Spotlight Round-up: 22nd October 2021

22nd October 2021

 

 
On Tuesday this week, Indonesian President Joko Widodo got on the mic in the State Palace in Jakarta and reminded markets that the world’s fourth most populous country was planning to extend its bans on the export of raw materials to new commodities over the coming years, but the tone of his comments suggested that bans planned for the future might be brought forward.  For those not glued to the Indonesian commodity market, this furore started in 2009, when then-President Susilo Bambang Yudhoyono announced future bans on Indonesian exports of raw commodities during the mining boom, in order to mandate investment and grow jobs and expertise in processing domestically.  Widodo, generally seen as a resource nationalist like his predecessor, has vocally supported the ban since his election in 2014, except for a peculiar wobble in 2017 when he reversed it, jeopardising the downstream investments that had been made to date.  This kind of policy uncertainty definitely does not promote investor confidence in the Indonesian minerals sector, but no matter; the ban is back now and it looks like it’s here to stay.  The President has even promised to stare down the World Trade Organisation if lawsuits are brought before it by competitors.

Indonesian President Joko Widodo has sent alarm bells ringing through the country's mining industry
Indonesian President Joko Widodo has sent alarm bells ringing through the country's mining industry

When the ore ban was first implemented in 2009, it stated that exporters of commodities such as copper, tin, bauxite and nickel ores had five years to start processing their products to government-specified purity levels or they would no longer be allowed to send them overseas.  But by 2014 the mining boom had withered, and an administration that had previously been flush with mining cash was scrabbling for spare change.  It could no longer afford risks a sector that makes to a sector that makes a moderate but significant contribution to the country’s GDP, and the can was kicked down the road.  However, by 2019 Indonesian economic nationalism had re-asserted itself in the political landscape, and in August that year the government confirmed chatter that a ban on the export of nickel ore, of which Indonesia was the world’s largest supplier, would be brought forward from 2023 to the 1st of January 2020.  Now, Widodo is hinting that bans on the export of bauxite, tin, and copper ores, also scheduled for 2023, could also come earlier.  He even said that the government was considering banning the export of crude palm oil, another commodity of which Indonesia is the world’s biggest seller, providing more than half the world’s supply.

Grasberg copper mine, which could be seeing a ban on the export of its concentrates sooner than expected
Grasberg copper mine, which could be seeing a ban on the export of its concentrates sooner than expected

I know perfectly well what the reaction of readers of this newsletter will be to these bans – we in the mining industry would find policies like this in our own jurisdictions catastrophic to say the least.  And nationalist policies like this certainly go against the general feeling that free trade makes for a better world.  But let’s take a moment to look at the justifications for these bans, and use the extant nickel ban to assess whether or not these policies could ever be a success from the Indonesian domestic perspective.

The export bans seem to be the product of a combination of jealousy and a righteous sense of injustice from Indonesian economic nationalists.  Why, they wonder, should Indonesian ores be exported to a country like China for processing when labour costs are also cheap at home, and Indonesians are just as capable as anyone of learning to operate a smelter?  Indonesian resources should generate Indonesian jobs, not just at the point of extraction, but all the way through the refining process.  That way, the country can earn more money by selling value-added products instead of cheap ores overseas, and also achieve ‘economic sovereignty’ by creating and retaining infrastructure and expertise on its own shores.  Plus, it certainly wouldn’t hurt if supply constraints drove the price of commodities up, thus enabling the country to earn even more revenue.  So has it worked with nickel?

Well, it’s hard to say, and the reason for that is, of course, COVID-19.  The 1st of January 2020 start date of the nickel ban couldn’t have been a worse choice in retrospect.  Speculation and confirmation of the new implementation date prior to the actual start of the ban drove the London Metals Exchange’s (LME) three-month nickel price to jump 31% year-on-year amid fears of an ore supply shortage and worries about the effects on China’s nickel pig iron industry.  But then the world shut down and nobody was consuming nickel or any other metal any more, so the nickel price dropped and the market experienced a surplus for the first time in years.  The Indonesian Nickel Miners Association (APNI) begged the government to pause the ban, but the government said that contributions to the economy by export of processed nickel products was too important and turned the APNI down.

