JAKARTA, KOMPAS – The downstreaming of mineral mining is a dream that could be realized through the establishment of a mining holding company. Downstreaming can induce a multiplier effect that contributes to a gross domestic product (GDP) increase and job creation.
A new milestone in the domestic mining industry has been achieved through the establishment of a mining holding company. This holding company comprises state aluminum firm PT Indonesia Asahan Aluminium, state diversified miner PT Aneka Tambang, state coal miner PT Bukit Asam and state tin miner PT Timah.
PT Indonesia Asahan Aluminium (Inalum) acts as the parent company. The creation of the holding company is stipulated in Government Regulation (PP) No. 47/2017 on additional state capital injection for Inalum.
Apart from managing strategic mineral reserves, the holding company would also drive downstreaming activities and increase the added values of minerals domestically.
Of the four state-owned mining companies, only Inalum is fully owned by the government. The government only has 65.02 percent of shares in Bukit Asam and 65 percent of shares each in Timah and Aneka Tambang (Antam). Through PP No. 44/2017, the government’s shares in Bukit Asam, Antam and Timah are transferred to Inalum. The government’s 9.36 percent of shares in gold miner PT Freeport Indonesia is also transferred to Inalum.
Inalum president director Budi Gunadi Sadikin reaffirmed that, apart from managing strategic mineral reserves, the holding company would also drive downstreaming activities and increase the added values of minerals domestically. The value of mined minerals can increase sevenfold after downstreaming processes.
“Downstreaming can also protect company revenue from volatilities. For instance, coal miners can ensure there is business revenue when the coal price plummets if it owns an electricity generation business unit,” Budi said in Jakarta late last week.
Budi said that, through establishing a mining holding company, state-owned miners could also determine strategies to develop mining industrial products as future metal products. He said nickel, after passing through a technology-based downstreaming process, could be used as component in cellphone batteries. Tin can be turned into side products and material for electronic and defense products such as radars.
Regarding downstreaming, Inalum is planning to construct an alumina grade smelter to process bauxite ore into alumina.
Separately, State-Owned Enterprises Ministry deputy of mining, strategic industry and media Fajar Harry Sampoerno said that the downstreaming of coal into gas would involve Bukit Asam, state energy firm PT Pertamina, state fertilizer holding company PT Pupuk Indonesia and petrochemical giant PT Chandra ASri Petrochemical. In the agreement between the companies, coal from Bukit Asam would be converted into base gases to be used as raw material for dimethyl ether, urea and plastics.
Not optimal
Currently, the downstreaming of bauxite ore into aluminum in an Inalum-operated alumina smelting factory in Kuala Tanjung, Sei Suka district, Batu Bara regency, North Sumatra, is not optimal. Inalum still imports the alumina, the result of bauxite ore processing, to be further processed into aluminum bars.
This is despite Indonesia’s wealth of bauxite ore. The added value of alumina imported from Australia can be increased from between US$300 and US$350 per ton to more than US$2,000 per ton in the form of aluminum bars.
Regarding downstreaming, Inalum is planning to construct an alumina grade smelter to process bauxite ore into alumina. The smelter with an annual capacity of one million tons will be constructed in Mempawah, West Kalimantan. The alumina smelter factory that Inalum will operate in Kuala Tanjung has an annual capacity of 260,000 tons.
With fluctuating mineral prices, it is difficult to obtain an accurate acquisition value.
Bangka Belitung administration secretary Yan Megawandi said that he hoped a tin downstreaming project could be realized in the province. Yan said that Bangka Belitung’s tin industry directly affected the local economy. Apart from creating new jobs, tin downstreaming can also induce a multiplier effect for the local economy.
Indonesian Mining Institute chief Irwandy Arif said that he agreed that increasing mined minerals’ added values was one of the reasons behind the establishment of a mining holding company. This is in line with prevailing regulations, despite the less-than-ideal implementation.
Irwandy said that there were a number of risks in taking control of mineral mine reserves through acquiring mining companies. These risks arise from the mineral valuation during the acquisition. With fluctuating mineral prices, it is difficult to obtain an accurate acquisition value.
Therefore, competent managerial capability in a mining holding company becomes important. This includes a thorough understanding on upstream and downstream business activities. Without this knowledge, it will be difficult to line up the moves of the mining holding company with its subsidiaries. The ultimate risk would be business failure.
(FER/APO/RAM/CAS)
