Validating exploration in Indonesia: The critical issue of poor reporting

In a risky international commodities market, EMD Indonesia (the Exploration & Mining Development Association) is hosting a special  workshop and networking event in Jakarta on Thursday, 4 December, for all interested in minerals and energy exploration in Indonesia.

“Exploration policy in the new era of President Joko Widodo: Accurate reporting is the core exploration activity” features explanations by VIPs, including Director-General Sukhyar, on all new geological and mining reporting requirements, timely discussion on policy in Indonesia's new era under President Joko Widodo, and end-of year networking drinks.

Venue: Pondok Indah Golf Course (Main Hall), Jakarta, Indonesia, Thursday, 4 December 2014

Contact: Ms Intan Thalib -

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Validating exploration in Indonesia: The issue of poor reporting

By Ian Wollff, Senior Geologist

During the August 2014 joint EMD Indonesia and PEMA seminar on “Streamlining the Exploration Approval Process” the regional government officers highlighted their concerns that the reporting of exploration results by concession holders is sometimes false or incorrect.

Unfortunately, the Indonesian Stock Exchange (IDX) also does not have an adequate system to effectively control the quality of exploration and production reports published by the listed companies through the IDX public web site.

Each of these institutions has adequate regulations specifying such reports should be true and valid, but implementation over the years has not been adequate. The failure for good implementation is largely due to lack of professional manpower, and lack of budget for training / monitoring.

One significant aspect behind insufficient reporting of exploration results to the government is the industry's perception of lack of confidentiality from within the government. This “porous” government confidentiality has a long history, and is driven by third parties wishing to benefit through further concession application or stimulus of illegal mining. Unfortunately such third parties can now include the officials in regional government, with the police, local mines department or government being tempted to steal such reports. This apparent lack of confidentiality is a disincentive for concession holders to report fully.

One significant aspect behind insufficient reporting of exploration results to the IDX is the companies concern that such results may affect the share performance. Negative results may lower share prices when the company may be seeking further fund raising activities, or positive results may increase share price when influential parties associated with the company are seeking to buy up further shares.

A common factor behind insufficient reporting to the Government is that the concession company is not operating its exploration activities in a professional way.

The Competent Person.

The Indonesian mining law [UU 4/2009] recognizes the importance of having suitably qualified geologist / miner (minimum 3 years experience) to submit reports. Furthermore the government has recently passed a new law [UU 14/2014] to have all such professionals registered with the government and to perform their professional duties, with administrative and criminal sanctions attached. It is clear these regulations are not being effectively implemented. IAGI and PERHAPI are following the international trend to recommend that a “Competent Person” be responsible for making and authorizing company reports as submitted to Government and the IDX.

Mining is not Exploration.

The mining industry has an established reporting system developed through the KTT for the government. The IDX listed companies continue to report directly to their public shareholders through the IDX monthly, quarterly and annual reports. Exploration does not require a KTT. Exploration activity has little impact on the environment, and so the level of reporting for non mining divisions of the government is much lower. Often exploration is undertaken as an intermittent process, where the results of one phase of activity are interpreted before embarking on a subsequent work program.

The End Users.

The users of company exploration reports to the Government or IDX rely upon such reports to be true and correct, in order to plan ongoing investment decisions. Although the credibility of a Competent Person may be good, it is difficult for the investor or government to maintain their trust and confidence in an individual Competent Person. If such an individual Competent Person is found to be acting inappropriately, then the consequences suffered by the Competent Person is inconsequential compared to the potential liability that the investor / government may suffer. The investors or government are seeking greater assurances in a system to provide reliable exploration reporting.

Resolution of similar industry concerns.

With the export of coal & minerals a government recognized laboratory is engaged by the concession holder to undertake cargo superintending, whereupon the company/government/ stock exchange have faith in the reliability of the results, as their professionalism is under-pinned by regulations that can impose meaningful penalties upon the cargo superintending company. The company may lose its reputation, license and business. By authorizing only large cargo superintending companies who fear that the loss of their operation is of greater concern than the loss of a client, do we see a meaningful tool to provide greater certainty to the industry and government.

Resolution of exploration reporting.

It is proposed that the government / IDX may formally recognize a select number of independent geological consulting companies to undertake reporting of exploration data to the government or the IDX. The independent geological consulting companies that receive authorization for such exploration reporting should comply with a number of considerations, including having suitable Competent Persons plus suitable professional reputation that will be seen by the users as a safeguard towards reliability. Typically such companies shall be local branches of international companies or nationwide local companies with significant assets.

The engagement of such independent consultants should be undertaken in a free market environment, to reduce the financial burden to the exploration companies. There are a number of such geological consulting companies operating in Indonesia, wherein such a scheme could be implemented quickly, and the consulting companies could grow organically instead of the Government / IDX developing slow and costly training programs.

The exploration activity should be undertaken by the concession holding company, and the company retains full responsibility for such exploration activity and results. The approved geological consulting companies roll is to provide an independent opinion on the validation and verification of the report.

The format of the exploration report can include an appendix in a format to allow easy compilation for the IDX or government monitoring purposes. The format of the report should be digital only, with a secure password that is provided only to authorized persons, wherein if the governments confidentiality is shown to be breached, then the password holder is liable.