GENERAL ELUCIDATION Article 33 section (3) of the 1945 Constitution asserts that the land, the waters, and

the natural riches contained therein shall be controlled by the state and exploited in the greates properity of the people. Given minerals and coal as natural riches contained in the land are nonrenewable natural resources, the management there of needs to be optimally conducted in efficient, transparent, sustainable, environmentally-sound, and just manners in order to reap the continous benefits in the greatest prosperity of the people. To implement the provisions of Article 33 section (3) of the 1945 Constitution, Law Number 11 of 1967 concerning Basic Provision on Mining is thus enacted. The Law has about four decades since its enactment given important contributions to national development. As time passes, the law with centralized contents no longer keeps pace with the current situations and future challenges. In addition, mines development must adjust itself to both national and international strategic environmental changes. The primary challenge faced by mineral and coal mining is the globalization effects that push democratization, regional autonomy, human rights, the environment, technology and information developments, intellectual property rights and demands for improved privates and public participation. To face the strategic environmental challenges and in response to the number of issues, it is necessary to prepare new laws and regulations in the field of mineral and coal mining to legally base a reform move and reorganization of management and business of mineral and coal mining. In January 2009 the government stipulated a new regulation on mining. It is Law No. 4 of 2009 on Mineral and Coal Mining (Law No. 4 of 2009). This Law is changing the use of Kuasa Pertambangan into Mining Business License ( Izin Usaha Pertambangan ) (IUP). This Law has the following rationale : 1. Minerals and coal as nonrenewable resources shall be controlled by the state, and their development and efficiency shall be carried out by the Government and regional governments together with business actors. 2. The Government shall further give opportunities to entities of Indonesian legal entity, cooperatives, sole proprietorships or local community to do mineral and coal business by permits; and within the

scope of regional autonomy, the permits shall be granted by the Government and/or regional governments within their respective authority. 3. Within the scope of decentralization and regional autonomy, management of mineral and coal mining shall be conducted on the principles of externality, accountability, and efficiency by involving the government and regional governments. 4. Mining business should give economic and social benefits in the greatest prosperity of the Indonesian people. 5. Mining business should speed up regional development and push economic activities of community/small and medium entrepreneurs as well as encourage growth of mining support industry. 6. To create suistainable develovment, mining business activities must be carried out with due regard to the principles of the environment, transaparency, and public participation.

Mining in General Definition of mining according to Law No. 4 of 2009 is some or all stages in the event of research, management and utilization of mineral or coal which include general investigation, exploration, feasibility study, construction, mining, utilization and purification, transportation and sales, and also after mining activities. The activity to utilize mineral or coal is called mining business. Mining Business is categorized in two, Mineral Mining and Coal Mining and there are three form of Mining Business which are, (i) Mining Business License ( Izin Usaha Pertambangan ), license to do mining business; (ii) Public Mining License ( Izin Pertambangan Rakyat ) (IPR), license to do mining business in the area of public mining area and with limited area width and investment; and (iii) Special Mining Business License ( Izin Usaha Pertambangan Khusus ) (IUPK), license to do mining business in the area of Special Mining Business License. Type of IUP IUP consist of two stages : a. Exploration IUP, including activities of general investigation, exploration, and feasibility study; b. Production Operation IUP, including activities of construction, mining, utilization and purification, and also transportation and sales.

