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					                               INDONESIA MINING OVERVIEW

Legal and regulatory structure

1.1. How is the mining industry regulated?

The mining industry in Indonesia is regulated by central, provincial, regional and municipal
levels of government. Mining rights or authorisations (known as kuasa pertambangan or
KPs) may be granted and regulated at all levels of government pursuant to centrally enacted
mining laws and regulations and, increasingly, regional regulations. Provincial and regional
governments have also begun to exercise their perceived authority by attaching conditions
to grants of mining rights and imposing additional obligations and taxes on their holders.
These, and regional regulations, may conflict with central laws and so be subject to review
and cancellation by the central government (ie, the Ministry of Domestic Affairs).

Indonesia’s mining laws also contemplate the granting of mining rights under contracts
(kontrak karya or contracts of work, KK or COW) between government and private sector
contractors. COWs are in theory ‘negotiated’ but in practice have followed a series of
evolving standard form agreements (from the first, through to the seventh, and perhaps the
eighth ‘generation’), all of which have been approved by parliament and the president. But
obtaining a new COW is currently a complex and sometimes impossible exercise.

The existing mining law (as described below) is perceived to be inadequate in many ways.
There is a need to resolve jurisdictional confusion and more fully define the environmental
and reclamation obligations of mining companies.

Since 1999, the Forestry Law has prohibited open-cut mining in ‘protected forest’ areas (a
catch-all category applying to much of Indonesia’s forested land mass). The central
government had enacted decrees and regulations exempting contractors under 13 COWs,
Coal COWs and holders of KPs approved before the enactment of the Forestry Law in 1999
from that Law’s prohibition of open-cut mining in protected forest areas. The Forestry Law
requires holders of KPs and contractors under COWs or Coal COWs to nevertheless obtain
use and borrow approvals from the Forestry Department under regulations that are aimed
at limiting the impact of mining operations on forested areas. But the implementing
regulation issued by the minister of forestry, Regulation No. P-14/2006, sets forth difficult
requirements that are almost impossible for such mining right holders to perform.
Regulation P-14/2006 appears to permit limited and conditional use of forest areas for
mining activities in exchange for reforestation commitments in other areas or
From 1967 until 1999, Indonesia had a centrally regulated mining law regime with an
‘open-door’ policy for foreign investment in mining that was viewed as attractive and
reliable by international mining companies. For foreign mining companies, the foundation of
reliability was the COW. Considered to be lex specialis, it granted exclusive mining rights to a
corporate contractor over a defined, usually extensive, area for a 30-year term. The rights
and obligations of government and contractors under COWs are, when so stated, immune
from subsequent changes in law, royalties and tax rates. Furthermore, unlike KPs, disputes
between the government and the contactor granted mining rights under a COW (except for
those concerning tax matters) can be resolved through international arbitration.
Enforcement of arbitral awards may be assisted, as Indonesia is a party to the New York
Convention on the Enforcement of Foreign Arbitral Awards.

In 1999, decentralisation and regional administration laws (Law No. 22/1999 regarding
regional government, replaced by Law No. 32/2004) transferred substantial authority over
hardrock mining from the central government level to provincial, regional and municipal
government levels. Further to Government Regulation (GR) No. 75/2001, mining rights in the
form of KPs may be issued, administered and regulated at the central, provincial, regional or
municipal level, depending primarily on whether provincial, regional or municipal
boundaries intersect the area in question. At the same time, Law No. 25/1999 and 33/2004
confirmed significant increases in the share of revenues allocated to provincial, regional and
municipal governments from dead rent, tax and royalty payments made by holders of
mining rights.

GR No. 75/2001 also provided that COWs "should be stipulated separately" in consultation
with the People’s Representative Assembly Parliament. Since May 2005, parliament has
considered a new Mining Law. This has effectively blocked consideration and issuance of
new COWs for the past seven years even though there are a number of major international
mining company applicants.

1.2. What are the principal laws that regulate the mining industry? What are the principal
regulatory bodies that administer those laws?

