1

THE INDONESIAN MINERAL MINING SECTOR: PROSPECTS AND CHALLENGES

GERMAN INDONESIA MINING TECHNOLOGY SYMPOSIUM 2011

Hotel Borobudur, Jakarta Indonesia 13-04-2011

Djoko Widajatno, Irwandy ArifAssociation of Indonesian Mining Profesional

2

Agenda

1 PROSPECT OF INDONESIA MINERAL RESOURCESPROSPECT OF INDONESIA MINERAL RESOURCES

2 INDONESIA MINING MAP IN THE GLOBAL CONTEXTINDONESIA MINING MAP IN THE GLOBAL CONTEXT

3 INDONESIA MINING MAP IN THE INDONESIA INDONESIA MINING MAP IN THE INDONESIA INVESTMENT CONTEXTINVESTMENT CONTEXT

4 NEW MINING LAW (UU MINERBA)5 CONDITIONS AND ACTUAL CHALLENGES OF INDONESIA MINING INDUSTRY6 CONCLUSION

3

1 PROSPECT OF INDONESIA MINERAL PROSPECT OF INDONESIA MINERAL RESOURCESRESOURCES

4

12

4

8

9

27

10 11

12

13

18

19

2021

22232425

1415

16

175

67

28

3

Porphyry deposit

Nickel deposit

> 1.0 Mt Cu

> 0.5 Mt Ni

kilometers

0 200026

27

DISTRIBUTION OF COPPER AND NICKEL DEPOSIT IN THE ASIA PACIFIC REGION

5kilometers

0 2000

1

24

11

12

13

20

23

24 26

27

28

25

19

21

22

18

1516,17

14

5

6

7

3

Gold deposit (> 5.0 Moz)

Gold deposit or occurrence

DISTRIBUTION OF GOLD DEPOSIT IN THE ASIA PACIFIC REGION

6

Source: Ministery of Energy and Mineral Resources Indonesia - 2010

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MINERAL RESERVESMINERAL RESERVES AND RESOURCES AND RESOURCES IN INDONESIAIN INDONESIA

NOTES

BauxiteGoldPlaser GoldManganeseNickel Iron sandSilverCopperTin

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MINERALS AND COAL RESOURCES MINERALS AND COAL RESOURCES (As of December 31(As of December 31stst 20020077))

COMMODITIESCOMMODITIES UNITUNIT RESOURCESRESOURCES RESERVESRESERVES

Tin (metal)Tin (metal) TonTon 622622,627,627 462462,,402402

Nickel OreNickel Ore TonTon 11,650,418,000,650,418,000 585,209,103585,209,103

Copper (metal)Copper (metal) TonTon 668,960,8818,960,881 4141,,473473,,267267

Primary Gold (metal)Primary Gold (metal) TonTon 4,1634,163 33,394,394

Silver (metal)Silver (metal) TonTon 505,151505,151 23,02623,026

Iron Sand (concentrate)Iron Sand (concentrate) TonTon 267,337,519267,337,519 4,732,0004,732,000

Bauxite (metal)Bauxite (metal) TonTon 469,879,260469,879,260 2323,,999999,,901901

