Thu, 22 Jan 2009
From: Reuters
JAKARTA (Reuters) - Mining investment in Indonesia may drop below $1 billion this year and there may be no fresh projects as metal prices fall and miners await details from a new mining bill, a senior industry official said on Wednesday.

Mining investment rose to $1.6 billion in 2008, up from $1.2 billion in 2007, data from the energy and mines ministry show.

The investment would come from existing mining firms which have completed exploration and are moving towards exploitation, Priyo Pribadi Soemarno, executive director of the Indonesian Mining Association, told Reuters.

"The new mining law came at the wrong time. It should come during a boom in metal prices. But it came when prices fall, it makes investment less attractive," Soemarno said.

"Mining investment may not reach $1 billion this year and we may see very little fresh investment," he said.

Indonesia's parliament passed a new law in December last year on coal and mining that promises more certainty for investors, although it has stirred concern that it may deter major new foreign investment.

One of the contentious items in the new law is dropping licensing via a contract of work, favoured by major mining firms, and replacing it with mining permits running for shorter periods.

The new coal and mining law came as metal prices sunk to multi-years low as global economic weakness hit demand.

The London Metal Exchange price of nickel MNI3, the key ingredient in stainless steel, has slumped about 80 percent since its record high of $51,800 a tonne in May 2007 on a lack of demand.

Prices of copper and aluminium have slumped about 60 percent since last July's record highs.

Indonesia has some of the world's largest deposits of gold, nickel, tin, coal and copper, with several leading international mining firms, including Freeport-McMoran Copper&Gold (FCX.N), operating in the country.

But fresh investment in the sector had been lacking as legal uncertainty, bureaucracy, allegations of corruption as well as concerns over the environment and land disputes have meant little interest from investors.

Fresh mining investment may not come soon as investors are waiting details of the new mining law and also mining areas that are open for investors as under the new law mining areas will be offered via tender, Soemarno said.

"It will depend on how the government treats the existing contracts and how the government prepares detailed regulation within one year," Soemarno said. (Reporting by Fitri Wulandari; Editing by Michael Urquhart)



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