COAL & MINERAL EXPLORATION INDONESIA FUTURE PROSPECTS FOR THE INDONESIAN MINING INDUSTRY

Transcription

1 COAL & MINERAL EXPLORATION INDONESIA FUTURE PROSPECTS FOR THE INDONESIAN MINING INDUSTRY

2 WHERE IS THE INDONESIAN COAL & MINERALS INDUSTRY HEADED In the last 30 years the Indonesian coal and minerals industry has developed into a significant player in the global commodity market From almost no mining industry in 1980 Indonesia now has some of the world s biggest mining operations in commodities ranging from coal, tin, gold and copper Despite this significant achievement, the reality is, Indonesia s mineral and coal potential is still not well explored and huge potential still awaits discovery To predict what is the likely next phase of the Indonesian coal and mineral industry will be like its best to look at how the coal & minerals exploration industry has developed in the past.

3 INDONESIAN TECTONIC MAP Source: R.McCaffery (2009)

4 MAJOR TECTONIC ENVIRONMENTS CONTROL THE DISTRIBUTION OF COAL AND MINERAL DEPOSITS Source: R.McCaffery (2009)

5 Source: Steve Garwin (2011)

6 EARLY STAGES OF COAL & MINERAL EXPLORATION UP TO 1990 Ertsberg was recorded in a ships log in the 16 th century by a Dutch vessel sailing through the Torres Strait towards Jakarta Dutch colonial work recognized the potential for coal and minerals throughout the country and until 1980 mining focused in Ombilin, Lebong Tandai, Bangka, Ketapang, Samarinda and Cikotok Raffles documented the potential for coal in Bengkulu while Governor in the British colony there Initial information regarding Indonesia s coal and mineral resources was generated in the colonial era and probably culminated in the publishing of The Geology of Indonesia by van Bemmelen in 1947 After oil was discovered (by the Japanese) in South Sumatra, during WWII, having drilled a hole on rig that was abandoned on location by the Dutch Indonesia s geological potential was largely investigated by oil companies in regional studies for oil exploration Coal was identified as a secondary consequence of oil exploration in; South Sumatra East Kalimantan Sanga Sanga, Bontang, Berau, Tarakan South Kalimantan Tanjung Most obvious coal and mineral prospects were the targets for development

7 COAL MINING AT OMBILIN WEST SUMATRA

8 THE START OF THE MODERN INDONESIAN COAL INDUSTRY CONTRACT OF WORK (CCoW) ERA During the early 80 s large areas of Indonesia were contracted to foreign and local mining companies to develop the coal and mineral potential CoW s were granted in 3 generations but it was the 1 st generation CoW s that had the biggest impact. Until today they are the source of most of Indonesia s coal and mineral production ; Freeport, KPC, Arutmin, Newmont, Adaro, Kideco, Berau & BHP The CoW system resulted in a very high success rate for projects reaching production, some of the reasons for this were; Companies were given large areas to investigate Relinquishment schedules forced explorers to work quickly to identify the best areas Centralized control of licensing permits, providing clear and stable investment environment Operators were experienced technically and financially capable Foreign expertise was used on a transfer of technology basis

9 CONCESSION MAP OF KALIMANTAN

10 CONCESSION MAP OF SUMATRA

11 RESULTS OF THE CONTRACT OF WORK SYSTEM Large coal & mineral resources were discovered for which investment in dedicated infrastructure was justified Indonesia became a major force in the coal and minerals export market Projects were built with long term planning and are able to endure price fluctuations Provide significant revenue to the government and the people of Indonesia Indonesia gained a work force of talented and experienced technical professionals Indonesia changed from a underdeveloped country to and emerging economy Truly a great era of discovery of natural resources ranging from ; KPC, Adaro, Minahasa, Cempaka Diamonds, Wetar, Kelian, Kideco, Batu Hijau and more

12 Examples of well planned pit design and execution in CoW projects in Indonesia

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14 DISTRIBUTION OF COAL AND PEAT RESOURCES IN INDONESIA Source: Directorate of Mineral Resources (1990) Coal deposits in Indonesia are in 2 basic sedimentary age groups; Neogene approx 25myo present Paleogene approx 65myo 25myo

