Downstreaming, Could Indonesia Become a World's Metal Mega-Hub?

Bisnis.com, JAKARTA - Integrated mining operations from its upstream to downstream sectors can have positive impacts on all stakeholders, including operators, the government, and even the corresponding natural environment. Mining integration has become one of the green solutions in Indonesia, including producing more residues that are environmentally-friendly.

Indonesia's decision to ban mineral ore exports has had a positive impact on the rapid influx of investment. In 2012, Indonesia had only 3 smelting facilities. By the end of 2023, this number has grown to 54 units, with most of them having been operational in the last 3 years. By 2024, 16 additional smelters are expected to be completed, with a total investment worth of US$11.6 billion.

dss⁺ Senior Global Advisor Sunil Duggal considers that Indonesia's decision to ban the export of several mineral ores to be a correct choice. The export ban serves as main entry point for Indonesia to significantly enhance its mining products' added value.

Learning from his experience, when a mineral ore is mined and its refining activities are carried out in another country located far away, the costs will be significantly higher compared to performing the activities in the same region.

When mining companies are able to thoroughly map out what minerals they have and able to specialize their smelter or smelting facilities, efficiency can then be maximized.

In ideal setting, mining and smelting companies should be integrated to achieve maximum efficiency and reduce the residue produced. At the very least, strengthening collaboration between the two activities must be carried out in order to create optimal supply chain.

He believes that Indonesia will continue to develop and mature in managing its downstream sector. In the future, he envisions that operational efficiency could be attained together with well-mitigated risks, as well as with ESG implementation. These will transition Indonesia to become World's mineral mega-hub.

The situation will create more jobs, generate foreign exchange, boosting economic growth and driving better opportunities and generating significant value for the downstream sector products, making Indonesia a mega-hub.

"It is not impossible for Indonesia to become the global mineral factory in the future. Indonesia will play a larger and more important role moving forward. Its global status, recognition and respect will escalate throughout the course of time when downstream approach reaches maturity and is well-managed," he said during special interview session with Bisnis.

Dr Sunil Duggal, who is also the Chairman of Vedanta, a multinational mining company from India, explained that there are various factors to achieve this vision.

Indonesia must establish the skills of its workers. From his experience, when a new technology product emerges, workers become a key factor. The strategy to train and produce qualified technicians and engineers must be a focus.

Building skills is crucial, both from universities and vocational institutions. Everyone in the industry must recognize this, so that human resources can adapt to technology. "It’s all about the people. Technology can be copied, but it’s all about the people," he added.

Additionally, research and development is also an important emphasis. Countries like US, and China have utilized technology to enhance their productivities. These countries emerge with their new products, resulting from efficient and better productivity process.

China, for example, has started developing mining activities that simultaneously extract multiple minerals. For instance, when mining nickel, there are 10 other minerals in small percentages that can also be extracted. This results in cleaner residue.

In addition, a downstream product ecosystem must be built. Most importantly, strengthening ESG practices, sustainable mining, and responsible mining is crucial. This will attract direct investment and global players will see that the country has advanced significantly in green metal or responsible mining.

On the regulation aspect, Government policies must also be implemented. Collaboration between industry sector and government must be carried out, to identify what is needed, undertaking process consultations in seeking for common goals, and what can be done to better facilitate the industry, and formulating better policy regulations.

Finally, infrastructure must be improved. This will ensure that all end-to-end mining activities are effectively facilitated.

Technical Challenges

Dr Sunil Duggal emphasized further on the importance of developing an end-to-end integrated mining by prioritizing sustainability aspects, especially minimizing its carbon footprint.

"I work with a company that has a philosophy of integrating its operations end-to-end, from exploration, mining, beneficiation, smelting, to producing downstream products. From this experience, high value can be created through operational integration, which also helps to remain relevant throughout the mining cycle," he said.

He believes there are several technical challenges to achieving Indonesia's goal of becoming a mega-hub. Safety factors are very important, especially since the types of hazards from mining and smelting activities are different.

Safety, he continued, involves practicing the right habits repeatedly and consistently every day. Additionally, recognizing that safety is my own responsibility is crucial, and this culture must be developed. Moreover, several incidents have already occurred at smelter facilities in Indonesia.

"In addition, smelters also produce residue, which is different from mining overburden. This residue can seep into the ground and contaminate groundwater with substances like arsenic and mercury," he said.

The role of the regulator is important here. The Ministry of Energy and Mineral Resources (ESDM) must be careful in making regulations, ensuring that the processes adopted by the industry do not produce harmful residues. The acceptance level of the residues must also adhere to global standards, as cleaner residues mean the metals are more globally acceptable.

"We are in the generation of zero waste, clean dumping, and recycling industry. Global practices must be adopted if we want these metals to have the opportunity to compete in the global market and for downstreaming to yield high economic benefits," he added.

Mining & Metals Lead, dss⁺ Indonesia, Alfonsius Ariawan said that for companies with core operations in the mining sector, the addition of smelting facilities is a significant change. Approximately 30% of smelters in Indonesia are part of this transition.

This transition requires an overhaul of operational and business models. Early identification and effective resolution of challenges are crucial to avoid delays in time-to-market and to ensure the realization of full value. Companies that successfully navigate this overhaul will be better positioned to seize further opportunities in the downstream industry.

There are at least five main challenges for integrated mining operators in Indonesia. First, the commissioning process is more complex. Smelter operations are significantly more complex than standard ore processing due to strict operating conditions, the required quality of raw materials, and the management of molten metal for safety and efficiency.

This requires the use of imported technology, skilled labor, extensive knowledge transfer, and ongoing training. Additionally, a reliable power supply and effective energy management are crucial to support the energy-intensive nature of smelting and ensure the success of the smelting process.

"Commissioning a smelter is quite complex and not easy. If there are interruptions in the power supply, it delays the heating of the tanks, which hinders the work process. In mining before, he never had to think about these issues," he said.

Second, a broader operational risk profile. Operational risks in mining are usually associated with activities and equipment. Adding a smelting plant introduces complex process risks. For example, a furnace failure can cause significant damage, including loss of life and major operational disruptions. Given the potential severity of these consequences, and although the frequency is low, managing these new risks requires strict safety protocols and careful oversight.

Third, a limited supply of skilled labor. With the increased complexity brought about by the introduction of smelting operations, there is a growing need for operational personnel with the skills and education to manage these facilities.

Fourth, integrating smelting operations with mining. Introducing smelting operations into existing mining activities creates critical integration points that impact the entire value chain.

Fifth, addressing the greater sustainability impacts. Smelting operations, which are highly energy-intensive, not only produce higher emissions but also require comprehensive energy management and monitoring strategies.

In addition to routine sustainability reporting, operators may also face environmental taxes and stringent emission reduction mandates. Furthermore, increased use and variation of raw materials, additives, by-products, and processing wastes contribute to operational complexity, thereby exacerbating the challenges of sustainable practices.