Gold, copper remain stable despite problems

Gold, copper remain stable despite problems

The country's gold, copper and nickel production capacity has
remained stable during the past five years, despite the problems
hampering the country's mining sector.

The Indonesian Mining Association, however, warns that without
new investments production will drop substantially within the
next 10 years.

According to the association, the problems in the country's
mining sector such as uncertainties in mining regulations and in
security had significantly impacted on the inflows of new
investments.

"During the last five years, no new exploration activities
have taken place," it said.

The reclassification of forest status in some part of new
mining concessions into protected forests is one of many factors
that could further worsen the country's mineral production.

At least 22 companies have been forced to suspend their
operations in rich mineral areas, mostly in eastern parts of
Indonesia, due to the reclassification of some parts of their
concessions into forest conservation areas.

The new forestry law, which was issued in 1999 long after
these companies received their contracts of works, prohibits
open-pit mining operations in protected forests.

The fact that several companies such as PT Kelian Equatorial
Mining in Central Kalimantan and PT Newmont Minahasa in North
Sulawesi are closing their operations due the depletion of their
mineral reserves will further contribute to the drop in the
country's mineral production.

The association said mineral production had been relatively
flat since 2001 and would remain the same within the next three
years despite an increase in the production of certain companies.

According to a report issued by the Ministry of Energy and
Mineral Resources, Indonesia's gold production dropped to 142,238
kilograms in 2002 from 162,605 kg in 2001. Copper production
increased slightly to 1.17 million tons from 1.04 million tons,
while ferronickel fell to 8,804 tons from 10,302 tons in 2001.

Copper and gold production has increased sharply during the
last five years as the result of increases in capacity at
Freeport's copper and gold mine in Irian Jaya (Papua) and the
continued increase in Newmont's Batu Hijau Copper and Gold Mine
in Sumbawa, West Nusa Tenggara province.

A number of local mining companies, however, continue to
report robust sales, despite the problems lingering the country's
mining sector.

Publicly listed diversified mining company PT Antam, for
example, reported a 50 percent increase its an unaudited
consolidated net profit for the three months ending March 31,
2003, compared to Rp 62 billion in the same period of last year.

The company's gold production exceeded the quarterly target by
four percent, reaching 1,033 kilograms on higher ore grades. In
line with higher gold production, silver production also exceeded
the target by 13 percent, reaching 7,048 kg. "Antam is on track
to produce between 4,100 kg and 4,500 kg of gold in 2003," said
Dohar Siregar, Antam's Corporate Secretary.

During the first quarter of 2003, Antam produced 1,800 tons of
contained nickel in ferronickel, a 36 percent drop compared to
the previous quarter and a 17 percent decrease compared to the
same quarter of last year due to the shutdown of FeNi I smelting
plant due to spot lining repairs, which took place over nine days
in January.

PT Freeport Indonesia also reported a robust growth both in
sales and in its copper and gold production at its copper and
gold mine giant in Irian Jaya amid the worsening investment
climate in the country's mining industry.

Freeport's communications manager Siddarta Moersjid said that
metal sales for the first six months of this year performed very
well. Copper production rose to 787,200 pounds during the first
semester from 646,500 pounds in the same period last year.

Gold output also showed a significant increase reaching 1.43
million ounces as compared to 730,300 ounces in the Jan to June
period of last year.

"Production and sales have been higher this year primarily
because of higher ore grades and recovery rates," Siddarta said.
He added that total sales this year were expected to reach 1.4
billion pounds of copper and 2.6 million ounces of gold.

Although the demand of copper would continue to increase in
the coming years, Freeport did not have any plan to expand its
production levels within the near future, he said.

Newmont's Batu Hijau which is located on a remote island in
Sumbawa also reported a steady growth in its copper and gold
production since the commercial production began in 2000.

PT Newmont Nusa Tenggara, which operates the Batu Hijau mine,
expects to sell approximately 340 million to 360 million equity
pounds of copper and 480,000 ounces (equity ounces) of gold this
year.

2002 was a record year for PT NNT as it contributed a equity
income of US$42 million to its parent company, the United States-
based Newmont Corporation.

PT NNT sold 644 million pounds of copper (362 million equity
pounds), essentially the same as year 2001, at a net cash of
$0.31 per pound, 16 percent lower than in 2001. The mine also
sold 494,000 ounces of gold (278 equity ounces), six percent
lower than 2001.

Batu Hijau, one of the newest copper and gold mines in the
country, is operated by Newmont in cooperation with an affiliate
of Sumitomo Corporation of Japan and Indonesian company PT
Pakuafu Indah. Newmont holds a 56.25 percent economic interest.--
Hendarsyah Tarmizi