Principal laws:

       Article 33 of the constitution of the Republic of Indonesia of 1945; Law No. 11/1967
        on Basic Provisions of Mining, GR No. 32/1969, GR No. 79/1992 and GR No. 75/2001;
        and minister of energy and mineral resources Decree No. 1614/2004) (collectively
        referred to as the Mining Law).
       GR No. 45/2003 on Tariffs of Non-Tax State Revenues Effective Within the Ministry
        of Energy & Mineral Resources (GR No. 45/2003).
       Law No. 32 and 33/2004 on regional government.
       Law No. 41/1999 on Forestry and Law No. 19/2004; and Regulation P-14/2006 (the
        Forestry Law).
       Law No. 5/1960 on Basic Provisions of Agrarian Principles (the Agrarian Law).

Principal regulatory bodies:

       Minister and Department of Energy & Mineral Resources (DEMR);
       Minister and Department of Forestry; and
       Central (BAPEDAL) and regional environmental authorities.

For centrally issued or agreed KPs and COWs:

       Minister of energy and mineral resources (MEMR)
       DEMR/the director general of mineral, coal and geothermal resources (DGMCG),
        formerly known as director general of geology and mineral resources (DGGMR)

For KPs provincially, regionally and municipally:

       Governors of 33 provinces; and
       regents (bupati) and mayors (walikota) of 428 regions (kabupaten) and
        municipalities (kota).

1.3. What classification system does the mining industry use for reporting mineral
resources and mineral reserves?

The JORC Code and Guidelines for Reporting of Identified Mineral Resources and Ore
Reserves, a joint initiative of the Australasian Institute of Mining & Metallurgy, the Minerals
Council of Australia and the Australian Institute of Geoscientists through the Joint Ore
Reserves Committee, is widely used in Indonesia.

Mining rights and title

2.1. Who has title to metallic minerals in the ground?

Under article 33 of the constitution of the Republic of Indonesia, 1945, natural resources (ie,
land, water and natural riches contained therein) are to be ‘controlled’ by the state and
made use of for the people. As a result, the state (ie, the government of the Republic of
Indonesia) is deemed to have title to minerals in the ground and to mined and processed
minerals and metals. Parties granted mining rights under the Mining Law are in effect
‘contractors’ of the government and do not by virtue of holding mining rights acquire title to
minerals in the ground. Parties holding mining rights for exploitation, transport and sale
under KPs or COWs are granted the exclusive right to sell and export mined minerals and
retain the proceeds of sale (assuming royalties and other payments to the government are
made in a timely manner). Title is acquired by a purchaser from the government in
accordance with agreements for sale and purchase between the purchaser and the KP
holder or the COW contractor (in effect, acting as the government’s agent), or at the point of

2.2. What information/data is publicly available to private parties who wish to engage in
mining activities?

The central DEMR in Jakarta provides published information about Indonesia’s mining law
regime but such information is not comprehensive and may not be up to date, especially
with respect to regional regulations.

The DEMR will on the request of any party, and for a fee, provide printed maps showing
areas covered by grants of mining rights to identified parties. These maps may not be up to
date nor include mining rights granted by provincial governors, regents or mayors but not
yet reported to the DEMR. Failure to report, however, does not invalidate a KP. Lack of
coordination amongst government levels can result in overlapping grants and resultant

Geological information and data can be purchased from the DEMR for a fee per hectare for
areas not subject to a currently valid grant of mining rights. Such information and data has
usually been generated by prior holders of mining rights for the area in question and
provided as legally required to the DEMR.

2.3. What mining rights may private parties acquire? How are these rights acquired? What
obligations does the holder of these rights have?

Mining rights are granted pursuant to the issuance of KPs (for smaller areas) and, in theory,
COWs (for larger areas) on a first come, first served basis. Such rights give the holder or
contractor the exclusive authorisation to conduct mining activities in a defined area within a
certain period of time subject to performance of specified obligations. The holder of a KP or
a contractor under a COW has a right to keep and sell minerals mined in its KP or COW area
provided that dead rent, certain taxes and royalties are paid. KP holders and COW
contractors (to the extent specified in COWs) are subject to generally applicable laws, such
as environmental and forestry laws.

