Gold standard: Two companies lead production of gold and copper

Interest in the most reliable and safest of metals, gold, continues to bolster commodity prices even as enthusiasm for other metals flag, and Indonesia’s mining companies are keen to capitalise on this.

LOWER PRODUCTION: Total gold production for 2010 reached 111,387 kg, according to data from the Directorate General of Mineral and Coal (DGMC), but production in the first half of 2011 did not keep pace with the 2010 performance, registering 40,806 kg. Copper production in 2010 amounted to 989,953 tonnes, according to the DGMC.

Production targets through the first half of 2011 fell far short of their mark of 665,158 tonnes as well, with total output registering some 329,655 tonnes. The drop in national output is attributed largely to temporary production decreases in the country’s primary mining companies, although further declines are expected due to an extended work stoppage at Indonesia’s largest gold and copper mine.

COMBINED EFFORT: Two large international mining companies, Newmont Nusa Tenggara (PTNNT) and Freeport Indonesia, make up the lion’s share of both copper and gold production in Indonesia through their stakes in local mining operations.

PT Freeport Indonesia, a subsidiary of Freeport-McMoRan Copper & Gold, operates the Grasberg mine complex in the province of Papua. The mine contains not only the largest recoverable copper reserves on the planet, but also the single largest gold reserve as well. Freeport has the right to conduct exploration, mining and production activities within the 27, 400-acre Block A area, which includes all current mining operations and proven reserves, as well as the currently unexplored 500,000-acre Block B.

According to company reports, in 2010 Freeport produced 1.2bn pounds of copper at an average realised price of $3.69 per pound, down slightly from 2009’s output of 1.4bn pounds. Gold production similarly dipped from 2.5m ounces in 2009 to 1.8m ounces in 2010, fetching an average realised price of $1271 per ounce. The decrease in output was explained by mining in lower-grade sections of the Grasberg mine.

Freeport predicted further decreases for 2011, with copper and gold production estimated at 1bn pounds and 1.3m ounces, respectively. The company will be hard-pressed to meet even these goals, however, as the mine was effectively shut down in mid-September 2011 by a labour dispute.

PTNNT is an Indonesian joint venture company owned by a number of international mining companies including Denver-based Newmont Mining Corporation, the Sumitomo Corporation of Japan, local mining powerhouse Bumi Resources and various other local investors, as well as local government interests.

The company operates the Batu Hijau gold and copper mine located in West Nusa Tenggara. The Batu Hijau mine produced 542m pounds of copper in 2010 and 737,000 ounces of gold, according to company reports. This was up from the 504m pounds of copper and 557,000 ounces of gold produced in 2009. Total reserves of the site are estimated at 3.76bn pounds of copper and 3.7m ounces of gold. In August 2011 Newport also announced it was beginning exploratory work on a new gold and copper block of its 87,000-ha West Nusa Tenggara concession.

ADDITIONAL PLAYERS: In addition to the Freeport and Newmont combined copper and gold mines, there are five other major gold mining companies currently in production in the country: Aneka Tambang (Antam), Avocet Bolaang Mongondow, Cibaliung Sumberdaya, Indo Muro Kencana and Nusa Halmahera Minerals.

Major copper mining in Indonesia is carried out primarily by the big two, although a smaller third company, Batutua Tembaga Raya, has a mine out on a small island in East Nusa Tenggara. Smelting capacity for both minerals is limited, with the only sizable facility being the 300,000-tonnes-per-annum copper cathode producer, Smelting, in East Java. It is a joint venture between Mitsubishi Materials (60.5%), Freeport (25%), Mitsubishi (9.5%) and Nippon Mining & Metals (5%).

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The Report: Indonesia 2012

Mining chapter from The Report: Indonesia 2012

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