ManganManganeseese (metal)(metal) TonTon 866866,,795795 105105,,000000

DiamondDiamond CaratCarat 539539,,800800 9393,,565565

Granite (non metal)Granite (non metal) TonTon 54,731,230,00054,731,230,000 --

CoalCoal TonTon 104,943,590,000104,943,590,000 21,131,840,00021,131,840,000

Data from : Directorate of Mineral Resources Inventory

1650.42

267.3410.58

1565.20

382.24

5.78 1.64

741.30

71.31 23.700

200400600800

10001200140016001800

NickelIron Ore

Manganese

Lateritic Iron

Primary Iron

Placer Chromite

Primary Chromite

Lateritic Titanium

Placer Titanium

Sedimentary Iron Ore

Million Tonnes

622626.93

13031.00 4162.55 123.00

505151.07

0

100000

200000

300000

400000

500000

600000

700000

Tin Platinum Primary Gold Placer Gold Silver

Precious Metal Resources Ton

Indonesia Metaliferous Mineral Resources 2007

Indonesian Mineral Resources for Metaliferous2007

0.00008

68.96

5.99 3.00 0.21 1.30

0

10

20

30

40

50

60

70

Mercury Copper Zinc Lead Molibdenum Cobalt

Base Metal ResourcesMillion Tonnes

648.87926

0.01

0100200300400500600700

Bauxite Monazite

Rare Metal Resources

Million Tonnes

2

102

202

302

402Millions

IRON ORE

Resources 320,462,611 320,462,611 368,493,173 382,243,211 Reserves 2,216,005 2,216,005

2004 2005 2006 2007

2.00

52.00

102.00

152.00

202.00

252.00

302.00

Millions

IRON PLACER

Resources 73,050,035.47 165,075,794 165,108,739.9 267,337,519.3Reserves 5,332,000 4,732,000 4,732,000 4,732,000

2004 2005 2006 2007

Indonesian Mineral Resources for Metaliferous

2007

100

300

500

700

900

1,100

1,300

1,500

Millions

NICKEL

Resources 1,428,582,200 1,681,655,200 1,415,058,000 1,650,418,000

Reserves 450,590,000 437,504,950 588,887,776 585,209,103

2004 2005 2006 2007

.

RESOUCES AND RESERVES METALIFEROUS INCREASE

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Millions

MANGANESE

Resources 2,471,243.55 8,273,052 9,091,105.05 10,583,756.98 Reserves 284,000 884,000 32,738,682 32,703,889

2004 2005 2006 2007

Data from : DPPMB - 2011

Indonesian Mineral Production Survey

Resources and Production of non-metaliferous 2007

Indonesia non Metaliferous Production and Resources 2007

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2 INDONESIA MINING MAP IN THE GLOBAL INDONESIA MINING MAP IN THE GLOBAL CONTEXTCONTEXT

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INDONESIAN MINING IN THE WORLD CONTEXT

1. 15th rank of world coal reserve: Coal resources estimated around 104billion tons with mineable reserve approximately 21 billion tons

2. 7th rank of world gold reserve: Gold resources estimated around 4,163tons with mineable reserve approximately 3,394 tons

3. 7th rank of world copper reserve: Copper resources estimated around 68.96 million tons with mineable reserve approximately 41.47 million tons

4. 5th rank of world tin reserve: Tin resources estimated around 0.622 million tons with mineable reserve approximately 0.462 million tons

5. 8th rank of world nickel reserve: Nickel ore resources estimated around 1,650.4 million tons with mineable reserve approximately 585.2 million tons

(Source: Indonesian Mining Association, 2007)

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COMPARATIVE ADVANTAGES (NATURAL RESOURCES)

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Fraser Institute Index2010-2011

Policy Potential Index

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Mineral Potential IndexFraser Institute Index

2009-2010

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Exploration and Spending Conditions based on Countries(PricewaterhouseCoopers-mine Indonesia 2007)

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Indonesia Mine Profitability versus Global Average

(PricewaterhouseCoopers-mineIndonesia 2007)

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3 INDONESIA MINING MAP IN THE INDONESIA INDONESIA MINING MAP IN THE INDONESIA INVESTMENT CONTEXTINVESTMENT CONTEXT

STATE OBJECTIVE STATE OBJECTIVE 2010 2010 -- 20142014Key Indicators Target

Economic Growth6.3 6.8% average per year7 % average, 7.7 % by the year of 2014

Inflation 4 6 % average per yearUnemployment 5 6 % by the end of 2014Poverity 8 10 % by the end of 2014Investment Rp. 1.950 trillion

Source : RPJMN 2010-2014 (Govt Reg. no 5, 2010)

