Indonesia can be the mining giant of Asia. The crown is there to seize, according to industry leader Tony Manini, who is CEO of Melbourne-based Tigers Realm Group.
Addressing a Melbourne Mining Club dinner in Jakarta during the Australian Government’s Ozmine conference, he said Indonesia was poised for an era of economic growth that would propel it into the world’s top 10 economies. But he warned that Indonesia was falling short of fully harnessing its vast mineral potential.
Tony Manini drew comparisons with Chile, where mining has been the catalyst for a doubling of the economy in a decade. The two countries, both positioned on the Pacific Ring of Fire, probably had similar mineral endowments, he said. Indeed a survey of 742 mining and exploration companies rated Indonesia ahead of Chile in prospectivity.
But whereas Chile has more than US$112 billion of mineral investment in train, mining investment in Indonesia has slowed to a trickle. This was disappointing, he said, because in other fields Indonesia was considered one of the world’s most attractive investment destinations.
He said Indonesia’s earnings from both gold and copper had fallen over the past decade, despite the country having significant undeveloped deposits and exploration potential. In Chile minerals now contribute half of all export revenues.
Despite these figures, Indonesia had the mineral endowment to be ‘the Chile of Asia’ he said, attracting similar investment, generating similar revenues and powering the economy to similar growth.
The principle impediments were regulatory, he said. The same survey that revealed Indonesia to be more prospective than Chile rated it 80th in attractiveness for investment when regulatory issues were taken into account.
Key impediments include:
- Divestment requirements, which had changed from 20% to 51%, commencing after 5 years production and were not at market value, but at replacement cost minus amortization and depreciation. This was viewed by investors as inadequate reward for the risk capital deployed.
- In-country processing requirement - this is fine for gold, but the capital costs of building smelters renders most copper (and other metals) projects uneconomic. Potentially, it may be feasible for very large, long-life operations.
- Forestry permits - the permitting process is very time consuming and incurs significant administrative expense.
- A moratorium on issuing of new exploration licences has been in place since 2009, and there is limited understanding of the difference between exploration and mining and a lack of recognition that exploration is the lifeblood of the minerals industry. Without it, there is no pipeline of development projects and the industry gradually dies.
- Departmental bureaucracy - lack of clarity and difficulty in obtaining and renewing licences, permits.
Tony Manini said these were issues that could progressively be worked through to provide an appropriate balance. He urged industry investors in turn to take a long-term approach, building their in-country presence, attracting and developing local partnerships, developing local expertise, encouraging talent and practising good corporate social responsibility.
“Indonesia must get value from its minerals industry,” he said, “and it is important that companies as well as government work to that end. We need to develop a framework that is attractive to investors and which delivers for Indonesia.”
Tony Manini said Asia’s metal-intensive development phase had a long way to run, yet. “Indonesia is well placed to capitalize on this and use it as a catalyst for accelerated national development. All that is required is for government and industry to develop an appropriate framework.”