On the 3rd day of the 11th MGEI annual conference (26 Sep 2019), Mr. Budi Sadikin of Mining Industry Indonesia (MIND-ID), and as CEO of the state holding company Inalum, gave a much-appreciated polished presentation to the audience of about 200 of Indonesia’s leading geologists and others. This nuclear physics, turned banker, now CEO of Indonesia’s largest mining group delivered a smooth salesman’s pitch for the wonderful future that Inalum would bring hope to Indonesia’s geologists and the mining industry. He started out with a short introduction of the mining industry positive impact on the national economy, and touched on Inalum’s resources and reserves. It would seem Inalum’s short term goals include the acquisition of a significant interest in Vale over the next year, and underground production from Freeport to reach its target production of 240,000 tpd in the next two years to yield a strong cash flow.
Then Budi opened up new ground with his aspirations on exploration: –
- Indonesia’s reputation for being a less attractive destination for Greenfield’s exploration can be seen as an opportunity for the SOE Inalum.
- Inalum would allocate 1-2% of gross income towards exploration. Budi would encourage other companies to follow this lead to spend on exploration.
- Inalum would encourage, and work with, Indonesian (and international) junior exploration companies on greenfield projects. This may lead to a Junior Exploration industry, similar to that found in Canada.
- There was a recognition that Indonesian and the world’s best geologists would be needed to ensure exploration success.
- Investment in exploration needed to be undertaken by Inalum with significant sums over a long period. Budi’s tenure as CEO is for a 5-year period, wherein he would need to devise a way to ensure a 10-year exploration initiative for exploration budgets.
- There was a suggestion to get started on this line of activity before the government sorts out many of its regulatory issues.
His closing outlook was a quote from the movie Star Trek “To boldly go where no one has gone before”.
This was a breathtaking boost to the Indonesian geology profession, along with a great opportunity for Indonesia to stimulate greenfield exploration. The 11th MGEI conference on “Unlocking concealed and complex deposits” indicated there is significant potential for Indonesia to deliver new world class ore bodies for development.
It is herein hoped that Budi can overcome a number of challenges to achieve this much appreciated exploration initiative.
- For the CEO of a holding company to get support from other stake holders to commit such gross income funds from the publicly listed subsidiaries.
- That other minority stakeholders on Inalum’s subsidiaries (particularly local governments) may be embolden to express their own ambitions upon Inalum subsidiaries, and on other mining companies.
Now let’s take a wider look at Budi’s aspirations for Inalum.
- In his address to the 11th MGEI annual conference he also mentioned that the PT. Bukit Asam coal rail system was a high fixed cost component, and may be substituted by further mine mouth power plants sending electricity to Java and other users. It is separately understood this is an older idea that was eventually shelved, as PLN would need a very expensive major overhaul of its power cable grid system. Such a system may also run into difficulties wherein the coal rail system is one of PT. Kreta Apai’s most profitable lines, and that more power plants discharging hot water into the Maura Enim river may not get environmental approvals.
- Budi touched briefly upon another of Inalum’s plans, that is to build hydro-electric dams in North Kalimantan to provide cheap power for bauxite smelters. Budi did mention one future challenge would be the global trend is the increase of recycled aluminium. Herein it seems one other less obvious challenge may be the Indonesian cabotage rules that makes domestic shipping so expensive.
- Budi did not mention much about tin, however a very learned speaker at the 11th MGEI annual conference mentioned that some on-shore exploration targets looked encouraging, while others seemed not so good. Separately, it is understood that a marine mining exclusion zone has been proposed, which may impact on PT. Tima’s off shore dredging operations. The future of PT. Tima’s operations as the world’s second largest producer of tin seems to have some ongoing challenges.
- Budi briefly mentioned the immense monetary rewards expected soon from PT. Freeport’s underground operations. In this 11th MGEI annual conference there was an excellent presentation on the challenges faced by Freeport in safe working at such depth. By inference, the risk of serious underground rock bursts is present. The Freeport team are working diligently to avoid a major underground stoppage to production, and to reduce the risk of interrupted cash flow for Inalum.
- Inalum wants to be a Fortune 500 company, and one way to achieve this goal is to organically develop a number of new mines. Budi mentioned that the Freeport operations is well suited to act as a base of operations to explore and develop a number of prospects in Papua. In a separate presentation, Budi mentioned the idea of giving PT. Aneka Tambang a mature gold prospect not far from Freeport to compensate them for the soon to be completed underground gold mines in Java. Herein it would seem Budi’s challenge in Papua includes the Forestry department, and the high cost of developing access in the sever terrain of Papua.
- Budi did not mention much about PT. Aneka Tambang’s nickel smelter business. Separately it seems there is a coming global over-supply of stainless steel that may put further downward pressure on nickel prices. The Indonesian government is bringing forward the banning of raw ore for export, which has momentary supported nickel prices. PT. Aneka Tambang’s nickel smelters have a relatively high operating costs that can be offset by exporting raw nickel ore. Perhaps PT. Aneka Tambang may seek exemptions to export more bauxite ore, to replace the lost nickel ore income stream.
So back to the beginning. It makes much sense for Inalum to engage in Greenfields exploration to generate a number of major new mining projects in order to offset any risks to its mature mines, and to grow the company. (Ian Wollff)
Principal Geologist. Independent Consultant