Every Exploration IUP holder is guaranteed to get Operation Production IUP as a continuation of mining activities. IUP is given to (i) business entity; (ii) cooperation; and (iii) individual and for one type of mineral or coal only. For business entity who wants to sell dug out mineral and/or coal but is not in the area of mining business, shall, beforehand, obtains a Production Operation License to sell. Transper of IUP and IUPK IUP and IUPK holder (the License Holder) cannot transfer their IUP and IUPK to another party. Meanwhile, to transfer ownership and/or share in Stock Exchange in Indonesia, it can only be done after specific stage of exploration activities has been done. To transfer ownership and/or share, the holder shall inform the minister, governor, or regent/mayor (the Authorities) suitable with the authorities and the transfer itself is not in conflict with the applicable regulations. Time Period Every kind of mineral or stone or coal is given a different time for its License. The period of time for Exploration License for coal mining is 7 ( seven ) years. Meanwhile, the period of time for Operation Production License for coal mining is 20 ( twenty ) years and can be extended twice each for a period of 10 ( ten ) years. In the event of such time is expired and the License Holder does not apply for an upgrade or extension or has submitted an application for extension but deos not meet the conditions then the License is terminated. Termination of IUP and IUPK IUP and IUPK will terminate by the following reason, (i) returned; (ii) revoked; or (iiI) expired. License Holder can returned their IUP or IUPK by giving written statement to the Authorities with full and detail explanation of the reason. IUP and IUPk can also be revoked by the Authorities if (i) the License Holder did not fulfil their obligations as stipulated in the IUP or IUPK and regulations; (ii) the License Holder commited violation as referred in this Law; or (iii) the License Holder is declared bankrupt. Taxes Operation Production License Holder shall pay to the government 4 % ( four percent ) and to the local government 6 % ( six percent ) of the total net income since the production is started. Refining License Holder Shall increase the value of the dug out mineral and/or coal in the activity of mining, processing and refining, and also the utilization of mineral and coal. License Holder shall conduct the processing and refining of the mine result in the country. License Holder is allowed to process and refine mine result from other License Holders. The Use of Local Service LIcese Holder shall use the service of local and/or national mining service company to do all sorts of mining activities such as, general investigation, exploration, feasibility study, mining construction, transportation and many more. In the event of the License Holder is using a Mining Services help, the responsibility for the activities of mining lies on the License Holder. Divestation of Shares After 5 (five) years of production. Legal entity whose shares is owned by foreigners, must divest the shares to the Government, local government, state company, local company, or national public company.

Types of Mining Area Mining Area ( Wilayah Pertambangan ) (WP) is areas with mineral and coal potentials and not bound by the limits of government administration which is a part of the national spatial. There are 3 ( three) kinds of WP, (i) The Area for Mining Business License ( Wilayah Izin Usaha Pertambangan ) (WPR); (ii) The Area for Public Mining ( Wilayah Pertambangan Rakyat ) (WPR); and (iii) The Area for State Reserve ( Wilayah Pencadangan Negara ) (WPN). WIUP is a mining area given to the holder of IUP. Right over WIUP, WPR, or WIUPK does not include right over land. Exploration License shall have and agreement with the holder of right over land prior to do activities. Right over IUP, IPR, or IUPK is not a right to own land. WIUP for coal is give to business entity, cooperation and person through tender. The License Holder for coal exploration is given WIUP at least 5.000 ( five thousand ) hectare and maximum of 50.000 ( fifty thousand ) hectare. As for the License Holder for operation id given maximum of 15.000 ( fifteen thousand ) hectare. Dispute Settlement Every dispute arises from the implementation of IUP, IPR, or IUPK ( the License) is settled through national court and/or arbitration in accordance with the applicable regulations. Sanctions There are two kinds of sanctions in this law. Administratives sanction and criminal sanction. The administrative sanction is given by the Authorities to the License Holder for the violation against Law No. 4 of 2009. The administrative sanction is as follow: 1. Written warning; 2. A temporary halt, partly or wholly, of the exploration or production operation; and/or 3. Revoked of IUP, IPR , or IUPK As for the criminal penalty is differ, depend on the commited violation. One of the example, anybody who does mining activity without IUP, IPR or IUPK is convicted with imprisonment for maximum 10 (ten) years and fine penalty with maximum Rp.10.000.000.000 ( ten billion rupiah ). Transitional Provision This Law No. 4 of 2009 also regulated the transition from the former mining law in some aspect. By the times the Law No. 4 of 2009 is stipulated, every existing Kontrak Karya (KK) and Perjanjian Karya Pengusahaam Pertambangan Batubara (PKP2B) remain in force until the expiration date for it. The provisions contained in such KK and PKP2B shall be modified in accordance with this Law No. 4 of 2009 the lates one year after the enactment date. As for the application for KK and PKP2B that have been submitted to the minister at least 1 (one) year before the enforcement date of this Law and have got the principle approval letter or preliminary permit letter remain in respect and can be processed without tender according to this Law.

