Executive Summary
Indonesia's mining industry is undergoing a major transformation with the government's downstream policy, which aims to increase the added value of mineral resources within the country. The government has banned raw mineral exports and provided investment incentives for smelter development to strengthen global competitiveness. The sector is expected to grow positively until 2025, driven mainly by key commodities such as coal and nickel. However, the oil and gas sector is facing pressure due to the global energy transition.
Despite the positive outlook, downstream implementation still faces significant challenges, including limited smelter capacity, high investment requirements, inadequate energy infrastructure, and regulatory uncertainties that could affect long-term investment stability.
To navigate these challenges, companies and investors must conduct company checks and legal risk mitigation to ensure compliance with evolving regulations. Litigation is also a critical aspect, especially in handling potential disputes related to business regulations and government policies. With the right strategy, legal certainty, and stable regulatory support, Indonesia’s mining industry has the potential to grow further and remain a key pillar of the national economy.
Industry Outlook
The mining industry is one of Indonesia's key economic sectors. The country is rich in natural resources such as coal, nickel, gold, copper, bauxite, and tin, which contribute significantly to global supply. The sector plays a major role in Indonesia’s GDP (Gross Domestic Product) and is a crucial source of government revenue through taxes, royalties, and non-tax state revenue (PNBP).
To increase value-added production, the Indonesian government continues to reform its policies. Law No. 3 of 2020 on Mineral and Coal Mining (Minerba Law) mandates downstream processing to boost exports and reduce reliance on raw material exports. Additionally, the government enforces regulations to improve environmental sustainability in the mining sector.
The Mining and Quarrying Industry in Indonesia has undergone significant changes from 2020 to the projected 2025. The COVID-19 pandemic in 2020 caused an economic downturn that directly impacted this sector. Overall, mining and quarrying declined by -1.95% but began to recover in 2021 with 4% growth, continuing to rise to 6.12% in 2023. This recovery was supported by rising global commodity prices and government policies promoting downstream mining. Although the 2024 projection shows a slight slowdown to 4.9%, the sector remains stable with 5.13% growth in 2025, driven by increasing investment in mining.
Meanwhile, the Oil, Gas, and Geothermal Mining sector faced major challenges during this period. It experienced a significant contraction since 2020 (-6%) and continued to decline, with -4.42% in 2021 and -4.82% in 2022. This was due to declining domestic oil reserves, low exploration investment, and the global transition to renewable energy. In 2023, the sector recorded slight growth of 0.73%, but it contracted again by -0.78% in 2024 and -1.62% in 2025. This decline highlights ongoing challenges in maintaining national oil and gas production amid the shift to clean energy.
On the other hand, the Coal and Lignite Mining sector experienced a stronger recovery. In 2020, it contracted by -5.43% due to reduced global demand during the pandemic. However, starting in 2021, positive growth of 6.6% was recorded, driven by rising demand from countries like China and India. This trend continued with 8.11% growth in 2022, peaking at 10.02% in 2023. Although the 2024 projection indicates a slight slowdown to 6.82%, the sector is expected to rise again to 8.32% in 2025, supported by coal downstreaming policies such as gasification into Dimethyl Ether (DME) to reduce LPG imports and increased export demand.
Meanwhile, Metal Ore Mining has been one of the highest-growing sectors in recent years. In 2020, it saw a massive surge of 20.26%, driven by rising global demand for nickel, copper, and bauxite, which are key commodities for the electric vehicle and renewable energy industries. Growth remained high at 22.84% in 2021 and 18.01% in 2022 before slowing to 8.5% in 2023 and 8.3% in 2024. However, in 2025, the sector is projected to rebound with 11.6% growth, supported by the expansion of nickel smelters and an export ban on raw ores, which adds more value to domestic production.
Lastly, Other Mining and Quarrying, which includes non-metal minerals and construction materials, also showed stable recovery. From a contraction of -1.22% in 2020, the sector started to grow by 1.97% in 2021, driven by increasing demand for raw materials in industry and construction, such as sand, limestone, and clay. This positive trend continued with 4.38% growth in 2022, reaching 6.27% in 2024. However, in 2025, growth is expected to slow slightly to 4.66% due to stable domestic demand and stricter mining regulations.
Overall, Indonesia’s mining industry has shown a strong recovery after the pandemic, with coal and metal ores being the main drivers of growth, while oil and gas continue to face pressure due to the global energy transition. With increasing investment in strategic minerals and stronger downstream policies, the mining industry is expected to remain one of the key sectors in the national economy through 2025.
Indonesia is one of the key players in the global mining industry, particularly in strategic commodities such as coal, nickel, tin, bauxite, and copper. The country has abundant mineral reserves and continues to enhance added value through downstream processing and other strategic policies. Below is Indonesia’s position in the global market for some key commodities:
With abundant mineral resources and aggressive downstream policies, Indonesia has established itself as a major player in the global mining sector. Its dominance in the coal and nickel markets is further strengthened by government policies that promote value-added processing within the country. However, to maintain global competitiveness, Indonesia must continue to increase investment, improve production efficiency, and address challenges such as regulatory uncertainty and environmental issues.
Development of Mineral and Coal (MINERBA) Investment
Investment trends in Indonesia’s mining sector have fluctuated from 2018 to the projected figures for 2024, with a significant decline in 2020 due to the COVID-19 pandemic. After hitting a low with an investment realization of 4.24, the sector began to recover in 2021 and has continued to show a positive trend through 2024. This recovery has been driven by increasing global demand for strategic commodities such as coal and nickel, as well as the government's downstream policies that have attracted more investment in domestic mineral processing.