At present, COWs are unlikely to be approved until the Mining Law is amended and such
amendment retains the COW as one means of granting mining rights. Nevertheless, the
process for obtaining a COW continues to be initiated by an application for, and issuance of,
a preliminary investigation permit (SIPP) or an exploration permit. Such permits are issued
by the central, provincial or regional levels of government depending on the location of the
area covered by the permit. The holder of the permit may be a foreign company. The holder
has the right to request a COW for such area or part thereof. The processing of such
requests involves obtaining approvals of the DGMCG and all levels of government,
negotiation of the terms and conditions of the COW and tabling of the proposed COW
before parliament for its ‘approval’. The COW is signed for the government by the MEMR
following approval by the president. It is also signed by a new Indonesian company formed
by the permit holder and at least one other party (both of which can be foreign companies).

An alternative but little used way to obtain a COW by foreign investor involves conversion of
KPs to a COW. This requires negotiations and approvals concerning all levels of government
and additional approvals of the DGMCG, the Capital Investment Coordinating Board (BKPM),
parliament and the president (see MEMR Decree No. 1614/2004).

Mining rights may also be acquired through direct transfer of KPs by their holders to third
parties provided the transfer is first approved by the granting authority. Mining rights
granted to contractors under COWs or of a contractor’s interest under a COW may be
assigned and transferred to qualified parties if such assignment and transfer is permitted
under the terms of the COW in question and approvals have been obtained, both as may be
required under the COW (normally from the MEMR or DGMCG) and under regional
administration laws. Assignments of mining rights have been approved as security for
project loans for funding mine construction. Obtaining approvals can be a prolonged process
and as a result, transfers and assignments are relatively infrequent.

A simpler but indirect method of obtaining or rather controlling mining rights is (subject to
restrictions on foreign ownership) by purchasing the shares of a contractor under a COW or
of its shareholders.

KPs may be granted by the regent or mayor if the KP area is located entirely within a regency
or municipality. KPs may be granted by the provincial governor if the KP area straddles two
or more regencies or municipalities within a province and there is no coordination between
the regents or mayors concerned. KPs may be granted by the MEMR if the KP area straddles
two or more provinces and there is no coordination between the governors concerned. The
authority of regents and mayors extends to four miles offshore, of governors to between
four and 12 miles offshore and of the MEMR to KP areas more than 12 miles offshore.

KPs grant exclusive mining rights to the holder for specified minerals or metals, stages of
mining activity and specific time periods within a defined KP area. However, a holder of a KP
for exploration of a specified mineral has a priority in applying for a KP for other minerals
discovered in the same area. The holder of a general survey KP has priority over other
applicants for an exploration KP within the same area. The holder of an exploration KP has
priority over other applicants for an exploitation KP within the same area. Applications for
later stage KPs and extensions must be initiated during the term of an existing KP.

COW contractors that are PMA (foreign capital investment) or PMDN (domestic capital
investment) companies normally have special privileges or concessions confirmed in the
COW, for example, with respect to duty-free import of capital equipment, unrestricted
export of mineral products and exemption from currency exchange control if ever adopted
by the government. COWs may also establish special tax regimes for the COW contractors
and fix corporate tax rates at the then current rate, with the government undertaking to
hold that rate for the life of the COW and in some instances to give the COW contractor the
benefit of any future lower rate.

Some COWs require COW contractors to ‘work towards and assist’ the government in
establishing metal-processing facilities in Indonesia, if economically feasible. If such facilities
have been established in Indonesia by other parties, the COW contractor may be required to
process its mineral products at such facilities if terms and conditions no less favourable than
offshore alternatives can be obtained.

Mining-related obligations of a holder of mining rights are set forth in the Mining Law, for KP
holders as conditions attached to the KP permit and for COW contractors as terms and
conditions in the COW. Other obligations are imposed in environmental and forestry laws.

To apply for and then maintain a KP or COW in force, the holder or COW contractors must
pay prescribed deposits, dead rent, exploration or other contributions, and land and building
tax to specified government authorities.

Work must commence within six months from issuance of exploration KPs, within six months
for pre-exploitation work under exploitation KPs and within one year for exploitation work
under exploitation KPs. A six-month hiatus when no work is carried on can result in the KP
being deemed abandoned. Failure to comply with such deadlines, work obligations and
permit conditions can result in KPs or COW companies being terminated. An issuing
authority may suspend performance of obligations due to force majeure or other
unexpected events.