THE STAGES OF MINING 1. Prospecting / General survey / General investigation Prospecting is the first stage of the territory geological analysis ( second-exploration ) : physical search for minerals, fossil, precious metals or mineral spacimens, and is also known as fossicking. Prospecting is a small-scale form of mineral exploration which is an organized, large scale effort undertaken by mineral resource companies to find commercially viable ore deposits. Prospecting is physical labour, involving traversing ( traditionally on foot or on horseback ), panning, sifting and outcrop investigation, looking for signs of mineralization. A prospector must also make claims, meaning they must erect posts with the appropriate placards on all four corners of a desired land they wish to prospect and register this claim before they may take samples. 2. Exploration means a stage in mining business to find specific and accurate information about locations, shapes, dimension, distribution, quality and quantified resources of excavated materials as well as information on social environment and the environment. An exploration activities in general, not only in the form of positive investigation and discovered signs of the place the excavated materials, but the sense of exploration that refers to the entire sequence of the work group consisting of review or prospecting in order to find the prospect of a mineral that has economic value to define additional mineral ore in a mine. In mining there are stages of exploration, which also has exploration stage of its own. These are generally aimed at the exploration stage to identify any mineral ores, the presence, size, shape, distribution, quantity, and quality of the deposit as the basis for the analysis/study the possibility of investment. Some aspects Phasing In the Planning and Exploration Activities include : 1. Preliminary Exploration Phase Where in the preliminary exploration stage of this level of accuracy required is still small in scale and stages of investigation is generally carried out a mapping based on a 1 : 250.000 scale base map until with 1 : 100.000 to stage the details with a map scale 1 : 2.000 up to 1 : 5.000. In general, th preliminary exploration phase is divided into : Literature Review In this stage, this stage is a preparatory activity prior to conducting in the field before choosing the location of the study re-exploration was done on data from surveys that have done and some existing maps. After selecting a location has been determined the next step is the study of regional geological factors as well as aerial photo interpretation of Landsat imagery and mineralization model study that estimated on the basis of existing geological data, preparation of working maps, equipment, pilot plan, and conducting the licensing process with relevant agencies and the metallographic from regional geological maps are very important to choose exploration area, because the information of the deposit is influenced by and dependent on the geological processes that have occurred, and signs can be seen on the field this preliminary study will greatly help smooth further work in the field. Surveying and Mapping At this stage of the survey carried out ( review ) by glancing at the expected interest on the basis of geological data to determine indications of mineralization in the field. A review on the ground by conducting observations of active stream sediment. Map scale used was ranging from 1:200.000 up to 1:100.000. If a topographic map of the exploration area is available, the surveying and mapping of outcrops and other geological phenomena can already begun. But if no, it is necessary to first topographic mapping. On scale of 1: 25.000 to scale 1: 10.000. Geological investigation is an investigation relating to the geological aspects such as : geological mapping, test trenches, test well. In the geological investigations carried out geological mapping

