Mining in Indonesia: Impact of Mineral Export Ban on Aneka Tambang

Yesterday (01/09), Antam released its financial figures covering the first six months of 2014. The company’s net loss was IDR 639 billion (USD $54.8 million), down considerably from a net profit of IDR 374 billion in the same period last year. Meanwhile, revenue slipped 35 percent (year-on-year) to IDR 3.9 trillion (USD $334.8 million) in the first six months of 2014. Tato Miraza, President Director at Antam, said that these declines were mainly due to the government’s mineral ore export ban as well as lower commodity price levels in the first quarter of 2014. Despite commodity prices having risen in the second quarter, it could not offset weaker prices in the previous quarter leading to an overall negative contribution of commodity prices toward Antam’s financial figures. However, the company is optimistic that commodity prices will continue the rising trend of the second quarter and thus impact positively on the financial performance of the company for the remainder of the year.

Since the company has been forced to stop shipments of nickel ore (since January 2014), it has been posting losses. Antam’s nickel ore sales fell 95.4 percent to IDR 89 billion, while gold sales - which account for almost 50 percent of the company’s total sales - fell 30.6 percent to IDR 1.95 trillion.

Enhancing the Role of Ferronickel

In an effort to offset declining gold and nickel sales, Antam is eager to boost production and sales of ferronickel (a combination of nickel and iron used for stainless steel production). The company targets to produce 20,000 tons of ferronickel in 2014. Antam’s ferronickel sales rose 54.5 percent to IDR 1.7 trillion (USD $146 million). In terms of volume, sales grew 37 percent to 8,900 tons.

Capital Expenditure 2014

Antam allocated IDR 2.9 trillion (USD $249 million) for capital expenditure in 2014. During the first six months of the year, IDR 1.01 trillion has been used, mainly on development projects (IDR 893.6 billion). The company is currently developing a USD $1.6 billion ferronickel project in East Halmahera (North Maluku), a USD $350-$400 million nickel pig-iron project in Mandiodo (Southeast Sulawesi), and a USD $450 million chemical-grade alumina plant in Tayan (West Kalimantan).

This year so far, shares of Antam have climbed 6.4 percent:

Law No. 4 of 2009 on Mineral and Coal Mining (New Mining Law of Indonesia)

On 12 January 2009 Indonesia’s new mining law came into effect. This new law is generally considered negative for foreign investment as it contains several provisions that can be labelled as ‘resource nationalism’ and make the sector less lucrative for foreigners. Indeed, the new law was designed to make the mining sector more lucrative for domestic players, particularly the Indonesian government. A few key changes are mentioned below:

• The Contracts of Work system (a contract between the investor and the central government) was replaced by a new licensing system (Izin Usaha Pertambangan, IUP). The IUPs are issued by the central, provincial or regional government depending on location of the mining project. Although this provision is not retroactive, existing Contracts of Work should be brought in line with the new mining law. This controversial last provision caused a conflict between Newmont Nusa Tenggara and the government.

• The mining sector is still open to foreign investment (a foreigner can hold a 100 percent stake in a IUP concession) but the new mining law stipulates that the foreigner must divest a portion of its stake within a certain timeframe.

• Mining activities are now limited to mining areas (wilayah pertambangan).

• Exports of unprocessed minerals are banned since 12 January 2014. Miners have to establish domestic processing facilities to produce value-added mining products before exporting is allowed. This is the government’s strategy to boost the development of downstream processing industries, and which will result in more state revenue from the mining industry. This provision is controversial as it is not in line with existing Contracts of Work. Due to the current lack of domestic smelting capacity, value and volume of Indonesian exports have declined since January 2014. The government has provided some room for the continuation of mineral ore exports for certain Contract of Work- holders, for example the case of Freeport Indonesia.

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