Holders of mining rights are entitled to conduct exploration, construct required
infrastructure and carry on other mining activities using proper mining techniques and
equipment. But holders must at the same time acquire consents, relinquishments or
transfers from surface rights holders (see below). Holders are required to deposit
reclamation funds.

KP holders must submit preliminary reports detailing mining plans, production targets and
quarterly and annual reports in a prescribed form.

The obligations of COW contractors are more extensive and spelled out in detail in the COW.
Special obligations of COW contractors include, without limitation, obligations for
employment and training of Indonesian nationals, maximisation of regional economic and
social benefits, regional and local business development (with regional and local levels of
government involved in the programme and budgeting process), providing public access to
and use of infrastructure, such as airstrips, harbours, roads and bridges and payment of
regional and local government levies and taxes as approved by the central government as
such existed on the date of signing of the COW. The decentralisation and delegation of
authority to regional has resulted in attempts by such levels to collect additional levies when
authority to do so may be questionable or lacking.

COW contractors are obligated to sell mineral products at arms’ length international prices,
report sales revenues and justify sales prices.

Government approvals are required as a COW advances from general survey through to
exploration, feasibility study, mine construction and finally to the 30-year operating period.

Mine and infrastructure plans are also subject to government approval. Since
regionalization, this means in practice approval by all levels of government in the affected

Under certain COWs, PMA contractors and their foreign shareholders are obligated to offer
shares for sale in the COW contractor to Indonesian nationals and companies owned by
Indonesian nationals. These COWs specify the extent of such offerings and the percentage of
shares in the COW contractor company involved. For some COWs, such offerings must
continue until such Indonesian parties own no less than 51% of all shares of the COW
company. Offering prices are specified as being ‘fair market’ prices but in practice are the
prices as agreed between the COW company and the central government.

Since the enactment of GR No. 20/1994 and GR No. 83/2001, the mandatory level of
Indonesian ownership in a COW PMA company has been reduced to nil on formation and
some level (probably a nominal percentage) after 15 years of production. COWs issued
thereafter have referred to GR No. 20/1994 as being ‘at all times’ (ie, for the life of the COW)
the governing requirement for Indonesian ownership of COW contractor companies.

2.4. Is there any distinction between the mining rights that may be acquired by domestic
parties and those that may be acquired by foreign parties?

Under the Mining Law, KPs can only be granted to Indonesian individuals and legal entities.
Although the Mining Law contemplates that the KP holder has a demonstrable capacity to
exploit minerals in its KP area, this is often not the case. As a result, KP holders on occasion
enter into agreements with foreign mining companies to carry out mining activities on their
behalf. Some KPs contain conditions requiring approval of such agreements (sometimes
referred to as ‘cooperation agreements’) by the issuing authority.

A foreign individual or entity cannot be a direct party to a COW but can be a shareholder of
an Indonesian PMA COW contractor company. As mentioned above, and subject to the
terms of the COW in question, foreigners can hold as much as 100 per cent of the issued
shares of such
companies for 15 years. Thereafter, a nominal percentage of shares in the PMA COW
contractor company must be offered to Indonesians at fair-market or agreed prices.

2.5. How are mining rights protected?

KP holders and COW contractor companies may attempt to enforce mining and related
rights against third parties in the Indonesian courts. Litigation is slow and costly, judicial
processes are cumbersome and outcomes are difficult to predict.

As mentioned above, COW contractors have the additional right of being able to resolve
disputes about their COW rights and the government’s COW obligations by arbitration.
COWs contain arbitration provisions of disputes and specify applicable arbitration rules. The
arbitration location may be offshore if so specified in the COW or the initiating party.
Enforcement of an offshore arbitration award may be facilitated given Indonesia’s
adherence to the New York Convention on Enforcement of Foreign Arbitral Awards.
Enforcement, in any event, is likely to be difficult and slow.

2.6. How do the rights of aboriginal, indigenous or currently or previously disadvantaged
peoples affect the acquisition or exercise of mining rights?

Indigenous people are not recognized constitutionally or otherwise as having any legal rights
to mineral deposits. Ownership of metals and minerals in the ground is vested in the state,
as described above. However, local people and cooperatives are in theory to be given
priority in the event of competing applications for KPs. In practice, a ‘first-come, first-served’
approach may preclude this priority from being exercised.

