Mining firms post higher income amid weak prices

JAKARTA (JP): Despite weak world mineral prices, net profits of mining firms in Indonesia rose to US$551.9 million in 1999 from $518.3 million in 1998, according to a survey conducted by PricewaterhouseCoppers (PwC).

The survey said that mining firms here managed to raise 1999 sales revenues by nine percent to $3.82 billion from $3.52 billion in the previous year.

"The sector has been able to expand production in the face of soft world mineral prices," PwC mining analyst Bob Parson said in a statement.

PwC revealed last week its 1999 mining survey, which covered 17 mining companies that are already engaged in production and another 19 firms that are involved in prospecting.

"The increase in profits reflects higher revenues and efforts by mining companies to reduce operating costs to mitigate the impact of lower mineral prices," the survey said.

However, of the 17 producing companies in 1999, only eight recorded increases in U.S dollar net earnings and nine recorded decreases, it added.

The survey said that average prices for all major minerals in 1999 fell, except for nickel.

But according to the survey, production increases in key minerals such as coal, gold and nickel, helped reduce the impact of weak mineral prices in 1999.

Production increases were recorded for all minerals in 1999 except for copper, tin and silver, which fell slightly, the survey said.

It said that the average realized prices for coal in 1999 fell by four percent to $21.6 per metric ton compared to 1998 prices and by 28 percent compared to 1995 prices.

"Despite the fall in price, coal remains the largest component of aggregate revenue with $1.22 billion in net sales revenue in 1999, due to increased production and tonnage sold," the survey said.

The price of gold continued its downward trend and fell slightly to $248 per ounce in 1999, though an increase of 10 percent that year more than offset the fall in price, the survey said.

Gold contributed about $980 million in 1999 net sales revenue, up from $700 million the previous year.

Gold output in 1999 increased by eight percent to 3.9 million ounces compared to 1998's output.

Other minerals, however, recorded higher realized prices in 1999.

The survey said that average realized prices of tin and nickel in matte enjoyed a rebound in 1999, thus contributing to higher net sales revenues.

It further said that the importance of coal, copper and gold had increased over the five-year period since 1995.

"These minerals represented 85 percent of total net sales revenue of survey respondents in 1999, up 78 percent from 1995," the survey said.

Production

Since 1995, the survey said, Indonesia's share of the world's production for all minerals, except nickel which remained unchanged, had increased by between one percent and five percent.

"The mining industry in Indonesia has the potential to become a world leader and is already a significant producer of many minerals," the survey said.

According to the survey, Indonesia is the world's second largest tin producer, the third largest copper producer, and ranks fifth and seventh in nickel and mined gold production respectively.

The survey cited world class mines operating in Indonesia, such as the Grassberg copper and gold mine operated by Freeport; Newmont's Batu Hijau copper mine; Inco's nickel mine at Soroako; Timah's tin mining operations and Kaltim Prima Coals' East Kalimantan coal mine.

1999's contribution from the mining sector to the government also rose significantly to $877.2 million from $666 million the previous year.

"Many mining companies pay corporate income taxes at rates exceeding the 30 percent rate that applies to other industries, due to the terms of their Contracts of Work," PwC said.

The mining industry's contribution to the Indonesian economy in 1999 also rose to $11.47 billion from $11.26 billion previously.

However, PwC warned that the country's mining sector was weakening, saying that reduced prospecting activities were threatening the industry's future production levels.

The survey revealed that 1999's exploration expenditure dropped to $165.5 million from $212.3 million in the previous year.

Parson had said earlier that mining firms must spend at least $300 million a year on prospecting in order to sustain their present production levels.

"Today, the industry is unable to finance the expenditure that is necessary to find additional mineral reserves to replace the deposits that are currently being mined," Parsons said.

He added that investors were concerned about the lack of a legislative framework for mining, in addition to the political risks in Indonesia.

Parson doubted that investment levels would return to acceptable levels until the Mining Law had been appropriately overhauled and the question of regional autonomy settled.

The Ministry of Energy and Mineral Resources recently introduced a preliminary version of its mining bill, which will replace the existing 1967 Mining Law No. 11.

Non-governmental organizations, however, have lambasted the draft as heavily favoring mining investors.

They said that compared to the existing law, the new draft contained only cosmetic improvements to cope with environmental issues and the rights of local people. (bkm)