Fall in gold production continues<\/p>\n
Sudibyo M. Wiradji, Contributor, Jakarta<\/p>\n
The falling trend in gold production in the country is showing
\nsigns of continuing due to a decline in new exploration
\nactivities. The drop in new exploration results from an
\nunfavorable fiscal regime combined with the absence of a mining
\npolicy that can ensure the sustainability of mining activity.<\/p>\n
Indonesia's geological potential is vast but many investors
\nfeel that the business climate is not promising enough for them
\nto enter the mining sector.<\/p>\n
In addition to uncertainties in investment policy, the high
\ntax payment that should be filed by investors adds to the main
\nfactors why the mining sector is becoming less attractive.<\/p>\n
\"With a combined tax payment (taxes, royalties and other
\nlevies) of over 60 percent, chances of exploration are very low.
\nSome exploration is going on but that's not at a sustainable
\nlevel to maintain production,\" said Richard B. Ness, acting
\nchairman of the Indonesian Mining Association.<\/p>\n
The high taxes and royalties set by the government in the
\nmining industry has discouraged investors from investing in the
\nindustry. \"Most countries do not have a royalty system,\" he said,
\nadding that additional costs, such as levies imposed on dead
\nrental areas and water services make the cost of producing
\nminerals, including gold, less competitive on the international
\nmarket.<\/p>\n
According to data available at the Indonesian Mining
\nassociation (IMA), Indonesia's pure gold production was projected
\nto drop to 33,511 kilograms in 2002 from 42,824 kg in 2001.<\/p>\n
The data also shows that this decline will continue for the
\nnext three years, with production projected to reach 15,386 kg in
\n2003, 9,532 kg in 2004 and 3,677 kg in 2005.<\/p>\n
Ness underscored the importance of establishing a new mining
\npolicy that would attract investment, saying that the new policy,
\na combination of the mining, fiscal, corporate and forestry
\npolicies, was expected to remove the barriers to ensure the
\nsustainability of mining activities of gold and other minerals in
\nthe country.<\/p>\n
He emphasized, however, that getting the policy right was the
\nmost important thing.<\/p>\n
Ness cited Law No. 41 on forestry as one of the reasons for
\ndeclining gold mining activities in the future, saying that the
\nlaw that bans open-pit mining operations in protected forest
\nareas had impeded new mining projects. \"The concession holders
\nthat have the right (issued before the implementation of the law)
\nto explore cannot continue their exploration activities and as a
\nresult, overlapping or conflicting legislation stops the
\nexploration,\" he said.<\/p>\n
In addition, for new potential areas, there is no framework in
\nplace that would allow operators to mine.<\/p>\n
\"Exploration slowed down beforehand and this will be slowed
\ndown further,\" he said, adding that when production increases,
\nexploration has to increase to make mine production sustainable.<\/p>\n
Another foreign mining expert said that political and economic
\ncertainty plays a predominant role in attracting foreign
\ninvestment. The absence of a contract of work system has also
\nbeen cited as hampering foreign investment in gold projects.
\n\"There should be more certainty surrounding the fiscal regime and
\nregulatory conditions under which new foreign investors will
\nparticipate in the Indonesian mining sector,\" said the expert who
\nremains anonymous.<\/p>\n
The mining industry in Indonesia is inseparable from what is
\nhappening in the rest of the world. Ness elaborated that factors
\naffecting the country's mining activities include international
\nmining companies moving to merge and consolidate, more countries
\nmoving to open and update mining policies and investors having
\nmore choices in what to invest. \"Over the last 20 years about 110
\nnations have updated their mining policies. Consequently,
\ninvestors have more choices than they did 20 years ago,\" Ness
\nsaid.<\/p>\n
Exploration activity in Indonesia peaked in 1996 at the height
\nof the excitement over Bre-X Minerals' Busang gold deposit
\nfinding in 1977. The finding was claimed as the largest gold
\ndeposit in the world but was later found to be a massive salting
\noperation.<\/p>\n
\"This, along with the prices of weak metals, has had a
\nsubstantial impact on exploration activities globally and in
\nIndonesia, the legacy of which is over 170 Indonesian exploration
\nprojects currently suspended, withdrawn or inactive,\" according
\nto PricewaterhouseCoopers.<\/p>\n
Junior exploration companies, without funding and stock market
\nsupport, have largely withdrawn from Indonesia's mineral sector.