2.7. What surface rights may private parties acquire? How are these rights acquired?

The holders of mining rights have the right to enter and remain in the area covered by such
rights in order to exercise their mining right subject to acquisition or relinquishment of
surface rights held by other parties. Surface rights may be based on customary law, use or
occupation and titles granted pursuant to the Agrarian Law.

Holders of mining rights must negotiate and pay compensation mutually acceptable for
surface rights and crops, trees and other plants of commercial or subsistence value. Holders
must also pay for affected buildings and resettlement if necessary. Some COWs provide that
such compensation for surface rights is to be ‘reasonable’ but expectations can cause
negotiations to be difficult and protracted. Regional and local officials may assist in the
acquisition of surface rights, but there are no compulsory acquisition laws or administrative
tribunals empowered to fix compensation.

The Agrarian Law established nine land titles, of which three are relevant to the acquisition
of surface rights by holders of mining rights, namely:

       right of ownership (hak milik);
       right to build (hak guna bangunan – HGB); and
       right to use (hak pakai).

Companies holding mining rights may obtain HGB and hak pakai titles (which have a defined
term of years) and would normally do so for areas of land on which plants, fixed equipment
and infrastructure are to be located. Hak milik may only be granted to Indonesian individuals
and certain entities but a hak milik holder can relinquish his rights and allow conversion of
the title to HGB issued in the name of the mining rights holder. Laws and procedures
governing the acquisition of land titles are complex and the process can be lengthy.

Duties, royalties and taxes

3.1. What duties, royalties and taxes are payable by private parties carrying on mining
activities? Are these duties, royalties and taxes revenue-based or profits-based?

A holder of mining rights is required to pay the state dead rent, royalties during exploration
and exploitation and other payments related to mining activities and the area covered by
the holder’s mining rights as may otherwise be required by law.

GR No. 45/2003 specifies the dead rent and royalty obligations of KP holders. COWs specify
such obligations for COW contractors and these may differ from those set forth in GR No.
45/2003. DGGMR Circular Letter No. 008.E/84/DJG/2004 provides instructions for
calculating payments of dead rents and royalties. Law No. 25/1999 specifies to which level of
government KP holders and COW contractors are to pay royalties and how such levels of
government are to allocate and transfer these funds to other levels of government.

Dead rents are charged based on the number of hectares covered by a KP or COW and the
stage of mining involved. For KPs, dead rent charges begin at 500 rupiah per hectare per
year during the General Survey and Preliminary Investigation KP and increase to as much as
25,000 rupiah per hectare per year during the Exploitation KP. For COWs, dead rent charges
begin at US$0.05 and increase annually to as much as US$4.00 per hectare per year.

Royalties for KP holders and COW contractors not otherwise governed by royalty rates
specified in their COWs are defined as percentages (3 per cent to 5 per cent) of FOB sales
prices per ton or kilogramme of metal exported as such or as contained in exported
Companies holding KPs also pay corporate income tax at generally applicable rates (currently
30 per cent) and are subject to generally applicable tax laws. COW contractors pay corporate
income tax at rates specified in their COWs that may be more or less or the same as
generally applicable rates. COWs have customarily contained special tax provisions for COW
contractors that constitute a special tax regime for the life of the COW. Tax officials may not
at times respect the lex specialis nature of such provisions.

3.2. What tax advantages/incentives are available to private parties carrying on mining

Few special tax advantages or incentives are available to holders of KPs. However, KP
holders are eligible for relief (in the form of a reduction to a maximum of 5 per cent) for a
two-year period from import duty imposed on machinery, goods and materials. Mining
services companies are also eligible for such relief (minister of finance Decree No.
135/KMK.05/2000 and Decree No. 28/KMK.05/2001).

PMDN and PMA companies holding mining rights either as KP holders or COW contractors
are eligible for relief or exemption from duties on imported capital equipment. COW
contractors may also be eligible for other preferential tax treatments if contained in the
provisions of their COWs. For example, a COW contractor may be eligible for a reduced rate
of withholding tax on dividend payments made to a foreign shareholder if so provided in its

3.3. Is there any distinction between the duties, royalties and taxes payable by domestic
parties and those payable by foreign parties?

Please see question 14, having regard to the fact that KP holders must be Indonesian
nationals or entities owned by Indonesian nationals whereas COW contractors may be
Indonesian companies owned by foreign shareholders.

