27,487 Cut off grade 0.2 kg/m3
2010 373,978 37,615 Company & Independent consultant
2009 37,701
Geology Red Flags.
The term “red flag” is commonly used in the geology industry to refer to warnings where improper techniques or results should alert a professional geologist / miner and company directors/investors that the results may not be completely trustworthy.
1. Sample recovery: The nominal drill core recovery from coal or hard rock mineral core is expected to be 95-100%, however Timah typically accepts alluvial recoveries of 67 – 105% of disturbed sample. The geological condition of “rising sands” can also lead to recoveries much greater, say 120 -200%. Timah are apparently not yet using the new sonic drill equipment available in the market, which may be capable of consistently recovering 100% as soft undisturbed “core”.
2. Drill samples are first manually panned to concentrate the heavy mineral fraction (Cassiterite) by the drill site to reduce the sample volume by about 80% before sending to the land based laboratory, where further manual separation is carried out. This human factor of sample concentration is fraught with variability and open to the potential abuse of salting or reducing ore minerals.
3. Contract drilling: In recent years Timah has employed third party contractors to undertake their resource drilling. Contract drilling payment is based on meterage. Very close supervision and transparent reporting is required to monitor the compliance with recovery and other technical specifications.
Reporting Red Flags.
1. Recovery Factor; Industry sources state that mining typically recovers much more Cassiterite than was determined from the exploration drilling and sampling. Reserve estimate of “recovery factors” from Exploration to Production are typically around 95 – 105% for most coal & mineral mines. However the Timah alluvial tin recovery factor can be around 200-400%. This wide gap between exploration predicted and actual production recovery of reserves confirms that the exploration technique needs to be improved.
2. Poor reconciliation; The combination of contractor drilling, contractor mining and wide recovery factors leaves room for potential illegal practices of under reporting actual production while siphoning off ore to third parties.
3. IDX public reporting; Timah complies with the IDX public reporting of monthly exploration results, giving minimal information on drill progress and updates to resources. This level of monthly exploration reporting is typically better than many other IDX mining companies. Timah’s annual reports provide only simple tables on resources and reserves in the main part of the report. A more detailed list of resources and reserves can often be found towards the end of the annual report, buried amongst the financial section, giving categories of certainty (Inferred, Indicated Measured resources etc). None of the Timah reports from 2010 onwards make any reference to the code (KCMI, JORC, SNI) used for resources / reserves estimation, nor being prepared by a named Competent Person. Although the reports refer to a cut of grade of 0.2kg/m3, the reports are unclear on the distribution of ore grades relative to the economics of the recovery process. Unfortunately the units used in such resource / reserve tables are often poorly or inadequately defined. Occasional typing mistakes in such tables suggest higher levels of corporate management are sometimes not keenly involved with the publication of such resources / reserves.
4. Independent Resource estimation; It would seem Timah have a requirement / policy of undertaking Independent Reviews of its resources / reserves every 5 years. It seems the first such report was in 2008, (mentioned in the 2010 annual report). Apparently there were many difficulties with the 2012 independent report which was not mentioned in the reserve sections of the succeeding annual reports. The lack of transparency over such independent resource / reserve reports is of major concern to professionals and investors. The scheduled 2017 independent review report is much anticipated by a public seeking transparency, and for ongoing fund raising.
Byproducts /Associated minerals.
The new Government Regulation GR 5/2017 sets out the governments plan for value adding for the mineral industry. Article 4.2 is quite clear in that the tin industry must process the byproducts (associated heavy minerals) of Zircon concentrates, Ilmenite, Rutile and Xenotime to levels as given in the GR 2/2017 Appendix. Article 8.2 goes on with a somewhat “grey” requirement that such byproducts that have not been processed to the required specification “shall be secured by the relevant authorities in accordance with the prevailing laws and regulations”. GR 5/2017 does not set any date for implementing the additional requirement to process the byproducts, however Article 17.4 would seem to allow Timah to continue exporting tin for 5 years after the issuance of this GR. There appears to be no clear consequences should Timah fail to develop such byproduct processing.