by performing the observations and taking samples associated with geological aspects in the field. The observations made include : the type of lithology, mineralization, alteration and structure in outcrop, while taking samples of rocks selected. 3. Feasibility Study A feasibility study is an evaluation of a mineral reserve to determine wether it can be mined effectively and profitably or not. It includes the detailed study of reserve estimation, mining metods evaluation, processing technique analysis, capital and operating cost determination and the process effect on environment. The feasibility study can be considered in two stages: prefeasibility studies and detailed feasibility. Both stages are similar in term of content. The difference exist in the accuracy and time required to perform the studies. PREFEASIBILITY STUDIES This is the step that determines that the detailed study is required or not. It is done on the basis of estimation of approx. unit cost estimation by a small group of technical individuals with accuracy within 20 30 %. DETAILED FEASIBILITY This is the most detaile study to evaluate wether to proceed with the project. It is the basis for capital estimation and provides budget figures for project. It requires a significant amount of formal engineering work and accurate within 10 15 %. STEPS FOR A FEASIBILITY STUDY 1. Geology and Resource : This is the step where drilling and sampling works is performed. Various methods are available for drilling based on the soil and mineral properties. The drill samples are prepared for the assay in order to determine the minimum, maximum and average ore grade and these figures are used to make the reserves estimation. The drilling and sampling procedure are based on the certain guidelines developed by CIM. 2. Mine design and Mineable Reserve : This is the step where most economic way of mining is developed. Mine planning, model development, operation models and cost analysis are performed and thus the mineable reserve is estimated based on the economy. The major steps for the mine development are mine acces ( surface/Underground ), conveying system ) especially in UG mines ), backfill requirement, ore haulage, ventilation, Material top size etc. The next major stage is mine development is the disposal overburden generated. 3. Metallurgy and process facility : This is the major backbone of the project development structure. Sampling must be carefully carried out to ensure that the development of the plant design which includes Grinding work indices, feed size, setting characteristics, filtration characteristic etc. Metallurgical test work are permormed in order to determine the amenability of the given are to different concentration technology. The major processes that are looked at are : Crushing and grinding

Concentration ( Sizing, Gravity or flotation ) Dewatering ( Mechanical or filtering ) Chemical extraction ( especially for gold ) When these test are comleted, based on the test result the basic material flowsheet is developed. And then the equipment selection and plant layout figures are generated. These data are used to estimate the amount and grade of concentrate, middling and tailings that are used to search potential customers and revenue earned. 4. Tailing disposal : In the case when the tailings cant be sold, the tailing disposal system plays a crucial role in order to get the mine permit. Mostly the tailings didnt place any major challenges. But, if the tailings have hazardous or toxic materials like cyanide, mercury etc. in it, then the disposal system must be effective in order to reduce the harmful effect on the environment and society. 5. Infrastucture development : This section includes the civil and major earthworks required to start the production. The office, labs, storage units, plant building, mining equipment shelter etc. are included in the infrastructure. 6. Power supply : Determining the power source, power line distribution, total power required and the power cost are the major things to be looked into in this step 7. Water : Most of the plant process are water based, so, the estimation of water requirement plays an important role in the feasibility studies. Then based o the water source, and its cost are evaluated. 8. Environment impacts : for a project to be permitted by any government, an environment clearance is required. In order to get the cleareance, the environment impacts need to be studied. The important aspect are acid mine drainage, cyanide management, and other toxic material controls ( Arsenic. Mercury, sulfur etc. ) 9. Other key parameters : support facilities, maintenance, transport cost of man and material, labor cost, site access ( road facility or construction, fly in fly out, marine etc ), social impact are also need to studied. 10. Cost estimation : Based on the entire above-mentioned steps, capital and operating cost for each unit is estimated. It included all the cost or mine equipment, process equipment, construction costs etc. 11. Financial Evaluation : This is the stage where the project is evaluated based on the economy. The total cost and expenses are looked against the expected revenue gained from the selling products and by-products. The key financial indicators examined to determine the viability of the project include Net Present Value (NPV) and the Internal Rate of Return (IRR). Annual cash flow need to be estimated over the entire life of the project, from construction to reclamation phase, based on upfront capital expenditures, mine and mill operating cost, employee wages and sales revenue. 12. Sensity Analysis : A sensity analysis is then carried out to determine the impact of variation in metal price, operating cost, metal recovery, metal grade, and capital cost on the overall project NPV and IRR values.