What you know (ASX) compared to Who you know (IDX). Vol 114

Introduction.

A review of the Indonesia Stock Exchange (IDX) listed mining companies was undertaken to reflect upon the nature of the directors and commissioners as industry leaders. A comparison was made with a similar study of the Australian Stock Exchange (ASX) listed mining companies.

Indonesian companies are structured with commissioners that oversee company directors.  Directors may guide a number of executives to be responsible for set tasks. Australian companies do not have commissioners.

• A company director is appointed by the shareholders to decide on how to control the business and to make the final and key decisions.
• The role of board of commissioners is collectively supervising the management of the company, providing input concerning policies, and monitors the effectiveness of the company’s policies.
• A business executive is a person responsible for running a particular part of the company. They create plans to help their organizations grow.

In both Australian and Indonesian companies, directors may also hold executive management roles, hold positions in subsidiary companies, or hold positions in completely separate companies. Many of the laws and regulation concerning directors of Indonesia and Australia follow international norms. Both Indonesia (LKDI) and Australia (NSCD) have registered training programs for directors. The ASX company public profile tends to emphasise this professional association far more than Indonesian companies do. [See Coal Asia Vol 111 Ethical reporting broadened to include CP by this author].

IDX data on Directors and Commissioners.

The IDX review was undertaken on the 9^th April (public holiday) of 47 companies listed on the IDX mining board. However, 2 companies were suspended (Feb 2020) from the IDX, leaving 45 companies for this study. Data was sought from each company’s web site, or their 2018 annual report. None of the companies have posted their 2019 annual reports (as at 9 April 2020) on the IDX.

The combined total of IDX listed mining company shares is 573.6 billion, with a combine value of Rp 282 trillion making the arithmetic average of Rp 491.8 per share. The highest value share price was Rp 19,750 while 10 companies had the lowest share price of Rp 50-52 per share. The exchange rate at 9 April 2020 is approximately Rp 10,000 equals A$ 1.

The 45 mining companies have 209 directors of which 195 are male (93%) and 14 are female (7%). The work history of 10 directors from 3 companies could not be readily located. Therein some 77 directors (40% of directors) from 42 companies have a science background (geology, mining, metallurgy, engineering etc) rather than an arts background (law, business, finance, military etc). The 77 science directors include 11 geologist, 14 miners, 3 metallurgists and 3 petroleum engineers, being (40%) of the technical directors. It was interesting to note that many of the science directors have a background in electrical or mechanical engineering. Perhaps this reflects that some years back the mining industry was not yet developed, wherein some of the brighter students took up electrical and mechanical engineering as perceived to be the frontiers of opportunity and development at that time.

The CV’s of 10 of the directors included a reference to a professional association such as Institute of Public Accountants etc. Only three of the director’s references were made to scientific associations, particularly the AusIMM, IAGI or PERHAPI.

The 45 mining companies have 197 commissioners, of which 187 (95%) are male, and 10 (5%) are female. The work history of 10 commissioners from 3 companies could not be readily located. Therein some 50 commissioners (25%) from 42 companies have a science background. This includes some 3 geologist, 7 miners, 2 metallurgists, 1 petroleum engineer and 1 geophysics/geochemist, being 28% of the technical commissioners. Again, there are a number electrical and mechanical engineers.

The CV’s of 4 of the commissioners included a reference to a professional association, of which only one person to belonged to multiple scientific associations (IAGI & PERHAPI).

Table 1. Summary Table of Company Leaders.

Criteria.	IDX	ASX
Share value (Rp 10,000 = A$1)	Rp 282 trillion	A$ 261.7 billion
Number of Mining Companies	47	622
Number of mining companies in this study	45	312
Number of Commissioners	197
% Male Commissioners	95 %
% Female Commissioners	5 %
% of scientific Commissioners	25 %
Number of Directors	209	1,449
% Male Directors	93%	92%
% Female Directors	7%	8%
% of scientific Directors	40%	48%
Number of Executives		1,045
% Male Executives		84%
% Female Executives		16%
% of scientific Executives.		41%

ASX data on Directors and Executives.

A list of 622 metal mining companies registered on the ASX was obtained, along with each company’s market capitalization (April 2020). A simple internet search of the top 311 companies was undertaken by viewing the company’s web site, and or 2019 annual report, and or selected market news sites. Data was gathered on the directors and executives for gender, academic background, and membership of the professional association AusIMM.

The 613 active listed mining companies have a combined market capitalization of A$ 261.7 billion. There is very uneven distribution of market capitalization, with the top 22 companies having a combined market capitalization of A$ 235.2 billion, while the lower 500 companies have a combined market capitalization of A$ 5.6 billion.

A review of the ASX directors and executives was carried out on 312 companies with a market capitalization above A$10 million: –

• There are 1,449 directors, of which 1,326 are male (92%) and 122 are female (8%). Some 641 directors have a science background (44%). Some 309 directors are affiliated with the AusIMM professional association, being 48% of science background directors. Other professional associations include the AIG etc.
• There are 1,045 executives, of which 881 are male (84%) and 168 are female (16%). Some 433 executives have a science background (41%). Some 159 executives are affiliated with the AusIMM professional association, being 37% of science background directors. Other professional associations include the AIG etc.
• The ASX indicates a slight increase in the women directors and executives with increased company capitalization. The top bracket (A$ 100 – 10 bill) of company ratio of women directors is 29% compared to 3% for the bottom bracket (A$ 50 – 10 million. The difference in executives is less distinct, being 26% women in the top bracket and trending down to 16% women in the lowest bracket.
• The proportion of science background directors in the ASX is relatively uniform across all market capitalization brackets, as is the proportion of AusIMM members. The proportion of science-based executives is very slightly increasing (perhaps 4%) towards the lower end of the market capitalization bracket of companies, with the proportion of AusIMM members being overall similar across the market brackets.