It is understood that Timah’s primary jig separation units target Cassiterite at a Specific Gravity (SG) of 7, whereas these jigs may not recover much of the byproduct minerals (Rutile SG 4.2, Zircon SG 4.7, Ilmenite SG 4.5, Monazite SG 5.3). It is further understood that Timah recover about 70-90% of the Cassiterite (depending on size and operational factors) wherein only a small (say 10%) of the byproduct minerals may be captured with the Cassiterite concentrate that is sent ashore for further processing. The majority of the byproduct minerals are dumped back with the waste material into the mine. To recover more byproducts Timah may need to alter their primary recovery systems, which in turn may slow throughput and add costs. A closer legal reading of GR 5/2017 is needed to see if Timah must adjust their primary plant to recover such byproduct minerals, or only add further processing to their concentrate recovery system plus refineries to produce the approved finished products. A significant new exploration program may be needed to determine the remaining resources /reserves of such unrecovered byproduct minerals.
The Timah annual reports regularly refers to such byproducts/ associated minerals being present, but they are not quantified as resources or reserves, nor attributed any immediate value. Some earlier Timah reports indicate there had been some mineralogical studies undertaken on some of these associated minerals. Indeed there seems to have been a refinery plant developed for the trial processing of Zircon to produce a saleable product. Apparently this process option was terminated due difficulty in marketing the product. Most recently there are press releases wherein Timah is looking for funding to continue the development of a Rare Earth plant (Xenotime). Timah’s 2015 annual report shows a gross profit of 10% while the operating profit margin is only1%.
This new regulation insisting that Timah must further process/refine the byproducts would seem to be a particularly difficult burden for Timah at this time. Broadly viewed, this GR 5/2017 seems to target some specific industry / company issues, including Anaka Tambang’s nickel issues. Perhaps the Article 8.2 on securing the associated minerals is an opening for the government to purchase the stockpile of such associated minerals, or to allow such a stockpile to be used as collateral for funding?
The GR5/2017 value adding regulation sets out a number of technical smelting requirements for the various byproducts. Unfortunately there has been no public socialization on the justification of setting such refining criteria, and if such standards are appropriate in regards to cost and market realities. Many of the envisaged refining products may be entering a small volume market that is sensitive to the few off-takers requirements and market dominance by a few companies. The downside for Timah is that it may have to bear the excessive cost of establishing such refining plants. However the upside may be the opportunity for joint ventures with other domestic processing of similar minerals (Zircon, Ilmenite, Rutile and Xenotime) that are found in Iron sands, or other heavy mineral alluvial deposits (eg. Kumamba in Papua),or the extensive Zircon mines of Kalimantan.
Draft GR on Technical Reporting.
The Jakarta Post (10 Jan 2017) reported that President Jokowi “demanded that accurate estimates of the mineral and coal reserves in the country should be made available to prevent their over exploitation”. This statement seems to be the motivation behind a draft regulation on the technical management of mineral and coal mining. The nature of this draft regulation is to cover the planning, implementation and reporting on staged exploration and feasibility programs for coal, metal and non metal minerals, and for construction & production technical reporting. This draft regulation includes a wide range of basic geological activity, from stream sediment sampling, mapping, drilling, along with criteria for making maps and reports etc. Timah conducts exploration within 117 IUP over some 327,524 Ha on land and 183,837 Ha over sea, wherein we may expect each IUP shall need to prepare separate regular reports and be subject to inspections by the new Mines Inspector task force. This new task force may further encourage Timah in its long history of trying to minimize and control the extensive illegal and dangerous tin mining on and around Bangka & Belitung.
Reserve Issues.
