Metal Mining Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

METAL MINING INDUSTRY IN INDONESIA

February 2007

Current Issues

The prices of various types of metal have continued to scale up since 2005. Increases were recorded for almost all types of metals produced in Indonesia including nickel, tin, gold, silver, copper, bauxite and iron.

In 2005, the selling price of tin averaged US$ 7,507 per metric ton, up to US$ 13,700 per ton early 2007. The prices of nickel in matte of PT INCO in the last quarter of 2006 averaged US$ 24,725 per ton (US$ 11.21 per pound) or a 148.5% increase from US$ 9,950 per ton (US$ 4.51 per pound) in the same period a year earlier. Similarly the prices of gold, silver and copper have also increased.

The rises in the prices of metal have encouraged investment in the mining sector after long slump earlier. State-owned tin company PT Timah Tbk, which slowed down production when the price of the metal fell, has not received a boost to increase output especially after the government cracked down on illegal smelters and miners.

Nickel producers have also boosted to increase output after the world demand for that metal increased especially from China and India that use it to produce stainless steel.

However, the surges in prices do not at once bring in new investment to the mining sector in Indonesia. New ventures are mainly additional investments made by the old investors that want to gain from the good prices.

The delay in passing new mining bill into law has delayed inflow of investment to the sector. Prospective investors choose to wait and see as there are too many conflicting and confusing regulations in the mining sector that investor see it is not secured yet to start venture in this sector. They want new law that give greater investment and business certainty. Regional administrations especially after the implementation of the law on regional autonomy have issued many regulations contradicting regulations issued by Jakarta.

This study report concerns mainly mining of major types of mineral already produced by large mining companies for years in the country such as gold, silver, tin nickel, bauxite and iron sand.

This report is expected to help investors make the right decision before embarking on expensive venture in the mining sector.

Overall Mineral Deposit Estimate

Indonesia ranks second in tin production, is the world's 4th largest producer of copper, the 5th largest producer of nickel, the 7th largest producer of gold, and the 8th largest producer of coal.

While the mining sector already makes an important contribution to the economy, the bulk of Indonesia remains unexplored. Geologically Indonesia has some of the most prospective land areas anywhere in the world for further mineral development.

Based on statistics from the MEMR and the companies operating metal mineral mines, the deposit of gold, copper, nickel, tin, bauxite, and iron sand are estimated which are presented in table below.....

Based on average production in 2000 - 2005, the depletion of each mineral is estimated as between 24 years and 130 years. The actual depletion, however, will depend on production development of each mineral and whether or not they will be new deposit discovery of each mineral concerns.

Gold and Silver Deposit

Of a number of regions containing gold and silver in Indonesia, the region stretching from the northern tip of Sumatra down to Java is widely known. Recently, Indonesia has been more well known by its gold sources in Kalimantan, Sulawesi, Nusa Tenggara and Papua. Most of gold and silver are derived from porphyry copper mines, specially from Grasberg mine in Papua.

It has been known for a long time that gold deposits exist in North Sulawesi and Gorontalo. Most recent company operating gold mine in North Sulawesi is PT. Newmont Minahasa Raya (NMR) which is now in the closure process because of depleted ore deposits. But, another company is now starting its gold mining operation not far from NMR' mining site, i.e. PT. Avacet Bolaang Mongondow.

In Gorontalo gold deposits are scattered around the former gold mine at Mount Pani, which contains alluvial gold sediments.

In Sumatra, which was known as Gold Island in the past, traditional gold mining has been conducted for a long time. The same goes for West Kalimantan, where the Chinese have conducted traditional gold mine since long time ago.

Modern gold mining in Sumatra began with the opening of a gold mine in Lebong Donok in Bengkulu in 1899. This was followed by the opening of other gold mines in the region Most of these gold mines were closed down with the outbreak of war in the Pacific, but some had been closed down long before that. At that time, there were almost no big gold mines in Kalimantan and Sulawesi; Existing gold mines were mostly small and traditional.

Towards 1940, the Cikotok gold mine in West Java was opened. During the revolution, the Government of the Republic of Indonesia continued the operation of the existing gold mines, including the Cikotok and Lebong Tandai gold mines.

Gold reserves being exploited include; 1) The one located at Pongkor in West Java by PT. Antam. Pongkor gold reserves has a total ore deposit of 13.1 million with containing 105 tons of gold; 2) Lanut field by PT. Avacet Bolaang Mongondow and Halmahera Field by PT. Nusa Halmahera.

Most of the gold produced in Indonesia comes from porphyry copper ore deposits found largely in Grasberg field in Southern Papua which is now being mined by PT. Freeport Indonesia (PTFI).

The reserves in Grasberg consist of 1,981 million tons of ore deposits containing copper 0.99%, gold 1.20 gram per ton (g/t), and silver 2.32 g/t, PTFI also controls reserve deposits at several places.

Overall, Freeport's reserves in Papua is estimated consist of 2,677 million tons of porphyry copper deposit which is calculated to contain 27.7 million tons of copper, 3,117 tons of gold and 7,216 tons of silver.

The second largest porphyry copper deposit in Indonesia is located at Batu Hijau in Sumbawa Island, West Nusa Tenggara (NTB) province being mined by PT. Newmont Nusa Tenggara.

Batu Hijau is a major gold-rich porphyry copper deposit typical of the islands in South East Asia. These gold-rich porphyries are overwhelmingly hosted by composite stocks of diorite to quartz-diorite and, to a much lesser degree, more felsic compositions such as tonalite and monzogranite.

