TAMBANG SEMINAR – MINING OUTLOOK FOR 2020.

On the 11 December 2019 Tambang Magazine held a full day seminar “Indonesia Mining Outlook for 2020 – Minera and coal mining new policies and strategic issues in 2020”. Some 100 people attended, including about 17 women. The presentations and discussions were held in Bahasa Indonesia. My apologies for any errors or omissions in these notes.  

Overview.

The various speakers from Minerba delivered on topic, with well prepared and insightful presentations. Essentially it seems the end of 2019 will blend into 2020 with no significant breakthroughs announced by the Minerba or companies. The Minerba’s new computer systems for recording a wide range of exploration, mining and sales activities looks set to improve the monitoring and transparency for the industry. Some parts of the nickel industry is pain, with the advancement of the raw nickel ore export ban brought forward, but it seem there is a vaccine being prepared through the introduction of a nickel flaw price. The coal industry continues with strong exports vital to the nations balance of payments, but this creates confusion to the old political aspirations of coal conservation and coal value adding.

A few of the presenters treated this seminar as a somewhat bland self-promotion occasion, wherein they missed an opportunity to share their in-depth knowledge of industry trends for 2020.

Many of the presentations can be downloaded from : bit.ly/TAMBANGOutlook2020

SESSION 1. GENERAL.

Herman Kusumo of Tambang Mining Magazine welcomed guests and mentioned that the industry is patiently waiting for the outcome on a decision from Commission 7 and the ESDM on the future of the Coal Contracts of Works, along with any new policy directions.

Bambang Gatot Ariyono, Dirjen Minerba Kementerian ESDM delivered a free flowing and highly informative presentation with the title “Tata Kelola Pertambangan Mineral dan Batubara”. He covered Indonesia’s mineral & coal reserves, mining performance and the ESDM’s progress in managing the industry. The second part of his talk addressed the industries challenges of legal & investment certainty which should be faced jointly between government and industry. There were many excellent slides, wherein I found some key points as:-

·       The ESDM (Minerba) have reduced / consolidated some 32 regulations into just 4, being Peraturan Menteri ESDM 8/2018, 11/2018, 25/2018 and 26/2018.

·       There are now just 4,740 stakeholders (IUP, COW’s etc) in the Indonesian mining industry.

·       Minerba has introduced several computer-based systems under MOMI (registered bodies), including MODI (one map), MVP (sales registration), EMS (exploration monitoring) and EDW (exploration data). On progress are MINERS, SIKEMBAR, ELANG, EMS, EDW, RKAB ONLINE

·       There is pressing need to stimulate greenfield exploration wherein it is recognized that the present situation is not favourable for Juniors or BUMN. The stimulus to the exploration industry involves coordinating government policy with the financial sector. The exploration sector requires high capital, longer periods, high risk, difficult accessibility and differences in complex geology.

Important issues that should be agreed between industry and government include, 1) Benefits for the community, 2) Environment management and mine closure, 3) Distinguishing between community and illegal mining, 4) the balance between state and private participation in the mining industry.

Overall it is important to send out the message that mining is a good industry and that the never-ending issues should be addressed with consultation between industry, government and responsible community members. The mining industry needs a strong private sector. One self-reflecting question Bambang posed to the audience is “Who is the Minerba for?”

Sugeng Suparwoto, Ketua Komisi VII, DPR RI delivered a somewhat impromptu and enthusiastic talk, without accompanying slides. Sugeng was only recently appointed to Commission 7 (20 October 2019) and is still learning about the mining & oil / gas industries. Commission 7 is made up of 9 party fractions, and their findings are presented to the DPR, where there are some party members that are always “difficult” over mining matters. Commission 7 is not technically focussed, but politically motivated. On the 2020 schedule of discussion points is whether to revise the Mining Law 4/2009 [some 16 articles of concern], how to apply the Paris Agreement to the Indonesian power sector etc. Over the coming weeks the Commission 7 will determine priorities. The coming recess is from 18 December to 5 January. The Commission 7 formally sits every 3 to 4 months.

