International IEDC MGEI IAGI
Reviving and Foreseeing Indonesia’s Mining Exploration during Pandemic
duniatambang.co.id - Indonesia’s mining industry has been mentioned by various characters during past decades. Especially when the world entered the COVID-19 pandemic era and its subsequent impact of economic uncertainties, mining Industry in Indonesia would become more challenging. In fact, with Indonesia’s poor mining investment despite of geological potential, Indonesia needs to boost exploration. At least that’s what was quoted by Professor Irwandy Arif – distinguished staff of Indonesia Ministry of EMR, which spoke as keynote speaker in 2021 Indonesia’s Explorer – Developer Collegium (IEDC).
Furthermore, the fellow keynote speaker Indra Darmawan – Distinguished Staff of Macro Economy Ministry of Investment – warned about mix messages of economic recovery path. Unfamiliarity with this situation forced the adaptation to change. Despite that, there’s hope of economic rebound and the mining industry is able to project best economic scenario while handling the pandemic with massive vaccination and huge stimulus. And hopefully thus will lead to optimism in mining.
Afterwards, the event continued to the main sessions with the speakers from either regulator or industry. The first speaker, Dr. Ridwan Djamaluddin – Directorate General of Mineral and Coal in Indonesia’s Ministry of EMR – explained the transformation in Indonesia’s mining law. He claimed several breakthroughs introduced in new Law Number 3 Year 2020, which encompass more support for exploration, giving added value in the form of incentives by granting time periods for certain mining licenses, enable divestment up to 51% shares to central government, permitting contract extension to an IUPK, and give stricter sanctions for environmental violation.
Furthermore, Ridwan also promotes mining incentives in Indonesia through various scheme, such as import duties facilities, tax allowance, and regional incentive. He also showed several greenfield exploration projects which has been underwent up to 18 projects nationwide, thanks to new law and incentives regarding new mining law.
Representing McKinsey – a renowned global consulting firm, Greg Peacocka acted as the next speaker. With the presentation titled “Reviving Indonesia’s Exploration and Mining Spirit”, he generally explain about current situation of Indonesia’s mining economic and its future. Unsurprisingly relate the presentation material with COVID-19 pandemic, Greg opened his session by showing how COVID price recovery brings monthly-price index (MPI) of commodities to 9 years high, even outside the stable price-corridor. Despite many promising data it shows which indicates that the sector has been fundamentally reshaped and more profitable, the Indonesia’s mining industry also become more volatile.
The fundamental change of industry’s commodities landscape is largely influenced by energy transition – where ambitious projects in EV, grid storage, and renewable energy lead to projected increase of demand in lithium, nickel, copper, aluminum, etc. in 2040. Although not all commodities are deemed attractive equally, Indonesia itself is exposed to a core set of strong commodities like gold, aluminum, copper, and nickel. McKinsey has reviewed exploration capes has been persistently low, that budgets are expected to increase in the next 3 years. Within 2020, more than half of exploration budgets targeting the gold, while one fifth targeting copper, and 15% targeting iron ore & coal.
Indonesia has actually significant reserves across commodities when compared to global reserves, ranging from 3.5% of global thermal coal reserves up to 23.6% of global nickel reserves. McKinsey assessed that despite developed country demand collapsing, developing country like Indonesia has continued rising demand through 2050. However, Indonesia still has limited exploration spend, with annual spend ranging up to 2.1% to the most in 2019. This led to stagnant or declining reserves in some commodities like tin and gold.
To overcome the challenges, McKinsey views that four interdependent dimensions should help keep Indonesian exploration and mining attractive, which is: 1) flexibility for market context, 2)lift international competitiveness, 3) make us of natural resource endowment, including more investment in exploration, and 4) enable supportive environment of regulation, infrastructure, and ease of doing business.
Afterwards, Sreecharan Nagarkal representing Petrosea gave insight about “Indonesia Mining Industry Business, Future Trend, and Challenge”. The opening highlighted the Indonesia’s reputations as one of world’s top producer in several commodities. However, Sreecharan pointed out several challenges faced by the industry, mainly lower exploration investment, low productivity and declining grades, lack of talent availability, and cost of financing. Furthermore, he explained potential steps for consider when engaging in industry, such as more focus on digitization and automation, increase spend on exploration, be ESG leader, and build “talent factory”.
He showed that mine lifecycle indicates opportunities for innovative solutions. For example, geological challenge lead to digitalization with discovery and exploration. One step further, he emphasize the increasing importance of ESG (Environment, Social, and Governance) aspect since 2015 Paris Agreement. Petrosea hoped that new regulatory and financing pressure expected to push for the purpose of emission reduction. For now, there is clear trend toward more clarity in ESG.