Indonesia Country Overview

INDONESIA COUNTRY OVERVIEW

CENTRAL TAPANULI DISTRICT INDONESIA INDONESIA CONTINUES TO HOLD GREAT POTENTIAL FOR THE SUMATRA SIBOLGA NORTH TAPANULI DEVELOPMENT OF NEW PROJECTS DISTRICT JAVA BALI FOR OZ MINERALS. WITH HIGH GEOLOGICAL PROSPECTIVITY,

BATANG MARTABE TORU STRENGTHENING DEMOCRATIC EXPLORATION TARGETS PADANG INSTITUTIONS AND CONSISTENTLY NATAS SIDE MP U AN GAMBIR KAPUR DISTRICT STRONG GROWTH RATES, THE COUNTRY IS AN ATTRACTIVE INVESTMENT DESTINATION FOR THE COMPANY. OZ MINERALS IS WELL POSITIONED THROUGH ITS EXPERTISE N MANDAILING NATAL DISTRICT ACQUIRED IN THE MARTABE PROJECT

0 10 20 TO LOOK FOR NEW OPPORTUNITIES. KILOMETRES

INDONESIA: POLITICAL STABILITY AND POLITICAL STRUCTURE OF INDONESIA ECONOMIC GROWTH Indonesia’s constitution provides for a ‘presidential’ system of Indonesia has enjoyed a sustained period of economic growth government. The President and Vice President of Indonesia are since 2004 with economic expansion greater than 6% on directly elected once every 5 years. They govern through an average. According to the OECD, this has been suffi cient to appointed Cabinet, made up of elected parliamentarians and deliver broad based improvements to the standards of living non-elected appointees. for ordinary Indonesians. Politically, Indonesia has experienced Indonesia’s parliament is comprised of a 550 member House of a ‘democratic transformation’ and has morphed into one of Representatives (the ‘DPR’) and a 128 member advisory body the best examples of a functioning multi-party democracy in called the House of Regional Representatives, made up of 4 the region. representatives from each province. Similar to the United States’ The political stability and policy certainty this brings has system, the President has certain powers but requires support improved the investment climate for foreign investors and from the DPR to enact laws and implement policies. warrants Indonesia being considered as a desirable place The next Presidential election is scheduled for July 2009 with a for OZ Minerals and others to invest. The infl ux of foreign run-off, if required to be held in September 2009. investment in recent years, which has reached over US$10 billion per annum, refl ects these improvements. ROLE AND IMPORTANCE OF LOCAL GOVERNMENT (THE KABUPATEN AND BUPATI) One of the most signifi cant post-Soeharto era reforms for Quarterly GDP Growth Trends - 2003 to 1st Semester 2008 the resources sector has been the decentralisation of decision making from the central government to the province and down to the districts (‘Kabupatens’or ‘Regencies’).The Martabe 8.0 7.2 project is located in the Regency of South Tapanuli in the 7.0 6.4 6.5 6.4 Province of North Sumatra. Each Kabupaten is headed by an 6.1 6.3 6.3 6.0 5.9 5.8 5.9 6.0 6.0 elected government offi cial referred to in Indonesian as the 5.2 5.1 5.1 4.9 5.0 5.0 4.6 Bupati. 4.4 4.5 4.2 4.1 4.0 One of the important benefi ts of decentralisation has been to ensure that people living within close proximity of resources 3.0 projects are both stakeholders and key decision makers. 2.0 Decentralisation ensures local issues are incorporated in the 1.0 decision making process and this has had a positive impact on

0.0 the perception of the mining industry in Indonesia and relations with local communities. Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 OZ Minerals has established strong relationships with the South Sources: CBS, CastleAsia Tapanuli Regency.

OZ_MartabeOverview-08.indd 1 5/11/2008 4:16:54 PM Indonesia Foreign & Domestic Investment INVESTMENT CLIMATE

US$ Billion The Government of Indonesia has undertaken a number of economic 12 reforms aimed at improving the business and investment climate in Indonesia. These changes have included overhauling business Domestic regulations, taxation and employment practices. Despite reforms, 10 Indonesia continues to face many of the challenges common to Foreign developing countries in creating a positive business environment. 8 The underlying trend is however positive and demonstrates the value Indonesia holds as an investment destination for OZ Minerals. 6 The mining sector has been given priority by the Indonesian government and identiﬁ ed as a major contributor to the country’s

4 economic growth plans. The Martabe project was one of the investments forming part of the government’s goal of 10 new mining projects by 2010. The government’s target is expected to deliver an 2 estimated US$2.4 billion in additional investment into the sector. The improving trend in the investment climate has also been reﬂ ected 0 in several international surveys which attempt to quantify and rank 2000 2001 2002 2003 2004 2005 2006 2007 the business environment. Indonesia values 129 on the World Bank’s Ease of Doing Business Survey in 2009 and improved on the Heritage Sources: CastleAsia Foundation’s Index of Economic Freedom 5 places to 119.