There is an acknowledgement that the conversion of PKP2B coal contracts to IUPK status will take time, and is to be resolved by July / August 2020. The impact of the proposed Omnibus Law on the ESDM industries is to be considered. The political aspect of hilirisasi of coal is to be considered in light of the economic factors, global markets and other factors. How to stimulate the development of local industries to consume the metals produced from Indonesian smelters.

Focus group discussions are most effective, and tend to reduce misinterpretations or miscommunication.

Kristian Lulu, Dir Jen Industri Logam Mesin alat Transportasi dan Elektronik, Kementerian Perindustrian spoke on “Industry Readiness in Supporting Light Industry Based on SDA Metals”. This talk briefly mentioned the supporting regulations and an outline of the smelter & refinery industry. Some facts relating to the 3 main metals of steel, aluminium and copper were outlined, with a more detailed look into the nickel industry. This was followed by some opportunities of Industry 4.0 for the smelting industry.

The future direction of the downstream metal industry includes opportunities to provide incentives for the use of locally produced metals, import substitution, the wider use of aluminium and increased copper smelting.

Ibu Ratih Amri, Kepala Divisi Mining and Minerals Indonesia MIND-ID spoke on “Project Development Plan of Mining Industry Indonesia (MIND ID)”. The talk included the topics of 1) Structure of MIND-ID, 2) mandates of MIND-ID, 3) MIND-ID downstream activities, 4) Multiplier Effects and 5) Value Added. This was followed by an outline of MIND-ID 6 strategic projects. This was largely a self-promotion exercise designed for a wider audience.

One interesting point is: -

·       The multiplier effect of the smelting & mining industry (Alumina Refinery, Aluminium Smelting Plant and Coal Mine) showed that for every person working in production has a multiplier effect of creating 1.8 – 2.2 jobs at the regional level and a further 1.9 – 2.4 jobs at the national level.

David Coldrey, Industry Cluster Lead – Energy & Natural Resources, SAP Southeast Asia spoke in English on “Making Mining More Agile and Transparent with Intelligent Technology”. This talk outlined SAP’s outlook and approach to providing consulting services of digital transformation in mining. The business models include the concepts of 1) making mining more predictable and safer, 2) collaborating with customers, suppliers and workers, 3) enhance operational and commercial agility, and 4) increase productivity through automation.

The question & answer session identified that this presentation held lots of theory, but lacked detailed Indonesian examples.

Tino Haryanto, PERHAPI was an impromptu speaker who very briefly mentioned a number of industry concerns: -

·       The technical side of Hilirisasi is not well understood outside the professional circles.

·       The economic aspect of the non-renewable industry needs to be measured against that of the traditional coal & oil / gas industries.

·       Provincial & regional governments and communities do not have a good understanding of the mining industry, wherein the ESDM is called upon to enhance public / political education in this area.

·       Mine closure is to be emphasized, particularly for small miners.

·       It is seen as a positive step for the KPK to become more involved with the mining industry.

·       Ethics, integrity, professionalism, respect for the law and respect for others are human qualities that come with good mining practices.

·       The role of junior mining companies in the exploration industry is to be stimulated.

Question & Answer session: -

·       The term of a tenement (IUP / CCOW etc) needs to be better defined – should the period be 30 years then stop, or are extensions guaranteed under the present law. There is some consideration that the life of a tenement may be linked to the life of mine plan.

·       The present oversupply of coal into the domestic and international market is under review. A more stable market environment is sought.

·       Smelters for nickel are a success story, but on the flip side smelters for complex sulphides are not viable under the one size fits all smelter program. It would seem Minerba does entertain considerations for variation of the smelter program, provided the broader principals of increased domestic investment and value adding can be seen to be complied with. The government has allowed some raw ore exports as an incentive for building smelters.

·       The flagging exploration & production in the oil & gas industry is an urgent priority for Commission 7 to address. 

SESSION 2 – COAL DISCUSSION.

Hendra Sinadia, Direktur Eksekutif Associasi Pertambangan Batubara Indonesia was moderator for this session. He briefly mentioned that the coal industry is constantly facing a very wide range of issues thrown up by international bodies (Paris Agreement) down to local site issues of farmers and such.