In 2023, planned investment surged to 7.7, reflecting greater optimism in the mining industry, particularly with the rising global demand for commodities like nickel and coal. However, actual investment realization was slightly lower at 7.46, likely due to challenges in project implementation, permitting issues, or external factors such as commodity price volatility. This positive trend is expected to continue in 2024, with planned investment rising to 8.1 and projected realization reaching 7.7. This increase is driven by the expansion of downstream projects, the government's ban on raw ore exports, and its push to develop industries based on strategic minerals, such as nickel smelters and electric vehicle battery production.
Ongoing Downstream Projects in Indonesia
Indonesia continues to develop various downstream projects in the mining sector to enhance the added value of its domestic mineral resources.
Here are some of the ongoing downstream projects:
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Smelter Grade Alumina Refinery (SGAR) in Mempawah, West Kalimantan: A joint project between PT Aneka Tambang (Antam) and PT Indonesia Asahan Aluminium (Inalum) with a production capacity of 1 million tons of alumina per year. The plant was inaugurated in September 2024 and is planned to increase its capacity by another 1 million tons in the future.
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Aluminum Smelter Development in Kuala Tanjung, North Sumatra: PT Inalum is planning to build a new aluminum smelter with a production capacity of 600,000 tons per year. This project aims to strengthen the national aluminum industry supply chain.
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Nickel Project Development in East Halmahera, North Maluku: The MIND ID Group is advancing a nickel project that includes the construction of a Rotary Kiln-Electric Furnace (RKEF) smelter for nickel production and a High-Pressure Acid Leach (HPAL) facility for electric vehicle battery materials. The RKEF production capacity will be increased to 88,000 tons of nickel, while HPAL is targeted to produce 55,000 tons of Mixed Hydroxide Precipitate (MHP).
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Copper Smelter and Precious Metal Refinery (PMR) in Gresik, East Java: PT Freeport Indonesia is building a copper smelter, which is expected to begin operations and reach full production by the end of Q3 2025. This smelter will be one of the world’s largest producers of copper cathodes.
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Coal Gasification Project by PT Kaltim Prima Coal: The company plans to develop a coal gasification project to produce methanol with a production capacity of 1.8 million tons per year. Production is expected to commence in 2025.
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Coal Gasification Project by PT Arutmin Indonesia: Initially planned for methanol production, this project may be converted to ammonia production with a capacity of 2.95 million tons per year, with production estimated to start in 2026.
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Pani Gold Project (PGP) in Gorontalo: This project is projected to become one of Indonesia’s largest primary gold mines. As of Q4 2024, construction progress has reached 33%, with the first gold production expected in early 2026.
These projects reflect Indonesia's commitment to increasing the added value of its mineral resources through downstream processing, which is expected to strengthen the national economy and reduce reliance on raw material exports.
Challenges and Barriers in Downstream Processing and Raw Ore Export Ban
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Limited Domestic Smelter Capacity
Indonesia still has a limited number of smelters, preventing all raw ore from being processed domestically. Additionally, smelter construction takes time and carries the risk of overcapacity if not properly planned. -
High Investment Requirements
Smelter development requires substantial investment, typically around USD 1-2 billion per project, with most funding still dominated by foreign capital. Despite tax incentives, domestic investment needs to be strengthened to reduce reliance on foreign investors. -
Energy and Infrastructure Constraints
Smelters require significant energy supplies, but electricity and logistics infrastructure remain inadequate in certain regions. Companies often have to build their own power plants, increasing operational and production costs. -
Environmental and Sustainability Issues
The smelting industry contributes to environmental pollution, including carbon emissions and toxic waste, which, if not managed properly, can harm ecosystems. Eco-friendly technology remains expensive, and post-mining reclamation obligations are not always fully implemented. -
Regulatory Challenges and Legal Uncertainty
Frequent regulatory changes create uncertainty for investors in the downstream sector. Additionally, the European Union's lawsuit against Indonesia’s nickel export ban could pressure the government to revise policies, affecting industry stability. -
Market Imbalance and Global Demand Volatility
Fluctuations in mineral prices can lead to significant losses for smelter operators, which have high production costs. Moreover, Indonesia’s heavy reliance on exports to China poses risks if trade policies change or geopolitical tensions escalate.
The Importance of Legal and Business Due Diligence
While downstream processing offers significant economic benefits, its implementation faces numerous challenges, from smelter capacity limitations and high investment needs to infrastructure constraints, environmental issues, and regulatory hurdles. To address these issues, the government must provide more attractive incentives, accelerate supporting infrastructure development, and ensure stable, pro-national interest regulations.
In navigating the evolving mining industry landscape—including downstream policies and the raw ore export ban—companies and investors must ensure legal certainty and business risk mitigation. Regulatory uncertainty, the EU lawsuit against Indonesia’s nickel export ban, and challenges in permitting and environmental compliance highlight the critical need for litigation strategies and company background checks. By conducting thorough due diligence on legal aspects, regulatory compliance, and corporate track records before investing or forming partnerships, businesses can avoid potential disputes, fines, or even operational shutdowns that could result in financial and reputational losses.
Thus, strict legal monitoring and the implementation of effective litigation mechanisms are essential in maintaining business sustainability in Indonesia’s challenging mining sector.