Pomalaa nickel mine on Kabaena Island in Indonesia
Pomalaa nickel mine on Kabaena Island in Indonesia

The thing is, the government wasn’t completely wrong.  The industry had known the ban was coming for years, even if they didn’t expect it quite so soon, and the government had issued strict instructions and incentives to miners to increase their smelting capacities, which they did.  S&P estimates that Indonesia’s nickel production increased 30% year-over-year to 2019 as a result of new capacity coming online.  And even during the first half of 2020, at the height of pandemic uncertainty, primary nickel production soared by 50% year-over-year and exports of value-added nickel products skyrocketed by 125% over the same period.  In many respects, this plan seems to have worked despite the best efforts of that pesky virus.

But we’re miners here, and the effect on the mining industry hasn’t been so rosy.  Extractors facing upcoming ore bans, such as copper miners, have been on a strict government-mandated schedule to increase their smelting capacity or lose their licenses to export ore, but everyone except nickel miners got a break from that in March last year in response to the pandemic.  Copper, bauxite and tin miners were allowed to pay a 20% of export value fine to retain their ore export licenses, even if construction on processing facilities fell significantly behind because of the pandemic. But nickel miners were excluded from that concession, which put them in the predicament of either being unable to sell their output or being forced to sell to domestic smelters for much less than they could get on the international market.

The first scenario came about because low-grade nickel ore (1.65%) was previously sold largely to China due to Indonesian smelters preferring higher-grade (1.8%) feedstock and refusing to buy lower grades, so producers of ores with lower nickel concentrations were cut off from their only market.  But even for producers of higher grade ores, the situation has been bleak.  Ore supply still outstrips processing capacity in the country, so with plenty of ore sellers and relatively few buyers, smelters have been able to pay well below international rates for their preferred grades of ore.  The government tried to compensate by putting a price floor on 1.8% feedstock of USD $34 per wet metric tonne, but the APNI reported that despite this, smelters were actually paying an average of only $27/wmt.  Disastroustly, this is far lower than the $43-46/wmt that even lower-grade 1.65% ore was fetching on the international market in mid-2020.

Ferronickel production at the processing facility at Weda Bay
Ferronickel production at the processing facility at Weda Bay

o that’s the nickel situation, but will President Widodo’s barely-veiled threats to bring forward the date of export bans on other less-refined commodities lead to a similar situation in those markets?  I’d say it almost certainly will.  Take copper, which was explicitly mentioned in that address in in the Palace.  Indonesia currently has only one copper smelter, with two more under construction as a result of the looming export ban, although they’re both 12 months behind schedule.  It’s hard to imagine a scenario where devastatingly low prices don’t hit the copper industry as a result of insufficient processing capacity, assuming lower-grade concentrates can even be sold domestically.  The fact is that it is more difficult and less profitable to process lower-grade ore, so without the economies of scale available in China it’s a losing business proposition to build facilities and train operators who can do it.  Moving forward the export bans would be bad news on top of worse for Indonesian miners, and in a world facing a tightening supplies of copper and other metals, this domestically-targeted policy could have ramifications for smelters who buy Indonesian copper in China, Japan, Korea and the Philippines, and thereby send ripples through markets around the world.  On top of all that, cripplingly low domestic prices for metal ore products could virtually shut down new investment in the mining sector for the foreseeable future, which, given Indonesia’s substantial natural resources, would be a shame for both the country and the rest of the world.

And that’s not even mentioning the palm oil situation.

Around the Traps

Great news for Ontario-focussed Canadian junior Conquest Resources (TSXV:CQR), who have this week announced the discovery of a Cu-rich VMS system on its flagship Belfast-Teck Mag project.  The news of widespread mineralisation on the property comes as results from an ongoing 10,000 m drilling campaign are returned to the company and assessed.

