This month, all eyes will be on Indonesia as it embarks on a radical experiment in resource maximization (not nationalization, note, but put simply, an effort to make the most from every ton of ore dug out the ground).
The 2009 Mining Law comes into force on Jan. 12, 2014, and miners were given five years to develop domestic refining and smelting facilities if they were to be allowed to export commodities out of the country.
Make no mistake – Indonesia has grown rapidly to become a major metallic ore exporter, particularly for the Asian market, in just a few short years.
According to the WBMS, in 2007 the country exported a combined total of just 22.42 million tons of bauxite, copper ores and nickel ores; by this year, the figure had reached 79.08 million tons in the January-to-September period alone.
An increase of 250%, but crucially for the Indonesian treasury, the value of those exports actually fell.
The high point was in 2010 when the combined value for these three metallic ores reached $7.9 billion, because by 2012 it had fallen to $4.71 billion and will only break $5 billion this year because miners and consumers are rushing to export as much as possible before the ban is enforced.
Like many resource-rich countries, Indonesia would like to see more of their natural resources refined at home, providing employment and adding value to maximize the return to state and economy. Unlike most other countries, it has decided to force the issue and miners have been reluctant to invest, citing poor infrastructure, excessive regulation, lack of power and other issues as barriers to effectively refining ores in country.
The government is not naive; they know a ban will drastically hit export volumes. Sukhyar, the newly appointed director general of coal and mineral resources at the Energy and Mineral Resources Ministry, is quoted in the Jakarta Globe as saying Indonesia’s foreign exchange revenue from ore exports may decline by $4 billion this year, and by $2.5 billion in 2015.
But in 2017, such revenue from processed minerals such as copper cathode and aluminum are expected to double from around the $4.9 billion estimated for this year. Metals that will be impacted include copper, nickel, bauxite, tin, iron ore, manganese, gold and copper. But the law spreads wider, including non-metallic mined products such as limestone, quartz and marble.
Many expected the law would be watered down and the slow response of miners to invest in smelting capacity is in part a reflection of this. There was an expectation as recently as last month that exceptions would be made if some smelting was done domestically, but Mr. Sukhyar was adamant the law would be fully enforced with no exemptions.