Indonesian Miners Aiming High Despite Lower Demand

Amidst the global economic downturn, Indonesian mining companies have set higher production targets this year primarily due to last year’s shortfalls. Miners recently submitted production plans to the government with output increases seen in all commodities, including nickel, tin and copper whose prices have been hit hard by reduced demand.

Nickel ore production in 2009 is set at 14.6 million mt, up by 37% from last year. Tin output is estimated to reach 105,000 mt, up 46%, while copper is set at 826,370 mt, up 38%.

These figures are based on all miners’ production proposals submitted to the ministry last month, said Bambang Gator Ariyono, director of the Energy and Mineral Resources Ministry’s coal and mineral development division. Despite significant increases, Bambang believes the target is nothing extraordinary.

“The figures seem to be high, but there is nothing too special about these targets. Many miners could not meet their 2008 production targets, which makes this year’s targets seem too high,” Bambang said.

Extreme weather and natural disasters in some big mining concessions last year were the main cause for miners’ failure to meet output targets, he said.

“Take Freeport, for example. The company could not meet its target last year because there were landslides in its mining concession,” Bambang said, adding that the government would monitor the performance of miners during the first quarter of this year for any plan to revise output targets.

Coal and minerals are expected to attract $2.24 billion in investments this year, up from $1.65 billion in 2008.

However, a recent study by mining industry consultants Pricewaterhouse- Coopers (PwC) suggests that large scale investment is unlikely to come immediately to Indonesia due in part to possible legal uncertainty following the passage of a new mining law.

“There is likely to be greater uncertainty around large-scale capital projects as the new law does not offer the long-term protection of the contract of work system,” PwC’s mining technical adviser Sacha Winzenried said on February 26.

PwC found that the investment spending is mainly for replacement plants and equipment to maintain existing operations instead of greenfields exploration.

As featured in Womp 2009 Vol 03 -