Mining firms 2001 profit up but outlook gloomy

The Jakarta Post Jakarta

Net profits of major mining companies rose by US$200 million to $4.96 billion throughout last year, a report said but warned that a prolonged dry spell in investment spending had weakened the sector's profitability outlook.

While world prices for most minerals remain sluggish, the absence of substantial investments enabled mining firms to cut debts and reduce interest payments, thus contribute to the higher net profits, said the 2001 mining report by consultancy firm PricewaterhouseCoopers (PwC).

The rise in profits "was mainly due to a decrease in financing costs," PwC mining executive Marc Upcroft said in a statement on Wednesday.

PwC surveyed 38 mining companies, of which 22 are at their exploration stage, in a report covering Indonesia's major mineral products, namely coal, gold, copper, nickel and tin.

World prices of these commodities remains largely weak. In 2001, prices of nickel fell by 27 percent, tin by 12.5 percent and copper by 8 percent.

Gold prices weakened slightly, whereas prices of thermal coal began moving northwards following a two-year-long slump, the report said.

On the production side, the industry recorded an increase on most mineral products with Indonesia's share as against global output also climbing, except for coal which share fell by 0.1 percent.

"Production in coal, copper, and nickel continued a trend of rises over the previous four to five years," said PwC's report.

In 2001, gold production surged by 24 percent to a record high of 4.7 million ounces. Tin production hit a five-year record high at 56,200 metric tons, which PwC attributed to a 9 percent jump in output from the "informal sector".

Nickel output rose 14 percent to 160.8 million pounds on the back of improved production capacities, the report said.

But PwC raised doubt over the industry's medium outlook even as mining companies recorded better earnings and production is seen as growing.

"Despite Indonesia being highly prospective for minerals, spending on greenfields operation is now a fraction of the levels seen in recent years," Upcroft said.

Total industry spending in 2001 fell by 42 percent to $1.43 billion compared to 2000, said the report citing a 67 percent drop in investment spending and 27 percent in new purchases.

Analyst have pointed to Indonesia's volatile business climate behind the drop in mining investment and from other sectors.

Legal uncertainties, lately the introduction of a forestry law that puts a ban on some existing mining operations, an assertive labor union and security problems as the government lacks law enforcement capacity, have driven out scores of companies and locked out capital.

"The long lead time and success rate from exploration to development means that there will not be significant mine development in Indonesia for several years," said Upcroft.

Mining activities throughout last year contributed some $813 million in total tax and royalties payments, the report said.