Indonesia – Mining and Investments with 2014 Global Update

THIS POST WAS ORIGINALLY PUBLISHED MAY 20, 2011

Indonesia – Mining and Investments with 2014 Update

Emerging markets offer a great opportunity for investors. Indonesia is one of the most prominent countries among this list.  One of the interesting questions, that is prominent now is – after investing in China and India – what countries would be in the top pick by investor community? It seems that for now Indonesia is a solid candidate for this list.

In my recent posts I tried to cover some of the issues:

• Investing Coal Mining Business in Indonesia
• Indonesia next Asian stop for buyout firms
• Investments in Indonesia: BKPM Head talks to Jakarta Post              
• As well as some of the recent investment announcements regarding iron ore are  in Iron Ore in Indonesia: Much Ado About …?

 Recently  I was invited to be a Guest Speaker at the FUTURE MINING 2011 INDONESIA conference in Bali, Indonesia, where I will speak about investors’ attitude towards the country. So in this small post I would like to make some outline of presentation.

The Doing Business 2011 report, released by the International Finance Corporation, ranked Indonesia 121st out of 183 countries in terms of ease of doing business, down six places from last year.  This is general approach, but let us look at the mining business. 

Mining activities in Indonesia have a long history which was initiated during Dutch colonial back date to the eighteen century, whereby the Indonesian archipelago was so called “Dutch East Indie’s territory”. Tin mining in Bangka Island and gold mines in Bengkulu and West Java Provinces were opened by the Dutch during those period in 1930 the Dutch Government introduced “Mijn Politie Regleement No. 341″. After the political changeover in 1965/66, the Government of the Republic of Indonesia enacted Law No 11 of 1967 concerning Basic provision on Mining, to replace Law No 37 Prp of 1960 concerning Mining. Subsequent 2009 Mining Law brought a new dimension to mining activities in the country.

In recent years a number of big deals in investments into Indonesian mining as reported:

• Vallar - a $3bn investment for a 25% in Bumi Resources
• BP has decided to expand its coal-bed methane operations in Indonesia through four new production-sharing contracts.
• Polo Resources recently executed two $3m convertible loan issues with regional partners to fund development and due diligence costs in relation to coking coal and iron ore opportunities.

Last year I have reported in my Blog post Mining Investments - WHERE NOT TO INVEST by Behre Dolbear on the rankings; this year we have a new ranking list.

 In 2006 Indonesia was ranked 22, this year it is 18. “Indonesia’s composite score rose the most, by 6 points from 21 to 27, reflecting improved economic, mining, and tax policies, management of corruption and the rupiah gaining strength.” - writes Behre Dolbear

I completely agree to the Behre Dolbear methodology, where the following salient parameters are considered when analyzing investor attractiveness:

• The country’s economic system
• The country’s political system
• The degree of social issues affecting mining in the country
• Delays in receiving permits due to bureaucratic and other delays
• The degree of corruption prevalent in the country
• The stability of the country’s currency
• The country’s tax regime

2014 Update

The new Behere Dolbear document for 2013 is available at this link. So, here is the updated table:

 

Some observations from the report:

• “Despite the market’s low activity during former recessionary cycles, there are now significant investments occurring in locations that were once deemed unviable due to the perception of high political risk.”
• "…capital available to many African projects continues to increase relative to past years.
• Countries that have remained stable and those that address corruption and social issues have benefited from increased investment and production."
• "Asia at large and Australia have continued to attract new investment although government participation in the mining sector has increased in part through government-backed companies."
• "The Middle East region continues to see more mining, minerals, and metals investments as the region’s nations continue to strive to diversify and expand their economies."

I have also compiled a short summary of the document:

On Indonesia - I would recommend to read the latest post Indonesian Oil and Gas Sector: Legal Framework from SSEK - of the best and leading Indonesian legal firms.

 

Mining Investments - WHERE NOT TO INVEST by Behre Dolbear

THIS POST WAS ORIGINALLY PUBLISHED MAY 19, 2010

Mining Investments - WHERE NOT TO INVEST by Behre Dolbear

One of the oldest mining consulting companies in the world Behre Dolbear provides quality advice for mining investors worldwide, and their documents are well respected by industry professionals.

Indeed, when making the right decision about investment strategy it is important to take into consideration as much information as possible.  Since 1999, Behre Dolbear started a political risk assessment of countries important  to the mining industry. This is alleviated by the fact that mining industry is vital to the creation of wealth and prosperity in
any country.

The  Behre Dolbear's assessment includes the high risk and low risk parts of the world for receptivity to mineral investment, as well as information about conditions in the countries such as economic and political systems, social issues, permitting, corruption, etc. It interesting to note that the company has a very peculiar stance regarding their report, as it is mentioned in the preface:
"We recognize that many might consider what we have said to be provocative, which is our intent." 
However, whatever provocative their findings are, they are nevertheless valuable  both in staregy panning and execution of everyday business. This is not technical assessment, as one might expect -  "Geology and mineral potential were not considered, as the fact that exploration, development, and mining activity are occurring confirms the existence of such potential. We recognize that if a major mineral deposit exists in a high-risk country, a mining company might well decide that the financial incentive exceeds the political risk; e.g., Barrick’s Reko Diq project in Pakistan and Banro Corporation in the eastern Democratic Republic of the Congo (D.R.C.)."
The countries are ranked by the following criteria:

• the country’s economic system;
• he country’s political system;
• the degree of social issues affecting mining in the country;
• delays in receiving permits due to bureaucratic and other delays;
• the degree of corruption prevalent in the country;
• the stability of the country’s currency; and,
• the country’s tax regime.

So, this make another essential document that any mining professional has to read and study
It can be downloaded HERE