Indonesia Tin Output May be Half of 2010 Target

PANGKAL PINANG, Mar. 11 -- Tin output in Indonesia's main producing islands of Bangka-Belitung may be less than 50 percent of a government target of 105,000 tonnes this year, as a new mining law hits operations, an industry official told Reuters on Wednesday.

Indonesia's new mining and coal law, passed in December 2008, is supposed to squeeze more revenue from the mining sector in Southeast Asia's biggest economy.

Indonesia supplies nearly 30 percent of the world's tin consumption, most of it from the Bangka-Belitung islands, where about 40 percent of the workforce is involved in tin mining.

"Refined tin output from small smelters will decline if their areas are getting smaller because of the new mining law," said Johan Murod, director of PT Bangka-Belitung Timah Sejahtera, a consortium of seven smelters.

The new law contained clauses that conflicted with other laws, which could cause declining refined tin output by small smelters, Murod said in an interview.

All small smelters in the islands off Sumatra depends on small-scale traditional miners for about 80 percent of their ore supply.

"Tin production from Bangka-Belitung may only reach 50,000 tonnes this year because of it," Murod said.

The government has targeted in 2010 producing 105,000 tonnes of refined tin -- widely used in food packaging and to solder electronic products -- unchanged from last year.

Under the new mining law, so-called small scale traditional miners are only allowed to mine on river banks, even though mining in rivers is banned by the local authority.

"Also, most small miners prefer to mine in land or offshore where tin reserves are rich. If we mine in rivers, it would further damage environment," Murod said.

The new law also only gives miners the right to apply for a mining permit in a minimum area of 5,000 hectares (12,360 acres), whereas traditional miners tend to work much smaller areas. They are also not allowed to use heavy machinery to mine tin ore.

"The new law has discouraged small miners. They are afraid of police crackdowns. There is no legal certainty," Murod said.

Hundreds of tin miners in Bangka rallied at a local parliament last month demanding revisions to the new law.

Over the past four years, the industry in the Bangka-Belitung islands, has been hit by weaker tin prices, a police crackdown on illegal mining, and the depletion of easily mined onshore reserves.

Refined tin production from the Bangka-Belitung islands fell to 88,146 tonnes in 2008, compared with 123,009 tonnes in 2005 after the government launched a crackdown on illegal mining and smelting in 2006, prompting dozens of small smelters to shut operations.

Small miners have been seeking to mine in tin-rich offshore areas to increase ore output but they face obstacles including the investment required and since large offshore areas are owned by big miner PT Timah and PT Koba Tin, said Rudi Irawan, director of CV Stania Prima, another independent smelter in Bangka island.

Stania, which produces 200 tonnes of refined tin a month, is not a member of the PT Bangka-Belitung Timah Sejahtera consortium.

State miner PT Timah Tbk (TINS.JK: Quote) is the world's largest integrated tin miner and PT Koba Tin is a unit of Malaysian Smelting Bhd (MSCB.KL: Quote).

Tin for three-month delivery on the London Metal Exchange has gained 3.98 percent so far this year to $17,625 a tonne on Wednesday. But it is trading 31 percent below an all-time high of $25,500 a tonne hit in May 2008.