15 METALLURGENIC MAP

16 TROUBLED TIMES INDONESIAN MINING INDUSTRY Busang gold scam President Suharto resigns Indonesian economic meltdown Invasion of East Timor Low commodity prices Forestry

17 REGIONAL AUTONOMY AND THE INDONESIAN MINING INDUSTRY New government East Timor is allowed to vote for independence Promises are made for regional autonomy Regencies start to manage there own mining interests (KP) The CoW system is abandoned Foreign investment dries up Many forestry operators become miners

18 INDONESIAN MINING INDUSTRY RECOVERY By 2003 coal and other commodity prices begin to recover Regional autonomy is in full swing Proliferation of KP s for coal mainly owned by domestic investors KP s are generally small from 100-2,000ha size Opportunistic investors abound

19 INVESTMENT BUBBLE Demand for coal and minerals, mainly driven by China, grows rapidly Commodity prices spike New coal and mineral projects are everywhere Mad rush to develop coal and mineral projects to take advantage of high prices Efficiency and good planning largely ignored

20 RESULTS THE REGIONAL AUTONOMY FOR THE COAL INDUSTRY Around 10,000 IUP permits issued Very few significant new discoveries of coal or minerals Minimal new infrastructure development Environmental mismanagement and damage Coal & mineral resources wasted by bad planning and management of mining operations Illegal coal and mineral exports causes significant losses in Government royalty payments

21 no drainage plan and no rehabilitation mine till it fills with water pit design

22 CRASH OF THE COMMODITY CYCLE INDONESIAN COAL INDUSTRY commodity markets are over supplied investment hangover period starts new mining law adds to uncertainty inefficient mines cannot survive exploration stops reserves of coal & minerals get smaller a moratorium on new mining licenses starts cleaning up the non-conforming licenses (CNC)

23 HISTORIC CHANGE In Indonesia, the election of President Joko Widodo in 2014, was the beginning of a new era of democracy and social change. With the popular support of the people the Government is determined to play an important role in facilitating national development to ensure economic growth for the long term future benefit of the country.

24 THE GRAND PLAN provide Indonesia with infrastructure to fuel the economy and create the foundations for a sustained and prosperous future provide 35,000MW of additional power generating capacity, is fundamental to the Governments strategy most of these power plants will be coal fired and built, owned and operated by private consortiums (IPP) to sell power to PLN

25 WORK IN PROGRESS Recentralization IUP (mining lease) management to the Provincial Government Finalization of the IUP Clean & Clear list The domestic market for coal and minerals is set to grow substantially Professional lobby groups such as EMD, Aspindo, Perhapi, IAGI and others influencing Government policy

26 COMMODITY PRICE RECOVERY Indonesian coal price index (HBA)

27 ARE WE PREPARED?? When commodity prices started falling in 2012 exploration budgets were slashed During the downturn many mining operations focused on the cheapest production possible which meant minimizing strip ratios Now as commodity prices recover mine operators are attempting to re-optimize their pit designs but may find years of low strip mining has left high strip ratio remaining This is particularly evident in the coal market as supplies of some grades of coal have already experienced shortages and this could be further exacerbated by miners unable to expand production easily This means EXPLORATION

28 WHAT S NEXT The moratorium on new mining leases will end A new era of systematic exploration will start New mining developments will have robust economics, dedicated infrastructure and will require significant capital investments justified by the project economics and feasibility studies Large capital investments will require the support of financial institutions Financial institutions will insist that miners comply with international and or Indonesian standards and best work practice Opportunistic investors looking for a fast return will be replaced by investors with long term strategies

29 CONCLUSION commodity prices have stabilized and are likely to recover the mining industry in Indonesia will also recover but it will not be like it was before the new era of coal and mineral exploration, which is now dawning, will be on a more stayed and controlled trajectory new technology and innovation will drive the Indonesian exploration industry to new heights a new era of coal and mineral discoveries will most likely deliver surprising results

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