Legal uncertainty is a major problem for RI's mining sector

Fitri Wulandari, The Jakarta Post, Jakarta

State-owned general mining company PT Aneka Tambang (Antam) is one of the leading mining firms in Indonesia. Despite the overall gloomy mining sector, the listed company is pressing ahead with the FeNi III smelter project. Antam's development director Darma Ambiar spoke with The Jakarta Post's Fitri Wulandari about the company's current and future projects. The following is an excerpt of the interview.

Question: How do you see the prospects of the mining sector?

Answer: The prospects are gloomy. We are all familiar with the problems in the mining sector. Legal uncertainty is one. For instance, the exploration license of a mining company obtained years ago could be unilaterally annulled because the mining area is located in a protected forest (Law No.41/1999 bans open-pit mining in protected forest. This law has become controversial because many of the mining areas were not designated as protected forest prior to the introduction of the law).

We are working together with (mining firm) BHP to run nickel mining on Gag island. But since Gag island (is now) located in a protected forest, BHP can do nothing.

The law is still our biggest problem because most of the mineral deposits are located in the forests. If all forests are considered protected forest, we won't have any new mining areas to work on.

In addition, we have to face the problem of the high cost of doing business in those regions, where most of our working areas are located. For instance, there is no clear rule how much we have to compensate residents whose houses and land are being evicted for mining.

The company has also set aside an extra sum of money to secure mining operations.

Can you explain how much of Antam's mineral deposits exist at present?

High grade nickel (2.3%) is about 35 million tons of ore. We have 1.65 million ounces of gold, high grade bauxite is 1.3 million tons and low grade bauxite is 108 million tons.

For the time being, there is no problem with nickel deposits. Our nickel deposits are enough for 20-30 years. But with the current process and technology, we cannot increase production.

The current technology only allows us to process high grade nickel which has limited deposits.

If we can get technology to process low grade nickel, we can increase our production because the low grade nickel is more abundant than high grade.

New exploration is carried out only to maintain reserves but not to increase production. It is because mining areas particularly for nickel are very limited. Nickel deposit areas are scattered mostly around eastern parts of Indonesia.

In the global market, there is a surge of demand for mining commodities from China. How is Antamb preparing for this?

Basically, there is not much we can do. Buyers from China come in suddenly and demand various commodities.

Particularly for nickel, we don't have any reserves left to be sold to China.

China is particularly interested in iron sand and bauxite. And we are in talks with them about contracts for those. We already have a contract with China for bauxite amounting to 4 million tons a year for four years. This commodity comes from our reserves in Pulau Kijang, Sumatra.

We are trying to redevelop our old iron sand mine in Central Java.

Initially, we didn't have any plans to develop the mine because our only buyers, the cement producers, no longer needed it. China said they need iron sand for about one million tons a year. But it (the contract) is still in a discussion stage.

As for bauxite, we still face obstacles in meeting China's demand although the demand is very high. Our bauxite mining is located in remote areas which means very high transportation fees. Thus, it is not profitable to sell bauxite ore. The bauxite price has yet to reach the economic price level for us to open new (bauxite) mining.

China is also interested in other base metals such as lead and copper.

Overall, the prospects would be good, but not there is not much we can do to meet China's demand.

How is the progress at the FeNi III project?

The construction of a new smelter for the FeNi III project has started. We are now in the engineering phase until February. Physical construction will began in mid December. The smelter is scheduled to begin production in 2006.

With FeNi III running, we hope for additional nickel production of 15,000 tons a year. At present, from our two smelters (FeNi I and II) we produce 11,000 tons.

All (of the facilities are) located in our nickel mining in Pomalaa.

For financing of the project, around $60 to $70 million comes from internal funds, while the remainder, comes through the issuance of some $200 million worth of bonds. In case of a shortage, we'll borrow from local banks.

Any new projects in the future?

We plan to open a new aluminum mine in Tayan, West Kalimantan. It is still going through a feasibility study. It should produce commercial grade and smelter grade alumina. Commercial grade alumina can be used for many purposes such as for water purification and to make household utensils. While smelter grade is for producing aluminum.

The mining will produce some 50 different kinds of products with total capacity of 300,000 tons a year.

This is to cater the Japanese market.

Aside from that, we don't have plans for any big projects. Particularly because financing opportunities have been lessened as we have spent so much for FeNi III.