Local stock marts 'should assist mining firms more'
NUSA DUA, Bali (JP): Jakarta and Surabaya stock exchanges should set special listing provisions for mining companies to raise funds through the markets to tap the country's big resources potential.
BMW Siagian, managing director of PT Timah Investasi Mineral, an affiliate of publicly listed state-owned tin miner PT Tambang Timah, said here yesterday that mining was extremely risky and needed a lot of funding long before commercial operations began.
He said that in most cases, banks were very unwilling to finance mining projects before the feasibility study stage was completed.
"It is therefore clear that the only avenue for cost mining companies is through capital markets," Siagian told the last day of the two-day 24th Australia-Indonesia business conference here.
He said that almost all foreign mining companies which had operations in Indonesia had raised funds by floating shares on Canada's or Australia's stock exchanges.
They could not yet raise funds through the Jakarta or the Surabaya stock exchanges because current listing provisions require three years of operation and at least two years of profitability.
Felia Salim, a Jakarta Stock Exchange (JSX) director, said the exchange's management would continue to update listing rules to assist the resources sector develop further.
But it would take time before JSX could develop additional listing requirements for mining companies, as there were no agreed international standards for reporting mineral resources and reserves.
The Australian Stock Exchange (ASX) is currently pushing for a set of agreed international definitions for reporting of mineral resources and reserves.
Chairman of the International Accounting Standards Committee, Norman Miskelly, said that the mining industry was also moving toward international agreement on standards for reporting of mineral resources and reserves.
Miskelly said that the recent Busang gold mine debacle in East Kalimantan would accelerate the initiative toward international uniformity in reporting mineral resources and reserves.
Recent testing by drilling and assaying by independent geological consultant Strathcona Mineral Services Ltd on the Busang gold deposit found that the 7.1 million ounces of gold that Canadian junior mining firm Bre-X Minerals Ltd claimed were there, were not.
"Under the Australian Code and reporting system, a deception of the nature and magnitude of the Busang incident would not have survived for almost two years," Miskelly said.
Siagian suggested the Jakarta and Surabaya stock exchanges learn from ASX in defining listing requirements for mining firms.
"Indeed, Australia will soon become the second largest gold producer in the world primarily because the domestic stock market makes it easy for local companies to raise funds cheaply without having to seek capital offshore," Siagian said.
He said that listing requirements for mining companies should also provide the maximum possible degree of protection to public investors.
The economic importance of the resources sector is not yet reflected in its representation on either the Jakarta or Surabaya stock exchanges.
Only three mining and resources companies, including PT Tambang Timah, are listed on the domestic exchanges.
JSX and ASX have signed a memorandum of understanding to cooperate to implement world best practice standards at JSX. ASX is recognized as a world leader in listing procedures for mining companies.
ASX vice chairman, Michael Shepherd, said the resources sector represented about a third of the exchange's total market capitalization.
Excluding oil, ASX has the greatest proportion of mineral resources stocks of any major stock exchange in the world.
"This reflects the importance of the resources sector in the Australian economy, where minerals and fuel represent nearly a third of our merchandise exports," Shepherd said.
He said that when investors bought shares in a company in the industrial sector, they were buying reasonably predictable returns from known products or services.
But when they bought shares in an exploration company, they were paying for something that did not produce anything, but might do so in the future. What they were buying was the expertise and reputation of those involved and the prospects of its tenements.
These investors had a particular requirement for full, prompt and frequent information about the operations of the companies in which they invested.
"Our listing rules for all companies are based on continuous disclosure of price-sensitive information, but we have specific requirements for additional regular reporting by exploration companies," Shepherd said. (rid)