Boston, MA -- (ReleaseWire) -- 09/17/2012 -- We expect Indonesia's mining industry value to almost double from US$82.6bn in 2010 to US$143.0bn in 2016. Growth will be driven by coal and nickel production, with annual average growth rates of 10.4% and 9.1% respectively. Despite our low production growth rate forecasts for other metals, the country will remain a dominant mineral exporter in the region and will retain its status as the largest thermal coal and tin exporter in the world.
Positive regulatory developments in recent years include the passage of the 2009 Mining Law, which streamlines and improves upon the 1967 Mining Law. However, key implementation guidelines with reference to benchmark pricing and asset divestment procedures have yet to be announced, which is a source of uncertainty for investors. Two new mining laws were signed into law during Q112 that give more clarity to previous statements by the Indonesian government. Going into Q212, we became more concerned regarding policy continuity in the country as the government imposed a 20% export tax on all ores in a bid to spur domestic processing (effective May 6 2012).
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Firstly, actual threshold specifications for raw material exports have now been revealed through the passing of Law No. 7 of 2012. Secondly, a new law was also passed that will require foreign investors to divest at least 51% of their ownership in Indonesian mining assets 10 years after initial production. The key risk for these two rulings is whether they will be applied retroactively or partially to existing contracts. Another risk is that thermal coal exports have been left alone so far and have the risk of additional taxes in the future.
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