Casual Observations between IDX and ASX.

From the reading numerous annual reports, plus the CV of some 400 directors and commissioners from the IDX, and some 2,500 directors and executives from the ASX, and number of observations are set out here: –

In general, most of the ASX annual reports are strong on reporting exploration and reserves, but are weak on the company’s human resource, corporate social responsibility, while the financial reports often seem to be almost summaries. The opposite trend is with the IDX, where the annual reports are strong on human resources, corporate social responsibility and detailed financial reports, but exceeding weak on exploration and reserves. This may reflect on the evolution of the management behind each nation’s mining companies. Australia has a tendency for exploration companies to grow up, with an emphases on expanding reserve potential. Indonesian mining companies are often now run by a generation of leaders who were not closely associated with the discovery or development phase, wherein continuing efficient production is the main objective.

There tends to be a different emphasis on the background of the company leaders. Australian companies tend to retain core science professionals, along with lawyers, accountants, business management and occasional government trade official, to drive the company with an emphasis on organic growth. Indonesian leaders typically include lawyers, accountants, business management, plus often include members from a military, foreign service or ambassadorial background to drive their company through the ever-complex bureaucracy and political systems, and look to acquisitions for growth. The higher capitalized ASX companies have broadly experienced leaders, though overall it appears that the IDX top leaders may have more depth to their experience.

The ASX companies emphasizes their leader’s capability and credibility through demonstrating their membership of professional associations. Some ASX companies will add local community character to their team to improve their social acceptance. The IDX companies seemingly ignore professional associations, but seem to rely more upon their family links to established wealthy conglomerates, and their personal links to people of influence. Some IDX companies will add a renowned technical expert to their team to give an improved impression of technical competence. This is a “What you know verses a Who you know” approach. Each of these approaches can work well in their own environment.

The ASX companies include a few Indonesians as directors or shareholders, while the IDX companies similarly have a few Australian nationals. Both countries public mining companies have a number of other international people as leaders, or as major shareholders. The top segment of the ASX tends to have a strong and extensive international business projects. Only a few Indonesian IDX companies have a modest offshore component. The IDX has several petroleum companies included in their board. Both exchanges have a small number of specialized mining contractors.

Both stock exchanges have a turnover of listed companies. At present about 3 ASX companies viewed are being placed in receivership, while Indonesian IDX have 2 companies being suspended. Each stock exchange also has a few new listed mining companies each year.

The ASX company shares all tended to show significant volatility, with a recent regional trend to lower share price of 20-30% related to the global pandemic. Most IDX share price movements showed modest volatility over the past month (till 9 April), as may reflect global markets during this pandemic period. However, the IDX also shows 12 companies with no trades, and 2 companies with only 1 trade during the past month. These 14 companies (1/3^rd of market) lack of trading suggests a deeper look into these companies’ directors and commissioners is required to better understand the behaviour of this aspect of the market. Many Indonesian companies only list a minor portion of their overall shares on the stock market, with the majority being retained off market by the founders. By comparison, most ASX companies have all of their shares listed, though they may have significant cornerstone investors.

The ASX companies tend to have more women leaders in the bigger companies than the smaller companies. This may reflect the ASX companies more aggressively seeking broad public support for their industry. There may be some women who have attained their position due to capability or due to public expectations on gender balance. Perhaps the IDX companies are more focussed on approval from their significant family investors rather than populist market influences. It would seem some of the Indonesian female leaders are wealthy family representatives, though typically have an excellent education background. There are some Indonesian women who have clearly earned their position within the company.

IDX Exploration Discussion.

There are hundreds of exploration companies listed on the ASX that can raise funds to sustain exploration activities. Most companies take much longer to be successful at exploration, and often return to the market to raise more funds to keep exploring. This approach is a great driver of innovative exploration.

A number of Indonesian industry associations are keen to encourage the IDX to relax its tight criteria on listing of exploration companies, such that these companies can access a source of finance to drive exploration activities. The IDX does allow non producing mining companies to list, but the criteria includes having a suitable feasibility study, and schedule to be in production within a few years. This may help companies overcome some financing for construction, but does not fit with the vast number of purely exploration companies. The IDX is overseen by the Ministry of Finance, wherein the scope of the IDX includes the policy to encourage lower risk investment, to protect the investing public. Apparently, the concept of exploration does not comply with the ministries risk outlook for investors. At a recent seminar (2019), the IDX raised the valid point; – that if such exploration companies cannot raise funds from cornerstone investors outside the IDX, then they are unlikely to seek support from underwriters for share issues inside the IDX system.

The ASX was able to attract thousands of small investors, particularly over boom periods. I recall the 1970” nickel boom and 1990 gold boom where families would invest in exploration stocks to feel part of the excitement, being part of the success story, and to grab the opportunity to increase their wealth. In Indonesia, there is the untapped potential of some 3,000 IUP’s (mining tenements) that are seeking funds to undertake further exploration and development. There is a relatively small pool of investors in the mining board of the IDX, as also shown by the low volatility of the IDX market, particularly as 14 mining companies had zero or one stock trade over the past month.

Perhaps one option for small Indonesian exploration companies is to joint venture or sell out to a major mining company. This may suite the strategy of the existing large mining companies to grow by acquisition, and in doing so reduce the potential competition from new “unicorn” exploration companies. The locally strong mining companies have gone through some years of sifting through possible JV or acquisition prospects, wherein there is little recognized potential suited to the investing companies.  The small companies often have insufficient funds to explore and thus struggle to improve their attractiveness to investors. A number of small exploration companies are reluctant to sell at prices suitable to investors.

The ESDM is understood to be looking for ways to stimulate exploration, including options associated with the IDX.