The Indonesian coal and copper industries have used the internationally recognized JORC code to develop their resource and reserve bases, and so to provide assurances for their investors and off takers on the credibility of their resource and reserve bases. Potential investors that do not read the annual reports carefully may simple assume that Timah has a similarly sound base for publishing its resources & reserves. Timah’s lack of applying the international JORC code, and Timah’s lack of applying the local KCMI code in publishing its resources & reserves significantly reduces its credibility. Note that the ESDM is also seeking resource and reserve reports based on the KCMI code.
Most other deposits of coal or minerals in Indonesia are subject to restrictions related to forestry or socially sensitive areas, and Timah acknowledges it is subject to some such restriction. There has been 50 years of tin mining in this area, wherein the distribution and average grade of the remaining resources and reserves is not outlined in the Timah reports. Such remaining reserves could be similar to past mining areas or be small scattered pods of low grade ore. The 2015 annual Timah report states that some deeper reserves can only be accessed by appropriate alluvial mining machines. None of the recent annual reports provide a map of the tenements showing the mined areas, remaining resources and unexplored areas. The absence of a suitable code of reporting may leave the professional analysis in doubt about the access and mineability of such reported resources & reserves.
The quality characteristics of the remaining resources & reserves are not well defined in the recent annual reports. We do not know if the remaining Cassiterite has difficult mining features, is very fine grained, or contains detrimental inclusions that may reduce the refining output, or other factors that may lead to an increase in the cost to produce refined tin. The lack of an appropriate reporting code gives the investor little assurance that past production costs and recoveries shall continue to apply for the remaining resources & reserves.
Timah has defined about 5-10 years of reserves that are to be turned into tin metal (99.9%). About 95% of this tin metal is exported. There is a growing Indonesian political movement to retain Indonesia’s mineral resources for further value adding through developing the downstream manufacturing industries, and to ensure Indonesia does not run out of such reserves in the foreseeable future. If Indonesia were to stop exports of tin metal, then the present Timah reserve may be sufficient for about 100 – 200 years, being of a similar projection for bauxite.
Ethics Vs Glory.
Recently we saw the SOE’s of Aneka Tambang and Krakatoa Steel invest in an iron ore smelter in South Kalimantan, wherein this venture quickly collapsed due to the lack of suitable iron ore and other factors. We may speculate that this iron ore venture was pushed ahead by inspirational goals rather than reliable code based factual studies. Timah is another SOE that may be subject to various inspirational pressures. Fortunately the President Independent Commissioner, Fachry Ali, has a background in Business Ethics, which seems to be a central issue for Timah as brought forward in this article. Many companies face the ethical issue of deciding to review and possibly downgrade their reserves verses the glory that goes with company or national pride of reporting large reserves.
It is understood that Timah undertook an independent JORC code based review of its overall resources and reserves based on 2012 data. In typical form, the study was appointed to the lowest cost bidder. However this study apparently did not go smoothly and it is not mentioned in successive annual reports. Timah’s recent history appears to take the cheapest option in determining resources and reserves, and in doing so may compromise the professional ethics of their geologists and miners. This cheap policy of not undertaking modern sonic drilling, not engage highly reputable independent consultants to review resources / reserves etc) may compromise the geological risk and thereby undermine Timah’s credibility and business sustainability.
Conclusion
This article indicates that future considerations for Timah’s corporate “determination of reporting objectivity and materiality” should include improved credibility and transparency of reporting of resources and reserves. Clearly there are many competent persons within Timah, but the poor record of annual reporting on resources & reserves is letting the team down.
The government’s transparency and socialization in developing the new regulations needs to be improved further. The recent circulation of the draft regulation on technical reporting is a good point. However the technical aspects behind the determination of allocating the processing and smelting requirements criteria, along with overall feasibility studies, market studies and social impact (positive & negative) needs to be more open, such that realizable projects can be enacted.
The purpose of State Owned Enterprises (SOE), including Timah, is to pioneer various industries and so build a base and confidence for private enterprise to develop such industries further. It would seem ideal if the Government could fund the building of refineries for the tin byproducts industry, as envisaged in GR 5/2017.
The IDX use of the KCMI code may soon face a serious test if Timah’s reporting does not improve.