2009 2010 2011 2012 2013 2014

Growth (%) 5.1 5.5 6.2 6.8 7.3 7.7

GDP (Rp Trilion) 5,206.5 5,989.5 6,718.3 7,632.3 8,611.0 9,523.3

Infrastructure Demand 5% GDP (Rp. Triliun) 260.3 299.5 335.9 381.6 430.6 476.2

Total Infrastructure Investment Demand (2010 2014) Rp. 1,923.8 Trilion

Source: Bappenas, Paparan Menteri Bappenas dalam Rakor Menko Ekonomi tentang Investasi Infrastruktur Agustus 2010

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The mining industry is important to Indonesia. It is a substantial provider of export earnings, economic activity and employment, and support regional development.

The government remain passionate about the potential untapped mining reserves in Indonesia. With some further improvements to the business environment there is no reason why this resource would not be developed and Indonesia could once again attracts more share of global mining exploration allocation.

2006 was another spectacular year for the mining industry, both in Indonesia and globally-and with the commodity prices at their current highs, 2007 and 2008 will see even better financial results.

Globally, investor confidence in the sector and its prospects has remaining strong, fuelled by a sustained rise in commodity prices, and as witnessed by a year of significant growth in market capitalization on both international bourses and the Indonesian exchange.

Trends in the Indonesian mining industry(PricewaterhouseCoopers-mine Indonesia 2007)

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The mining industry is important to Indonesia. It is a substantial provider of export earnings, economic activity and employment, and support regional development.

The government remain passionate about the potential untapped mining reserves in Indonesia. With some further improvements to the business environment there is no reason why this resource would not be developed and Indonesia could once again attracts more share of global mining exploration allocation.

The mining industry contribution to the overall Indonesian economy increased significantly in 2011 in comparison with previous years. Owing to the high commodity prices, mining products accounted for approximately 6.2% of the total Indonesian GDP, up from 1.1% in 2009 (Badan Pusat Statistik-Indonesia).

To be an important contributor to the Indonesian economy

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48

145193

49

147196

50

148

198

75

150

225

90

150

240

130150

280

170150

320

220

150

370

0

100

200

300

400M

illion

ton

nes

2006 2007 2008 2009 2010 2015 2020 2025

Domestic Export Production begining of Electricity acceleration PLN

REALISATION AND ESTIMATE OF INDONESIA COAL PRODUCTION

Notes : - Production realization 2006 (32 PKP2B = 162 M ton, KP- PTBA = 9.2 M ton, 130 local KP = 22 M ton);- Production Increase at 2006 due to production capacity increase of PKP2B 10 M ton ( PT Adaro Indonesia, PT

KPC and PT Indominco Mandiri) and production increase of local KP 12 M ton;- 2007-2010 acceleration of generating coal Powerplant 10.000 MW- Government Reg No.5/2005 about National Energy Policy, 2025, coal domestic market for 33% of production

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PU.PU. EKS.EKS. SK.SK. KONTRKONTR EKT.EKT. TERM.TERM. JUMLAHJUMLAH

KKKK 22 1919 66 22 1212 194194 235235PKP2BPKP2B 11 2121 2424 66 2828 6161 141141

PU.PU. EKS.EKS. EKT.EKT. A/J.A/J. O/M.O/M. TERM.TERM. JUMLAHJUMLAH

KPKP 5050 299299 433433 8585 88 11861186 20612061

CONDITION OF MINING COMPANY IN INDONESIA - 2006

PU = General Survey;EKS. = Exploration;SK = FS;KONT. = Construction;EKT. = Exploitation/Production;TERM. = Termination;KK = COW Generation 1 7

(1967 1998);PKP2B= Coal Contract,

Generation 1 3 (1981 2000);

KP = Mining License coal and mineralA/J = Transportation and sales;O/M = Processing and refining;

