JAKARTA Oct 1 One evening in late September,
Peter Wesser and his club of veteran minerals explorers met at
Jakarta's Hotel Kristal to swap stories and exchange news. Beer
and roast beef were on the menu - on the agenda was trying to
figure out how to stay in business.
For decades explorers have enjoyed a place on the cutting
edge of the country's mining boom as they scoured the earth for
fresh mineral deposits, a process that can take years and cost
hundreds of millions of dollars before payback.
But now they complain that new rules aimed at boosting state
revenue from natural resources have slashed investment in
mineral prospecting and could threaten the entire $93 billion
"Exploration is by nature optimistic," said Wesser, 73, an
Indonesian, born to Dutch parents, with decades of mining
experience. "The government doesn't understand the importance of
exploration ... Mining without exploration is an industry that
The explorers are not the only ones struggling with the
impact of the regulations that have caused industry-wide
uncertainty in Indonesia, compounding the effects of a global
Small miners in particular have been hit, leading to mine
closures and lay-offs in regions such as Sulawesi island, with
some resorting to bribing central government officials to
continue to export, according to interviews with four mining
An analysis of official data shows the rules have also
caused a slump in exports of ore, leading key buyer China to
seek supplies from elsewhere.
The government of President Susilo Bambang Yudhoyono is
reforming the minerals sector in a plan to propel the G20
country into a global top-10 economy by 2025.
Mining already contributes 12 percent to GDP, and Indonesia
is a world leader in nickel ore, thermal coal and refined tin
exports, while bauxite exports have spiked in recent years.
"If we do not begin the efforts to increase mining added
value, we will be economically colonized forever," said Deputy
Energy and Mineral Resources Minister Rudi Rubiandini.
The regulations restrict the export of raw ores, force
foreign miners to divest over half their assets after 10 years
of production and require domestic processing of ore by 2014.
SURGE THEN PLUNGE
The most dramatic effect of the new rules has been on
mineral exports, which surged as companies fought to beat a May
6 export tax deadline and plunged thereafter.
In August Chinese imports of nickel ore from Indonesia
dropped 39 percent to 1.48 million tonnes, following steep falls
in July and June, Chinese data shows. China's imports from the
Philippines nearly doubled over the same period.
Nowhere is the human impact of the slide more visible than
in the remote mining communities of Sulawesi, an island east of
Borneo and the country's main source of nickel.
Prior to the regulations coming into force in May up to a
dozen ships could be seen standing off the port of Kolaka,
waiting to collect nickel ore as fleets of trucks scooped mud
from nearby hills and transported it down to the docks.
Now the rudimentary ports stand idle and only security
guards patrol the abandoned piles of mud. Workers in Sulawesi
said the situation for miners was worse now than in 2009 when
the global financial crisis hit commodity exports worldwide.
The plight of Rasiun, a father-of-three, illustrates the
impact on miners. The former fisherman and farmer sold his land
to miner Prima Nusa Sentosa, who offered him $5 a day to pull
tarpaulins over ore to protect it from rain.
When the mine closed because of the new regulations he lost
his job, but mining pollution has stained the sea red and made
it impossible to go back to fishing.
"We thought we could change our fate with the company. Our
land is now owned by the company and run-off from the company
has flowed into the sea, so now we are unemployed," he said,
adding he was "half-dead" with worry over how he would feed his
Thousands of firms are affected by the laws and there is a
backlog at the mining ministry in Jakarta as many seek the
licence, quota and recommendations needed to resume exports.
To cut red tape it helps to pay the ministry between
$500,000 and $1.5 million, said a senior mining executive, who
declined to be identified. Three other executives at different
mining firms also said bribes were required.
"Miners have to get a recommendation from the Energy and
Mineral Resources Ministry. What does the word 'recommendation'
mean here? You can work that out by yourself," said Juanforti
Silalahi, a spokesman for miners' union Spartan.
The mining ministry denies there is corruption in the permit
The new regulations do not apply to miners who hold older
Contracts of Work (CoW), including some of the most prominent
industry names such as the Indonesian units of Freeport McMoRan
Copper & Gold Inc, Newmont Mining Corp and Vale
They also do not apply to coal producers, although for both
groups the rules have caused unease that the government's
regulatory drive will extend to them through higher royalties.
It is not clear whether the export slump, which coincides
with a general downturn that has lopped about a quarter off iron
ore and thermal coal prices this year and halted major mining
investments in Australia, is a blip or part of a realignment
that will hurt mining for a generation.
As they ate and drank at the Jakarta hotel, the members of
the Forum for Exploration and Mineral Development were
pessimistic about their business, which is crucial for long-term
Wesser's last firm, Oxindo, a copper explorer owned by
Chinese mining group MMG, closed its Jakarta office in
September, one of five members of the group to quit since May.
"There will be no more world-class discoveries in
Indonesia," said forum head Malcolm Baillie, about a country
that is home to a mine with the world's biggest gold reserves.