Two Bob Each Way on Indonesian Mining Industry

BRISBANE, Australia - April 8, 2013 - PRLog -- Just as a survey of 4,000 mining executives by a Canadian think tank surfaces, ranking Indonesia the world’s least attractive place to do business in the mining sector, along come reports from mining executives and consultants indicating more and more foreign companies are investing there because of the potential rewards.

The Fraser Institute has run an annual survey of mining and exploration companies since 1997 to assess how mineral endowments and public policy factors such as taxation and regulation affect exploration investment. Survey results represent the opinions of executives and exploration managers in mining and mining consulting companies.

Indonesia came last of 96 jurisdictions surveyed in the 2012/13 survey, down from 85th last year.

But one Australian analyst found fault with the survey's major focus on policy and said "geological attractiveness" was just as significant.

"I am finding increasing numbers of Australian emerging coals starting up in Indonesia, in part due to its attractiveness (technically) and in part because they have found sensible approaches," he said.

"Respecting the Indonesian legal system  - instead of trying to short cut it as some predecessors have tried -  is leading to a firm footprint on tenure and a system that is workable, on much shorter time-frames than can be done in Australia.  I also note that Brazil is tracking along similar lines.

"Yes there is political risk (and industry perceives that Indonesian policy appears the most volatile) but the geological attractiveness of the country means resource companies are prepared to learn about the risks and consider them appropriately when making decisions to invest time and money into Indonesian resource projects."

The Fraser Institute survey is used to create a composite Policy Potential Index (PPI) measuring the overall policy attractiveness of jurisdictions surveyed. The index is composed of responses to policy factors that affect investment decisions, with a maximum score of 100. Finland’s PPI score was 95.5.

The factors survey respondents considered were uncertainty about existing and environmental regulations; regulatory duplication and inconsistencies; legal systems; taxation; disputed land claims; protected areas; infrastructure; community development conditions; trade barriers; political stability; labour regulations; agreements and disruptions; geological database quality; security; and availability of labour and skills.

But the analyst said another Fraser Institute measure, the composite policy and mineral potential index, reviewed all factors effectively on a reward versus risk basis , and here Indonesia ranked 54th out of 96.

Finland ranked first in the overall policy survey, followed by Sweden, Alberta, New Brunswick, Wyoming, Ireland, Nevada, Yukon, Utah and Norway.

In Australia, Western Australia scored highest (15th overall) followed in order by South Australia, Victoria, Northern Territory, Queensland, New South Wales and Tasmania.

However another industry analyst told Indonesian Coal Report of growing interest in Indonesia among mining companies, matching growing concern expressed at a recent coal conference about the way Australia handled mining operations.

"Many miners are not interested in investing in Australia," the analyst said. "They have told me there are too many worries about the length of time approvals take, about government interference and about labour uncertainty."

"Many miners are not interested in investing in Australia," the analyst said. "They have told me there are too many worries about the length of time approvals take, about government interference and about labour uncertainty."

At the bottom of the Fraser Institute scale, ahead of Indonesia, were Vietnam, Venezuela, Democratic Republic of Congo, Kyrgyzstan, Zimbabwe, Bolivia, Guatemala, Philippines, and Greece (an addition to the survey in 2012/13).

The survey now covers every continent except Antarctica, and as well as countries includes state jurisdictions in Canada, Australia, the United States and Argentina.

The 2012/13 survey was sent to about 4,100 exploration, development, and other mining-related companies. The institute said the report represented responses from 742 of the companies, which provided sufficient data to evaluate 96 jurisdictions.

The companies participating in the survey reported exploration spending of US$6.2B in 2012.

Institute researcher Alana Wilson wrote: “Sweden and Finland have now been in the top 10 for the last three and four years, respectively. The rise of Nordic countries in global rankings shows the importance of policy certainty and transparency, rather than lax environmental protections, in encouraging mining investment. “

But public mineral potential and market considerations also factored into investment decisions.

“Each year, the survey asks respondents about such investment considerations,” Wilson wrote. “A survey question asks respondents to rate the importance of mineral potential versus policy factors when considering a new exploration project.

“Over the life of the survey, respondents have consistently rated the importance of mineral potential around 60%, and weighed policy around 40%.

“Miners appear pessimistic about commodity prices with most respondents expecting reduced prices or small (less than 10%) increases in the price of nearly all commodities in the survey."

Australia's average PPI declined slightly in 2012/2013, although there had been an improving trend over the past five years.

“Indonesia dropped the most in the rankings for Oceania to last place in this year’s survey (96th) while the Philippines remained at 88th, also in the bottom 10," Wilson wrote.

“Comments about these jurisdictions were a mixture of positive and negative, although many of the miners’ concerns related to uncertainties and, in particular, the permitting process.”

An industry analyst with Indonesian expertise said Indonesia, like a number of other countries, had introduced new mining laws in the past several years to provide clarity.

“Indonesia introduced its new mining law in 2009 which it said would provide greater certainty for foreigners to invest,” he said.

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