A new statement from Moody’s rating agency suggests that coal mining in Indonesia is set to grow substantially, shrugging off the gloomy economic outlook of the region and promoting serious competition between domestic mining companies, as well as foreign operations looking to capitalize on the country’s vast mineral wealth.
The Jakarta Globe reports that Simon Wong, vice president and senior analyst at Moody’s, says the country’s announcement to construct several power plants throughout the nation, as well as its relationship with the growing energy sector in the Asia Pacific, strong liquidity and less debt problems, will lead to major growth for the industry.
As Indonesia, China and India are constructing dozens of new power plants that will burn thermal coal, the demand for the natural resource will soon sky rocket. Indonesia, Wong says, is well-positioned to supply this demand, which will keep prices for the raw material high in the country.
“Indonesia’s coal miners have accelerated their strategies of vertical integration for the purposes of enhancing control over pit-to-port operations, operating efficiency and cost control,” Wong said in a statement.
In response to the impending demand surge, mining companies are also planning to increase exploration for new mining sites as well as increasing productivity at current projects, leading the country’s mining outlook to remain very high, the media outlet stated.
But with so many new projects in line for approval, strong competition has cropped up in the country, as its world-class mineral deposits lie only a stone’s throw from China and India’s mining markets, Reuters reports.
One recent court battle over a $1.8 billion coal mine provides evidence that Indonesian coal mining will see major competition. For three years, Churchill Mining Plc. has claimed that Indonesia’s Nusantara Group does not hold the rights to the world’s seventh-largest undeveloped coal deposit. The case has ridden to the top of the country’s court system, but a decision as to who owns the 350-square-kilometer mine could take years, the media outlet said.
But with 2.8 billion metric tons of coal reserves at stake, neither company is likely to back off.
“It’s a big medium to low-grade thermal coal deposit,” Churchill Executive Chairman David Quinlivan told Reuters. “That requires a substantial amount of infrastructure to be able to bring it into production. But once in production, it will be very much a long-term project — 50 years or more.”
A surge in mining is also expected for the short-term in the near future, as President Susilo Bambang Yudhoyono recently announced that exports of unrefined coal could be banned by 2014, creating what some analysts called an “Indonesian gold rush,” the Globe stated. The possible ban was created to force companies to invest in processing plants in-country, rather than sending raw materials away for refinement.
But despite global economic uncertainty and proposed government regulation, Bob Kamandanu, chairman of the Indonesian Coal Mining Association, says coal production will remain stable throughout 2012.
The news source states that Indonesia will continue to hit its target of 380 million tons of coal production in 2012, increasing from its 2011 estimate of 360 million tons.
According to the media outlet, Indonesia is the number one coal-exporting country in the world, with a vast majority of raw materials shipped to China and India, two of the fastest growing countries in the world.
Indonesian mining may face initial struggles with rights and regulations in the short-term, but mining companies can expect the nation to remain a top player for years to come.
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