The deposits tend to be characterised by a strong correlation between the distribution of copper sulphides (chalcopyrite and bornite) and gold as the native metal in addition to having a notably higher magnetite content.

As of the end of 2003, Batu Hijau had an ore reserve of around 1,000 grading 0.525% copper and 0.37g/t gold. It means, Batu Hijau is estimated to contain 3,700 tons of gold reserves were replaced net of depletion during 2004 and at current production rates, will support a mine life until 2025.

Another large gold are deposit ore found at Kelian, East Kalimantan, which is estimated to have 114 tons of gold. Smaller gold deposits are found in many other places in Indonesia, particularly in Kalimantan, Sulawesi, Sumatra and Maluku, with a total of 4,401 tons of gold, mostly (70.8%) found in Grasberg or Freeport mining area.

Porphyry Copper

Substantial quantity of porphyry copper deposits are found in Grasberg, Papua. The Grasberg area is of granodiorite rocks with porphyritic texture. Although the mass is considered an entity, it is composed of different materials, ranging from dioritic to monzonitic quartz. The mass penetrates the Faumi formation of limestone, which dates back to the Eocene. Grasberg is a rock mass with the characteristics of limestone's, which has undergone transformation (metasomatosis).

The ore body is shaped like a peg or a tooth with a long root. The exposed section is 140 meters high, rising from the trough and its root stretches downward to a depth of 360 meters.

The ore from the eastern part of Grasberg is made up of calcosite (Cu2S), with an average Cu content of 2.64%. The main rocks are made up of monticellite and scarn yakut. The width and height of the ore body are not the same everywhere. In the west, they are 160 meters and 120 meters and in the east 200 meters and 200 meters. There are three ore zones, namely: Deep - Ore zone (DOZ), Intermediate - Ore Zone (IOZ) and the so-called DOM basin.

The rise in metal prices since the lows of 2001 has renewed interest among producers, explorers and investors in the largest copper deposits on Earth - porphyry copper deposits. Yet the interest is not limited to just copper as these deposits can potentially host significant concentrations of gold, silver and molybdenum, an element used in hardening steel.

Title of the most gold-rich porphyry copper deposit goes to the Grasberg mine on the south side of Papua (formerly Irian Jaya), Indonesia. Freeport owns 85.9% of the mine, with the remaining held by the Indonesian government and a private company; Rio Tinto has a claim of 40% of production in excess of 125,000 tonnes per day.

In 2003, 1.5 billion pounds of copper and 2.3 million ounces of gold were produced. The net cash production cost for the copper was negative US$ 0.02 per pound thanks to the sale of gold as a byproduct credit.

Freeport McMoRan's share of estimated recoverable reserves at Grasberg as of December 31, 2004 totaled 40.7 billion pounds of copper and 46.6 million ounces of gold. Grasberg and other mine fields controlled by PT. Freeport Indonesia are estimated to have a total porphyry copper deposit of 2,677 million tons, estimated to contain 27.7 million tons of copper, 3,117 tons of gold and 7,276 tons of silver………………….

INDONESIAN COMMERCIAL NEWSLETTER

February 2007

List of Contents

FOCUS: MINING INDUSTRY STARTED GROWING 1

INDUSTRY PROFILE: METAL MINING INDUSTRY IN INDONESIA 5

Current issue 5
Overall mineral deposit estimate 6

- Gold and silver deposit 7

- Porphyry copper 10

- Tin deposits 12

- Nickel deposit 13

- Bauxite 15

- Iron sand 16

Mining companies 17
Production development 19
Production Development by company 23
Decline trend in domestic sales 26
Higher export growth rate performed by copper, tin, and silver 26
New tin trade regulation 28
Major companies engaged in mineral mining industry 30
" PT Freeport Indonesia 31
" Newmont Group 31
" PT International Nickel Indonesia (PT Inco) 32
" PT Aneka Tambang Tbk (PT Antam Tbk) 32
" PT Timah Tbk 33
Mining policy 34
Impact of mining activities on the environment 40
Metal price 43
Mining operations in protected forest areas 46
Investment projects in metal mining sector 48
Prospects and Conclusion 54

COMPANY PROFILE:

PT. ANEKA TAMBANG TBK (PT ANTAM TBK) 55
PT. NEWMONT NUSA TENGGARA (NNT) 65

INDUSTRY:

Krakatau steel to utilize iron ore from South Kalimantan 70

CORPORATE NEWS IN BRIEF:

Korea Gas seeks to increase imports of LNG from Tangguh 75
PLN signs contracts with Chinese consortiums to build power plants 75
Pertamina agrees to pay compensation for KBC 75
Indomobil to assemble Suzuki Swift city car in Indonesia 75
Carrefour to open new outlets in 10 provincial cities 76
Medco sells subsidiary related to hot mud disaster 76
Jasa Marga to select investors for three toll Road Projects 76
Medco sets aside US$ 450 million to develop gas block in Aceh 76

ECONOMIC NEWS IN BRIEF:

Government-Microsoft agreement feared to fail 77
State companies asked to pay 50% of net profit to state treasury 77
Indonesia-China to slash import duties 77
None of Indonesian airlines fully comply with air safety regulation 77
Indonesia escapes EU embargo on shrimp export 78
Producers of doubled refined sugar required to use local cane sugar 78
Minister pledges disbursement of fund for textile factory restructuring 78
Govt. considers to scarp 25-year old passenger vesels 78

APPENDICES:

Directory of mining company in Indonesia 79

ECONOMIC INDICATOR:

Consumer Price Index in Indonesia 81
Oil Prices 82
Foreign Exchange and Gold Price in Indonesia 83
The Indonesian Economic Trends 84