Dodik Ariyanto, Kasubit pengawasan usiah operasi produksi dan pembasaran batubara, spoke on “Evaluasi dan outlook kebijakan pertambangan batubara”[ Coal mining policy evaluation and outlook]. Several points about the coal industry previously covered by Bambang were expanded upon. Some points of interest included: -

·       Exploration expenditure is only 3% of total investment in the coal & mineral mining sector. A table and graph show each annual expenditure in greenfield coal & mineral, brownfield mineral & coal with a combined slight increase from 2016 to 2018, then increased mid-2018 to mid-2019 and is expected to flatten in 2020. The 2019 exploration figures are estimated to be Greenfield coal = $6.10 mill, development coal = $95.6 mill, greenfield minerals = $49.5 mill, development minerals = 123.0 mill.

·       To stimulate greenfield exploration, it is proposed to: - support junior mining companies, assign SOE’s or private parties to explore new regions, review KDI assessment for certain areas.

·       To improve ongoing exploration through: - improved synchronization with other government agencies / ministries, cooperation agreements between ministries, obligations on explorers to be active each year.

·       Application of information technology through: - new data management system and maintaining confidentiality of data.

Tri Santoso, PT. Perusahaan Listrik Negara spoke on Rencana Kelistrik Consumsi Batubara Domestik” [Plan for domestic coal consumption for electricity]. Note that such material can be found on the PLN web site www.pln.co.id The talk covered the topics ;- 1) RUPTL Highlights 2019-2028, 2) Demand Forecast 2019-2028 RUPTL, 3)Plant Development Plan for RUPTL 2019-2028, 4) Composition of Energy Energies RUPTL 2019-2028, 5) Coal Supply Zoning Plan to PLN Power Plants, 6) Coal Supply Strategy, 7) The Role of the DMO Policy for PLN in Providing Electricity.

This presentation seemed to say there is no change from 2019 to 2020 for PLN plans of coal supply.

Bambang Tjahjono, Direktur Eksekutif Asosiasi Jasa Pertambangan Indonesia (ASPINDO) spoke on “Peluang dan Tantangan – Industri jasa pertambangan di tengah lesunya harga batubara” [Opportunities and Challenges - The mining service industry is in the midst of sluggish coal prices].

This presentation started out with tables of Indonesian coal reserves in high, medium & low quality ranges, and the corresponding domestic demand for such coal qualities. The long term outlook is that certain coal quality reserves, that are needed for domestic consumption, will run short long before the total present reserves are accounted for. Depending on the production / consumption scenario, this shortfall of key coal grades may be around 2070. Of the top 10 coal producers, the overall overburden excavation is 2,212 million BCM with coal production of 307 mill ton for 2018. Various trends in the mining industry were noted. Several ongoing industry issues were raised, including the role of the small miners, limitation to further reduce operational costs, limitations on further industry expansion, trend to rent equipment, the Boiodiesel (B30) concerns on operations, and need for smoother supply of spare parts from overseas.

Syah Reza, President Director PT. Exxon Mobile Lubricants Indonesia (EMLI) spoke on “Innovation to support mining companies’ efficiency”. This was a simple and flat product sales promotion presentation.

Discussion Panel of Coal Speakers lead by Hendra Sinadia.

·       Over the past few years the earlier policy of conserving coal has dramatically changed so that coal & palm oil are now much needed principal export earners. There are changes to the international markets, particularly as Russia is now selling high grade coal into the northern Pacific market. The new Vietnam coal market is hotly contested. There are ongoing concerns about the power plants disposal of fly & bottom ash.

·       The industry is happy there are administrative reforms, and it is hoped to be followed by more technical competence.

·       Hilirisasi of coal is still in the Feasibility Stage (PT. BA), and it looks as if coal gasification will need more political will to counter the reality of poor viability & economic project risk.

·       IUP coal mines are often too small to implement full good mining practices, and extension of the PKP2B needs to be long enough (10 – 20 years) to justify further investment.

·       Recent HIS Markit presentations suggest coal prices will rise very slightly in 2020, but volatility will remain excessive.

