Signs of an attitude shift among investors could lead to a renewal of interest in mineral-rich Indonesia, according to recent international reports.
Signs of an attitude shift among investors could lead to a renewal of interest in mineral-rich Indonesia, according to recent international reports.
The reports show that foreign miners, who until recently have been wary of investing in Indonesia, could be changing their opinion.
In its latest report, which looks at the slump in mining investment into Indonesia, London-based precious metals consultancy GFMS says there are important changes taking place that should generate renewed interest in the South-East Asian nation.
While GFMS says favourable government policies and foreign investment incentives will be crucial in attracting significant levels of mining investment in Indonesia, recent improvements in the gold price and signs that ‘mining issues’ are back on the political agenda in Indonesia are important steps in the right direction.
Indonesia, with its highly prospective geology, was once a popular destination for Australian and other foreign explorers and miners. It still remains home to the world’s biggest gold producing mine, Grasberg, as well as many other significant mines.
According to GFMS, however, gold production has declined from a peak of 180 tonnes in 2001 (the world’s fourth biggest producer) to 112t last year.
Much of this decline was the result of a major pit wall collapse last year at Grasberg, which halved production from the 100t-a-year mine.
But there are several other reasons for the sharp decline in overall mining investment the past five years.
GFMS says that, since 1998, only three new mines have opened while five have closed. At the same time the value of foreign direct investment has declined from about $33 billion to just $10 billion.
The decline in the gold price until 2001, when it hit $US255.95 per ounce, has played an important role in this. Factors such as the Asian financial crisis and the earlier Bre-X minerals scandal have had similarly negative effects, the report says.
Also playing a role have been issues of political instability, illegal mining and, more recently, increased publicity over questionable environmental, industrial and social practices on the part of foreign mining companies in Indonesia.
Some Western Australian companies involved in projects in Indonesia include Straits Resouces with its controversial Mt Muro gold project, and Herald Resources, which is currently developing the Dairi zinc/lead project.
Even the larger global resource companies with their significant resources have encountered difficulty in Indonesia.
Recently, five executives from the world’s largest gold miner, Newmont, were held for 30 days by Indonesian authorities over pollution allegations at its Minahasa goldmine.
A lawsuit in relation to these allegations has since been dropped.
Yet while declining mining investment has been a reflection of changing politics, markets and other factors, Indonesia’s geological potential remains.
According to last year’s annual survey of 53 global mining jurisdictions by independent Canadian research organisation The Fraser Institute, Indonesia’s ranking on the basis of its geological potential increased from 16th two years ago to sixth last year.
Overall, Indonesia’s mining investment potential was ranked 16th, with issues related to mining regulations, infrastructure, socio-economic and political instability hampering chances of a higher ranking.