Updated geophysics from Conquest's Belfast-Teck Mag project
Updated geophysics from Conquest's Belfast-Teck Mag project

Mountain Boy Minerals (TSXV:MTB, OTCQB:MBYMF) has published field work results demonstrating high-grade silver mineralisation on its polymetallic Theia deposit in British Columbia, with one sample returning 9,676 g/t Ag.  Wow!  I wrote about Theia in July if you’d like some more information on the project.

Mountain Boy's most important staff member, Stika, on the company's flagship American Creek project
Mountain Boy's most important staff member, Stika, on the company's flagship American Creek project

Warrior Gold (TSXV:WAR) tells the market they have commenced a 3,000 m drill program at their flagship Goodfish-Kirana project in the Kirkland Lake gold camp.  Warrior has had major recent success consolidating its land position in the region, and has also announced their plans for high-resolution geophysics across the property.

Solgold (TSX&LSE:SOLG) has big news, with the announcement of the maiden mineral resource for the Tandayama-Ameríca deposit at their Cascabel project.  Cascabel continues to make headlines for Ecuadorian copper, with the addition of 233.0 Mt of CuEq from Tandayama-Ameríca to the 2,663 Mt CuEq already announced at the company’s flagship Alpala deposit on the same property.

Goldplay Mining (TSXV:AUC, OTCQB:AUCCF) has announced the completion of an initial field program on its new acquisitions, Big Frank and Goldstorm South in British Columbia, collecting a total of 442 samples.  These properties have regional-scale potential for both epithermal and orogenic gold and copper-gold deposits, which are something of a specialty for Goldplay. In addition, the company has just announced the closing of a flow through private placement raising $170,000 gross.

Another Canadian operation with good copper news is Enduro Metals (TSXV:ENDR, OTCQB:ENDMF, FSE:SOG-FF) who have intersected a new copper-gold porphyry system during drilling at the Burgundy Ridge prospect on their Newmont Lake project in British Columbia.  Hole BR21-001 uncovered 331 m of 0.71% CuEq starting at surface, with grades as high as 3.00% CuEq over 18.27 m, which is conveniently also at the surface.

Enduro has exciting new data from their Burgundy Ridge deposit
Enduro has exciting new data from their Burgundy Ridge deposit

Rupert Resources (TSXV:RUP, OTCQX:RUPRF) has published its results for the 3 and 6 months to the 31st of August this year.  That might ordinarily be a dry read, but Rupert’s Ikkari project is interesting enough to keep you scanning for more!  Check out the video below for a more engaging insight into this remarkable project.

Aurion Resources (TSXV:AU, OTCQX:AIRRF) has announced that its joint venture partner in gold exploration over several properties in northern Finland, B2Gold (TSX:BTO), has provided notice to exercise its option to acquire an additional 19% interest, taking its total stake to 70%.  Finnish gold is certainly having a moment!

Kodiak Copper (TSXV:KDK, OTCQB:KDKCF, FRA:5DD1) has announced some drill results from its flagship MPD copper-gold porphyry project in British Columbia.  The results continue to build a picture of widespread copper and copper-gold mineralisation on the property, and include some exciting gold intercepts as well.

Mineralised core from Kodiak's MPD project
Mineralised core from Kodiak's MPD project

Global Energy Metals (TSXV:GEMC, OTCQB:GBLEF, FSE:5GE1) have two separate pieces of news this week: firstly the commencement of the first-ever drill program at the company’s Lovelock Co-Ni-Cu project in Nevada, and secondly the announcement of an agreement with Electric Royalties to create a 1% net smelter royalty on four exploration licences in northern Finland that include the past producing Bruvann Ni-Cu-Co mine.

It’s been a long round-up this week, so thank you very much for reading if you made it this far!  Have a great weekend, everyone.

 

Jane Lockwood

View posts by Jane Lockwood
Jane Lockwood is an Australian geoscientist living and working in Germany. She holds a Master's of Earth Science (Advanced) from the Australian National University and has spent several years reporting on the junior mining industry for Spotlight Mining, as well as conducting social media management for junior mining companies.