·       Coal royalty is being reviewed for an increase from 13.5% to 15%. This will result in tighter industry margins, and be a significant negative aspect when coal prices decline, or for lower value coals. One option to survive under a higher royalty is to reduce SR, thereby reducing the nations reserves and mine life.

·       Selling coal to PLN has an ongoing issue of PLN requiring to buy on delivery – wherein short shipping options of S. Sumatra & S. Kalimantan give unfair advantage to suppliers in those areas.

·       Industry urges for Minerba to get the DMO needs right – each year the DOM targets are more than purchases, resulting in imbalances for DMO trading.

·       It is more difficult for Minerba to get the smaller IUP’s to follow the DMO commitments – particularly as these mines often have wide range of coal qualities that are not easily saleable in the domestic market.

·       The earlier initiative (many years ago) to stimulate the coal on rail industry has fallen flat.

·       The outlook on the impending government policy on the extension of PKP2B coal into IUPK agreements was conspicuously not discussed.

SESSION 3 – MINERALS.

Muhammad Hanafi, School of Business Management ITB, acted as moderator for this mineral session, and delivered a quick outline to summarise the main points after each presentation.

Yunus Saefulhak, Direktur Pengusahaan Mineral Ditjen Minerba kementerian ESDM spoke on “Kebijakan Pertambangan dan Peta Jalan Pengolahan Mineral” [Mining Policy and Mineral Processing Road Map]. The introduction gave figures for Indonesia’s main mineral reserves and production for 2019, along with some export and domestic tonnages. The hilirisasi (smelting) program was outlined wherein it is anticipated there will be a significant construction period for 2019 – 2020, with the key issue being financial closure. Plans for metal output capacity in 2022 were tabulated. The concern for exploration also emphasized.

One of the key topics is the preparation to introduce a floor price for nickel ore sales, both domestic and international. Some general costs for nickel mining and smelting were provided in support of the determination of a nickel floor price.

In some cases, the profit margin of smelting is too small to attract investors. There are ongoing concerns about government support for the smelting industry, including: - difficulties with importing critical spare parts, illegal mining circumvents some smelter requirements, some administrative sanctions not effectively imposed, finding Indonesian experts capable and willing to manage smelters is difficult, lack of greenfield exploration to sustain long life to a smelter.

Alwin Albar, Direktur Operasi & Produksi, PT. Timah Tbk spoke on “Outlook Pertambangan Timah 2020”. This was mostly about socializing who PT. Tima is. This talk started with a brief outline of pertinent regulations and steps of local production, including participation from local miners. Some general aspirations for the development of associate minerals of monazite & Xenotime.

Of concern to PT. Timah is the local governments zonation plan that would eliminate some of PT. Timah’s mining areas.

Ibu Meidy Kartrin Lengkey, Sekretaris Jenderal Associasi Penambang Nikel Indonesia, who talked on “Larangan ekspor dan peluang pasar nikel domestic” [Export ban and domestic nickel market opportunities]. The other speakers had gone over time, wherein Ibu Medy gave a shortened but very enthusiastic presentation on the plight of many of the small nickel miners in the light of the impending nickel ore export ban. The media has recently highlighted some sins of the nickel miners, particularly selling high grade nickel ore as low grade, and exporting more ore than was formally registered. However, the nickel producers also have significant grievances when selling to some large Indonesian smelters. The smelter buyers unfairly pay well below the international nickel prices – often at, or near, production & shipping costs. There are disputes of nickel grades from the loading port (high grade) and the domestic smelter offloading ports (low grade). There is some regulatory imbalance between in compliances for smelter and miners.

The Minerba is aware of these and other concerns, that may be contributing to the present plan to introduce a domestic nickel price flaw, along with the MVP computer recording of all commodity sales (domestic & export).

Litium Robby Rafianto, Head of Exploration Harita group spoke on “Challenges and opportunities: Nickel development for RKEF and HPAL plants in Indonesia.” The first part of the presentation includes some facts and figures on the general Indonesian nickel exploration and production industry. Indonesia has world class nickel deposits, and reserves. Global nickel demand remains strong. The talk included some technical aspects for the different nickel smelting options of Pyrometallurgy (RKEF) and Hydrometallurgy (HPAL), and their products.