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2929

Coal and Mineral Investment Statistic

0.00

200.00

400.00

600.00

800.00

1,000.00

1,200.00

Year

in U

S$ m

illio

n

Mineral dan Batubara 980.03 880.40 1,125.91

2004 2005 2006

MINERAL AND COAL INVESTMENTMINERAL AND COAL INVESTMENT

STATE INCOME FROM MINING SECTORSTATE INCOME FROM MINING SECTOR

Source: Ministery of Energy and Mineral Resources Indonesia - 2010

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4 NEW MINING LAW (UU MINERBA)

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l Mining activities will be grouped into: mineral mining and coal mining

l Mineral mining will be grouped into: radio active mining, metal mining, non metal mining and rock mining

l Clarification of Central Government, Provincial and District Authority

l Establishing of Mining Zone; Mining Estate

l Establishing State Reserve for the special national interest.

l There are only mining license and mining special license, and mining agreement. There will be no more direct contract between companyand government

l Foreign mining company may have an agreement with the State Owned Mining Company/Representative Agency to develop state reserve

Basic Principles in the New Mining Law

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License will be issued through tender mechanism based on equality and transparency

Licensing system will be simplified and grouped into two: exploration license (general survey, exploration and FS) and operation license (construction, mining, processing, transportation and marketing)

Puts more attention to environmental protection (reclamation) and post mining

Puts more attention to the community development aspects

The Existing of License Authority and Agreement will be honored vs 2-5 years transitional period (Commission VII DPR?)

Processing and refining have to be conducted in Indonesia

A clear sanction to mining players who violate the law

Basic Principles in the New Mining Law

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POLICY ON COAL AND MINERAL DEVELOPMENT IN INDONESIA (1)

To develop optimum economic benefit through optimization of production and income

To provide much needed conducive climate for investment

To create optimum value added for the development of extractive and energy industries

To strengthen capability of local people as well as to promote technological development for Indonesian (clean coal technology, coal gasification, coal liquefaction, exploration technology, processing technology, etc)

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To respect contract sanctity

To promote good mining practices

To promote good corporate governance

To enhance the domestic utilization of mineral and coal

To strengthen community-based development program with more synergistic cooperation among the government, private sector and local people

POLICY ON COAL AND MINERAL DEVELOPMENT IN INDONESIA (2)

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5 CONDITIONS AND ACTUAL CHALLENGES OF INDONESIA MINING INDUSTRY

373737

ACTUAL CHALLENGESACTUAL CHALLENGESACTUAL CHALLENGES

Law uncertainty and business operationOverlapping of mining area with forestry area (Law 41/1999)Regional autonomy: duplication and contradictions between central and regional government regulations;, etcTaxation issues (tax incentives, VAT on gold and coal, corporatetax rate)Regional demand on the equality of income between central and regional and reattribution which is not stipulated in the contractIllegal miningParadigm shift to triple bottom lineA more stringent environmental standardUnfairness in divestment of foreign interests and mine closures.Implementation of Good Mining Practice.

383838

CONCEPT OF SUSTAINABLE MINING IN INDONESIA

Mining commodity is transformed into human resources

development and sustainable economic potential

People living in the vicinity of mining area must get benefit

from the existence of the mining

Sustainable mining should be based on 3 pillars: economic,

social and environmental sustainability

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6 Conclusion

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Conclusion of Indonesia Mining Industry 2010

Indonesia is still abundant with mineral reserves and holds a promising geological potential.

Improvement on the Indonesia mining businesscondition must be done immediately by all stakeholders.

Mining activities must be conducted based on the principle of Good Corporate Governance and Good Mining Practice which is founded on triple bottom line approach

Socialisation of a positive Indonesian mining industry image.

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1. Bambang Setiawan

2. Dedy Aditya Sumanagara

3. Fraser Institute

4. Irwandy Arif

5. Price WaterhouseCoopers

6. Purnomo Yusgiantoro

7. Simon Sembiring

8. Darwin Zahedy Saleh

REFERENCE

Thank You