\n\"This decline in exploration spending is a cause for concern as
\nthe long-term success of the Indonesian mining industry is
\ndependent on continued exploration and the discovery and
\ndevelopment of new deposits,\" it said.<\/p>\n
It said that spending on exploration in Indonesia dropped from
\nUS$160 million in 1996 to $67 million in 2000 and an estimated
\n$22 million in 2001. Some industry sources said the spending for
\nthis year could be as low as $4 million. Investment is also seen
\nto be down. Total investment in the mining industry slid from
\n$915 million in 2000 to only $413 million in 2001.<\/p>\n
Gold-producing companies in Indonesia include: PT Aneka
\nTambang which operates gold mining operations in Sulawesi,
\nHalmehera and Java; PT Kelian Equatorial Mining in Kalimantan, PT
\nNewmont Minahasa Raya in Sulawesi; PT Newmont Nusa Tenggara in
\nSumbawa and PT Freeport Indonesia in Irian Jaya or Papua.<\/p>\n
The Grasberg Mine operated by PT Freeport, a subsidiary of the
\nU.S -based Freeport-McMoran Copper Gold, dominates copper and
\ngold production in Indonesia.<\/p>\n
The Grasberg Mine, located in Tembagapura, Irian Jaya,
\nproduced 2.6 million ounces of gold in 2001, making it the
\nworld's largest individual gold producer.<\/p>\n
PT Newmont Minahasa Raya discovered a 1.9 million ounce gold
\ndeposit in 1988 and began production in March 1996. In 1999, the
\ncompany produced a record 344,000 ounces of gold, up from the
\nproduction of 261,000 ounces in 1998. \"Mining activities in
\nMessel Minahasa may be completed by the end of 2003,\" Ness, who
\nis also president director of PT Newmont Pacific Nusantara, said.<\/p>\n
Newmont's other Indonesian-affiliated company, PT Newmont Nusa
\nTenggara, started to produce copper and gold two years ago from
\nits Batu Hijau mining area in West Sumbawa. \"The primary product
\n(in West Sumbawa) is copper but it contains gold in a
\nconcentrated form,\" he said.<\/p>\n
Ranked as one of the largest undeveloped copper and gold
\ndeposits in the world, Batu Hijau contains reserves of 10.6
\nbillion pounds of copper and 12.5 million ounces of gold.
\nCommercial production commenced on March 1, 2000 and at full
\nproduction the project will achieve an average of 245,000 tons of
\ncopper and 564,000 ounces of gold.<\/p>\n
\"We are still conducting explorations in North Sumatra. This
\narea is not mined, but there is exploration activity,\" he added.<\/p>\n
Other gold producers include state-owned PT Antam Tbk and Rio
\nTinto's Kelian Equatorial mine in East Kalimantan.<\/p>\n
Antam still continues with its exploration projects throughout
\nthe country. Antam operates the Gosowong Gold Mine on Halmahera
\nisland in Sulawesi under a joint venture with Newcrest Mining,
\nwhich owns an 82.5 percent interest. Gosowong Gold Mine is
\nexpected to produce 155,000 troy ounces of gold per annum over
\nits short five-year lifespan.<\/p>\n
Gosowong is operated by PT Nusa Halmahera Minerals, which is a
\njoint venture 17.5 percent by Antam.<\/p>\n
Antam's mineral resources and ore reserves for gold total
\n6,175,000 weight metric tons (wmt), with an estimated remaining
\nproduction of 15 years. In 2001, it held 32 mining licenses and
\nwork contracts, with a total area of 2,221,8884 hectares.<\/p>\n
Last year Antam's gold production was stable at 127,928 troy
\nounces or 3,979 kg and 129,278 troy ounces or 4,021 kg in 2000.
\nThe company saw a significant increase in gold production in
\n1999, with 95,038 troy ounces or 2,956 kg, compared to 50,444
\ntroy ounces or 1,569 kg in 1998. The increase was partly due to
\nthe company's expansion project in Pongkor in West Java.<\/p>\n
Antam's gold production in 2002 is expected to slightly
\ndecrease to 3,500 kg from the targeted 4,100 kg due to
\nunexpected soft walls in the new Ciurug stope at Pongkor<\/p>",
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