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Market Report, "Indonesia Mining Report Q4 2012", Published

Fast Market Research recommends "Indonesia Mining Report Q4 2012" from Business Monitor International, now available


Boston, MA -- (SBWIRE) -- 02/13/2013 -- We have downgraded our 2016 mining industry forecast from US$143bn down to US$125bn in light of a significantly weaker demand and price scenario for Indonesia's main commodity exports. We also foresee slow growth in base metal production from the country, which further contributes to our mining industry value downgrade. Despite our low production growth rate forecasts for other metals, the country will remain a dominant mineral exporter in the region and will retain its status as the largest thermal coal and tin exporter in the world.

Positive regulatory developments in recent years include the passage of the 2009 Mining Law, which streamlines and improves upon the 1967 Mining Law. However, key implementation guidelines with reference to benchmark pricing and asset divestment procedures have yet to be announced, which is a source of uncertainty for investors. Two new mining laws were signed into law during Q112 that give more clarity to previous statements by the Indonesian government. Going into Q212, we became more concerned regarding policy continuity in the country as the government imposed a 20% export tax on all ores in a bid to spur domestic processing (effective May 6 2012).

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First, actual threshold specifications for raw material exports have now been revealed through the passing of Law No. 7 of 2012. Second, a new law was also passed that will require foreign investors to divest at least 51% of their ownership in Indonesian mining assets 10 years after initial production. The key risk for these two rulings is whether they will be applied retroactively or partially to existing contracts. Another risk is that thermal coal exports have been left alone so far and have the risk of additional taxes in the future.

Nevertheless, we expect foreign investment into Indonesia to remain strong in the coming years, especially in the coal mining sector. The country's mining industry is dominated by its coal mining sector as evidenced by its outsized contributions to the government's coffers. In 2011, the Indonesian mining sector contributed about US$9.1bn in taxes with approximately US$7.7bn generated from the coal sector alone. The mining sector accounts for about 11% of Indonesian GDP.

Despite additional regulations, the country's geological resources and geographical location continue to make it an attractive destination for investment. In South East Asia, Indonesia remains the top location for new mining projects, followed by the Philippines and Vietnam. A large number of these are greenfield and brownfield exploration projects for coal and copper-gold prospects.

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