ADVANTAGES Local partnerships with the regional administrations and domestic Indonesian companies open up further Australian companies are well regarded in Indonesia and opportunities for OZ Minerals. The Indonesian Government beneﬁ t from a steadily improving bilateral relationship has emphasised the desirability of local company between the two countries. Australia was quick to pledge participation in natural resources projects. OZ Minerals is support in the aftermath of the ‘Boxing Day Tsunami’ in committed to working in partnership with local Indonesian 2004 and in 2008 pledged AUD$2.5 billion to assist with companies wherever possible. Indonesia’s economic development. Australian investments in Indonesia beneﬁ t from Indonesia’s participation in the World Trade Organization (WTO) and GEOLOGICAL PROSPECTIVITY bilateral investment treaties. The newly concluded ASEAN Indonesia is one of the most geologically prospective Australia-New Zealand Free Trade Agreement is expected to countries in the world. According to the Fraser Institute contain protections for foreign investors. survey of mining companies, Indonesia ranks 15th on its analysis of pure mineral potential. A number of major mines Indonesia has an established, well trained, mining industry have demonstrated the potential for discovery of large workforce that provides a ready pool of skilled resources deposits and successful development into production. Major to develop new projects. Most of Indonesia lies on major mines include the Freeport-McMoran Grasberg Mine and shipping routes that allow access to port facilities and trans- Newmont’s Batu Hijau mine. shipment hubs.

GEOLOGICAL PROSPECTIVITY: INDONESIA AND OZ MINERALS OPERATIONS IN ASIA

Sichuan Gold Deposit Copper Deposit Zinc Deposit OZ Projects YJLM JV Rexing JV

Sepon Thailand Cambodia

Martabe

1000KM South East Asia - Major Copper, Gold and Zinc Deposits www.oxiana.com.au

OZ_MartabeOverview-08.indd 2 5/11/2008 4:17:23 PM THE MARTABE CONTRACT OF WORK (COW) AND THE CERTAINTY IT BRINGS Mining in Indonesia is governed by the Contract of Work (CoW) system which has existed for over 40 years. Each CoW is an independent piece of legislation approved by the Indonesian Parliament (DPR) and signed by the President. The Indonesian Government has upheld the CoW system of work since its introduction and no CoW has been revoked except as provided for under default provisions within the agreements themselves. The Martabe CoW is a 6th Generation Contract of Work signed in April 1997 as an agreement between the Government of Indonesia and PT Danau Toba Mining (subsequently PT Agincourt Resources which OZ Minerals acquired in 2006). OZ Minerals beneﬁ ts from the experience, knowledge, practices and procedures of the many successful projects that predate Martabe (such as Grasberg and Batu Hijau discussed above). The agreement for OZ Minerals’ successful Sepon operation in Laos was also based on the Indonesian CoW system. The CoW document covers all conditions relating to exploration, feasibility, construction, mining and rehabilitation. As a speciﬁ c piece of Indonesian legislation it is covered by the doctrine of “lex specialis” and the CoW is intended to protect the investor from changes in tax and other laws for the term of the agreement. Under the Martabe CoW, all conditions for mandatory area relinquishments, minimum expenditure commitments and tax and reporting obligations have been met. The operating period under the Matrabe CoW is 30 years (or longer if approval for an extension is granted).

THE NEW MINING LAW The Indonesian Government is currently reviewing its mining laws and regulations and hopes to introduce a new mining law into parliament by the end of 2008. The new mining law aims to set common standards for the mining sector, including environment, social and ﬁ scal aspects. The mining law will introduce changes to the taxation treatment of new projects but is not expected to disturb existing agreements.

USEFUL LINKS

World Bank: www.worldbank.org/id Department of Foreign Affairs and Trade, Country Overview: Fraser Institute: www.fraserinstitute.org www.dfat.gov.au/geo/indonesia/index.html Freeport McMoran: Grasberg www.ptﬁ .com Indonesia Project at the Australian National University: PWC Mine Indonesia 2007: www.pwc.com http://rspas.anu.edu.au/blogs/indonesiaproject/ Indonesia Mining Association: www.ima-api.com/ CSIS (Indonesia): www.csis.or.id Australian Strategic Policy Institute report Index of Economic Freedom: www.heritage.org/Index/ Seeing Indonesia as a Normal Country : Implications for Australia: World Bank’s Ease of Doing Business Survey: www.aspi.org.au/publications/publication_details.aspx?ContentID=169 www.doingbusiness.org/economyrankings/ OECD Economic Assessment of Indonesia 2008: www.oecd.org/document/57/0,3343,en_2649_33733_41014713_1_1_1_ 1,00.html

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