Friday, September 23, 2011

The next big mining investment story

INDONESIA looks certain to replace Africa as the next mining investment story. It could be this year or maybe next but it will happen. Although investment has a patchy record, due to red tape, corruption and the Bre-X scandal, it seems the world’s third most populous nation has turned the corner. It is rich in resources, has a new mining law and there is huge demand from China, India, and traditional powerhouses South Korea and Japan.

There are also signs Indonesia is following China and India in urbanization and industrialization, with increasing personal wealth leading to demand for power and infrastructure, and more domestic resource demand.

It all sounds rosy but there are issues which must be overcome if Indonesia is to receive the benefits a healthy mining industry and strong investment can bring. There is too much uncertainty about the new laws with the government still to determine the fine details and while they provide more responsibility and certainty locally, there is still potential for corruption.

Despite the risks, banks are showing increasing willingness to finance projects and investors are following. In 2010 mining investment reached about US$3.19 billion and in 2011 it is forecast to reach US$3.5 billion. To provide an example of the potential, the Indonesia Mining Association says the country ranks sixth in the world for mineral resources, but 46th in terms of attracting investment for the sector.

Phil Mattinson, who has 30 years experience in exploration, resource development and mining including active involvement in Indonesia, says attractive investment opportunities exist in Indonesia.

He says the new law has seen control of resources handed to regencies and the local government Bupati system, decentralizing the issuing of concessions. While it has benefits, until they iron out the details, the new system has potential to create some of the problems of old. A benefit is the termination of illegal mining, which has been enacted in some regencies and is creating a more orderly presentation of tenure for professional assessment and development.

He says there is a window of opportunity for investment, particularly in coal because the outcrops illegal miners were working have been shut down. In these instances the pre-strips have largely been done, the IUPs have been issued and many areas are up for acquisition or joint venture, to be systematically explored, optimized and mined in an orderly, professional manner.

Phil Mattinson describes the new dawn of Indonesia as a mining country with little modern exploration carried out. There are many opportunities in Kalimantan including epithermal gold, numerous porphyry copper-gold plays, iron ore, manganese, diamonds, tin, bauxite and mineral sands, but there are other new mining frontiers opening, including Aceh, Halmaheras and Papua. Several large digital data bases from gold exploration completed 20-30 years ago in Sulawesi and Kalimantan are available for investors to inspect.

On the diamond front, Phil has seen 38.5 carat pink and 20 carat blue stones sourced from an area that currently generates about 500 carats a month using traditional panning methods. The invitation has been extended to potential investors from the Bupati and traditional owners to explore and mine this area in an orderly manner and to identify the source of the diamonds.

At Marsupa Ria epithermal gold project in Kalimantan, recent digital compilation of BP Minerals’ historic drill data and subsequent pit optimization by Phil Mattinson generated a $90 million cash surplus for a 300 metre-long by 80 metre-deep pit, associated with a 15km-long fault zone. Investors are invited to review this data.


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