Interview: Martiono Hadianto
From a regulations perspective, how will the ban on mineral ore exports impact mining companies?
MARTIONO HADIANTO: There are several new commitments that we are being asked to make that would significantly impact our business. Firstly, mining companies are being asked to commit to refining their mined products domestically. Currently, only about 20% of our product is refined in Indonesia, meaning that we would have to commit to the remaining 80% also being refined here in the future. Further, we would have to build our own smelters. This is problematic simply because smelting is not our business, as we are miners first and foremost. In addition, if we were to build smelters, the minimum size for the operation to be financially feasible would be at a copper cathode capacity of 200,000 tonnes per year (t/y), which would represent nearly $1.5bn of investment from our side. However, to process our current quantity of product, we would only need a capacity of 125,000 t/y, meaning that such a project does not make economic sense. Looking at the current global smelter industry, China has around 40% of the world’s smelter capacity for copper. Combined, the largest mining companies in Indonesia represent only 3% of that same capacity. From a numbers standpoint this sudden mandate to build smelters creates a huge burden for us. The presence of large mining companies is key for Indonesia, and regulations should be evaluated to create an environment conducive to the sector’s success. While the country’s mining sector ranks highly in terms of geologic attractiveness, it ranks poorly regarding investment attractiveness. Something is wrong.
In what way are negotiations between policy makers and mining companies being enhanced?
HADIANTO: I am optimistic about progress. As our mines are located in Nusa Tenggara, our presence is significant to the social and economic well-being of the region. Given that 2014 is an election year, a disruption in an industry as critical as mining in these regions could result in social and political unrest. We do not want regulatory disagreements to jeopardise the status of our operations and to negatively impact a region in which we have invested so much. As such, both Newmont and other mining groups are in discussion with policy makers to resolve issues. For example, whereas mining companies are willing to try to assist the government in building smelters, we need this to be done in a way that is financially feasible. Over the past few months, there has certainly been a more positive attitude to the negotiations, and I am hopeful that a reasonable agreement will be achieved.
How could the incoming administration more effectively manage the mining industry?
HADIANTO: There are four specific improvements whose implementation would increase the level of dialogue between mining companies and policy makers.
Firstly, there needs to be a clear definition of the scope of the mining sector versus that of the industry sector, in particular to distinguish refining in the industry sector as separate, rather than as part of the mining business. Even now, “refining” by legal definition falls under the regulation of the Ministry of Industry, so why is it being regulated by mining laws? Secondly, the government needs to understand the additional investment that every mining company would need to make if all processing were to be done in the country. While these policy amendments may be politically feasible, there needs to be more research done to understand and address the economic viability of these changes for companies. Thirdly, greater emphasis on promoting exploration is required. Without such activities, we cannot expect further growth in the mining sector going forward. Thus, promoting exploration is something that can be included under mining regulation. Finally, all mining companies would agree that the different players in the industry need to provide greater input on these regulations. Our inclusion when considering regulatory policy changes would go a ways to improving dialogue between the authorities and the mining sector.
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