glad we are not mining in indonesia

Indonesia’s mining industry will collapse if the government moves ahead with a planned ban on the export of raw minerals, the country’s chamber of commerce has warned.

The southeast Asian nation, which is facing strong economic headwinds, is the biggest exporter of coal for power stations, nickel ore and tin, and a leading shipper of bauxite and copper. But on January 1 it is set to implement a law prohibiting the export of unprocessed metals as part of a drive to refine the ores and potentially generate higher margins.

Mining companies and independent economists are critical, arguing that at current depressed global prices for both raw and refined minerals, it is not a financially viable option in infrastructure- and energy-poor Indonesia, especially with no commitment to invest from the government.

A report funded by the US Agency for International Development has argued that the push towards refining coupled with the ban would create few jobs and could lead to $6.3bn of lost economic benefits annually by prioritising spending on refineries with “poor commercial prospects” over other “pressing needs” for capital investment, for example in the country’s decrepit education, health and infrastructure systems. But the government has insisted it will go ahead.

“If the government implements a full ban, the whole industry will collapse,” given that there are only a handful of smelters in the country, warned Garibaldi Thohir, a vice-chairman of Indonesia’s chamber of commerce (Kadin) and chief executive of Adaro, the country’s second-biggest producer of coal for power stations.

He was speaking after a meeting in Jakarta on Tuesday between Indonesian officials, the chamber of commerce and representatives from international mining companies including Chalco, Glencore, Norilsk Nickel, Rusal and Vale.

With just over two months to go before the ban comes in, the government and many mining companies are engaged in a game of brinkmanship. Most investors are betting that the government will not risk losing billions of dollars in tax revenues and royalties by halting exports.

“Both sides are waiting to see who blinks first,” said Maxim Sokov, deputy chief executive of Russian billionaire Oleg Deripaska’s En+ Group, which controls Rusal, the world’s biggest aluminium producer, but has yet to invest in Indonesia.

Rusal wants the Indonesian government to implement the export ban as a way to reduce supply to the global market and push up prices. Only if it does so would it enter the market. Then, Mr Sokov said, Rusal and Norilsk Nickel, the world’s biggest nickel producer in which Rusal has a 28 per cent stake, would consider investing up to $4bn to set up alumina and nickel smelters in Indonesia.

Jim Lennon, a metals analyst at Macquarie in London, said most investors expected the government to compromise by allowing companies that commit to building smelters to export minerals or raising export taxes on those that do not.

But China, the largest buyer of Indonesia’s nickel and bauxite, which is used to making alumina and aluminium, is not taking any chances.

“The Chinese have built very large stocks of bauxite and nickel ore in ports and at plants of close to 30m tonnes each respectively,” Mr Lennon said. “Clearly they are long the raw materials and expect prices to rise.”

The chamber’s Mr Thohir, a politically-connected tycoon, said that although Indonesian mining companies supported the government’s aim of promoting investment in processing, the plan would only work if curbs on exports were phased in over a long period, while the government invested in infrastructure and pledged to avoid policy changes.

This story has been amended to clarify that the view attributed to the US Agency for International Development came from a report funded and promoted by USAID but which the agency said does “not necessarily reflect the views of USAID”.