JAKARTA: Indonesia has boosted its push toward downstreaming the mining sector with the opening of PT Freeport Indonesia’s (PTFI) new precious metal refinery, but analysts suggest more needs to be done to maximise the benefits and secure the industry’s ecosystem.
Inaugurating the refinery in Gresik, East Java, on Monday, president Prabowo Subianto touted the facility as a “strategic step” in the country’s mineral industrialisation efforts aimed at developing the national economy.
The government believes the refinery will serve as a catalyst to increase state revenue, enhance competitiveness and secure the nation’s gold supply, complementing the launch of its bullion bank service in February.
“Our nation will not only sell raw materials but also finished goods and final products with a high added value,” he said.
PTFI has become Indonesia’s first vertically integrated copper mining company capable of refining anode slime into pure gold bars.
By processing impure anodes into gold bars, the refinery completes PTFI’s full mining-to-refining production chain, from upstream mining to downstream refining, the company said, adding it is also the world’s largest integrated processing facility.
The US$630mil facility has an annual refining capacity of 50 tonnes of gold and 200 tonnes of silver, along with smaller outputs of platinum and palladium.
The metal refinery will spur further growth in downstream industries, from manufacturers using copper and gold as raw materials to the retail gold business, including jewellery and bullion banking, PTFI chief executive Tony Wenas told reporters on Monday.
Indonesia, South-East Asia’s largest economy, is home to the world’s fifth-largest gold reserves, according to United States Geological Survey data, but sees much of its mined gold stored overseas.
The country produces about 160 tonnes of gold annually but retains relatively little domestically.
Last year, the country exported US$5.4bil worth of gold while importing US$2.6bil. Other than PTFI, state-owned miner Antam also operates its own precious metal refinery with an annual capacity of 75 tonnes.
Prabowo aims to drive the country’s economic growth to 8% by 2029, banking on initiatives in the downstream commodity sector.
Former president Joko “Jokowi” Widodo kick-started downstream efforts with nickel, copper and bauxite in the past decade, but Prabowo plans to take this further by pushing other commodities, including agriculture produce, coal and other minerals.
Experts view PTFI’s gold refinery as a major step for the national gold industry, but whether Indonesia can become a major player in the global market remains uncertain.
Indonesia has long been among the global gold players, backed by its vast reserves and PTFI’s presence, and will remain so with its new refinery, senior analyst at the Indonesia Strategic and Economic Action Institution Ronny P. Sasmita told The Jakarta Post on Tuesday.
PTFI operates the Grasberg mine in Papua, which is estimated to be the world’s third-largest gold mine by production, according to S&P Global Market Intelligence. “However, this does not mean an immediate boost to fiscal or monetary strength. The bullion bank will absorb existing gold in circulation, not new supply,” he said.
While gold’s financial sway has diminished since the United States unpegged it from the US dollar, making large reserves no guarantee of currency strength, geopolitical tensions and de-dollarisation efforts have been driving central banks to stockpile gold, he noted.
Andry Satrio Nugroho, who heads the Centre of Industry, Trade and Investment at think tank the Institute for Development of Economics and Finance, told the Post on Tuesday that without policies linking the gold refinery to downstream industries, it would remain a standalone project with limited benefits for domestic industries.
Despite the government’s active push for downstream projects, he noted that the country still faced challenges in creating an adequate value chain, including poor governance, rampant smuggling and regulatory gaps.
Indonesia’s gold industry has long struggled with weak oversight, highlighted by the revelation last year of the illegal production of 109 tonnes of high-purity Antam-branded gold, which exposed governance flaws and could cost the state 3.1 trillion rupiah or about US$187.9mil, despite its international certification.
Lax regulation allowed illicit gold to pass as legitimate, Andry pointed out, as the unauthorised bars still met 99.99% purity standards.
“The overall regulatory framework remains unclear and improvement is urgently needed to curb rent-seeking practices in the future,” Andry noted, stressing the need for stronger governance for long-term downstream benefits.
Without proper policies, he cautioned, the project could risk becoming just another large-scale venture without maximising its impact on domestic industry.
During the refinery’s inauguration, president Prabowo acknowledged these concerns, pointing to widespread illegal mining and gold smuggling that harm both the industry and the state. “These violations must be eradicated,” he said. — The Jakarta Post/ANN