Business structures

4.1. What are the principal business structures used by private parties carrying on mining

Mining activities in Indonesia are normally carried on by Indonesian limited liability
companies (PT companies) formed under the Company Law. Foreign parties may only
participate in mining activities as shareholders of PT PMA companies as indicated above.

5.1. What are the principal sources of financing available to private parties carrying on
mining activities? What role, if any, does the domestic public securities market play in
financing the mining industry?

There are few Indonesian sources of financing for private parties carrying on mining
activities. Exploration funds tend to be raised through offshore stock offering of listed
affiliates of COW contractors or parties with cooperation or similar agreements with KP
holders. Such funds are then lent to the mining rights holder. Offshore banks have provided
limited recourse project finance loan facilities for mine development and construction.
Although several mining companies are listed on Indonesia’s stock exchanges, the
Indonesian public securities market does not play a significant role in financing mining

Restrictions and limitations

6.1. What restrictions and limitations are imposed on the import of machinery and
equipment or services required in connection with mining activities?

There are no material restrictions or limitations of any kind imposed under Indonesian law in
connection with the importation of machinery and equipment normally required for mining
activities. Normally required services for mining activities may also be obtained and provided
in Indonesia. But the ‘importation’ of such services is closely regulated to the extent that
individual or corporate service providers establish a physical presence or are deemed to
have a permanent establishment for tax purposes in Indonesia.

19. What restrictions and limitations are imposed on the use of domestic and foreign
employees in connection with mining activities?

There are no restrictions or limitations imposed on the use of domestic employees for
mining activities in Indonesia. Companies holding and exercising mining rights may employ
foreigners (expatriates) except for personnel work (see Presidential Decree No. 75 of 1995).
Employers must obtain a number of approvals to employ expatriates. The expatriates must
obtain the requisite visas, residence and work permits in order to work in Indonesia.

6.2. What restrictions or limitations are imposed on the processing, export or sale of
metallic minerals?

There are presently no mandatory restrictions to or limits on the processing, export or sale
of metallic minerals mined in Indonesia by KP holders although exploitation KPs may, and
certain COWs do, require contractors to process minerals within Indonesia if economically
feasible. Mining rights holders normally produce concentrates from minerals mined.
Regional and local development obligations of COW contractors impose the need to
maximize employment of Indonesian nationals and otherwise enhance development and
this can be a factor in determining the extent to which minerals will be processed in

6.3. What restrictions or limitations are imposed on the import of funds for mining
activities or the use of the proceeds from the export or sale of metallic minerals?

Indonesia does not have any foreign exchange controls. There are no restrictions or
limitations on the import of funds for mining purposes (except that foreign loans must be
reported to Bank Indonesia). COWs and other laws may require that imported funds be
deposited into special PMA accounts.

There are no restrictions or limitations on the use of proceeds from the sale or export of
metallic minerals. There are no obligations to repatriate or use export or sale proceeds in
Indonesia. COW contractors have specific rights to transfer funds abroad entrenched within
their COWs. The standard article 15 of a COW permits COW contractors to transfer abroad
net operating profits, repayments of loan principal and payments of interest on foreign
loans, allowances for depreciation of capital assets generally applicable to PMA companies
under the Foreign Investment Law, proceeds from the sale of shares to Indonesians,
expenses for employed expatriates and the training of Indonesians abroad, technical
assistance and license fees.

Environment, health and safety

7.1. What are the principal environmental, health and safety laws applicable to the mining
industry? What are the principal regulatory bodies that administer those laws?

The principal environmental laws are:

       Law No. 23/1997 on Environmental Management
       GR No. 27/1999 on Analyses on Environmental Impact (in Indonesia known as
       Minister of the Environment Decree No. 17/2001 on Types of Business/Activities
        Plans Which Must Be Accompanied with Analyses on Environmental Impact

See also: MEMR Decree No. 103.K/008/M.PE/1994 for the role of the Inspector from the
DGMCG in supervising Environment Management Plans (RKLs) and Environment Monitoring
Plans (RPLs); GR No. 82/2001 on prohibition on discharging solids (including muds and
slurries) into water or water sources; and GR No. 18/1999 which may apply to all tailings

The principal health and safety laws specifically applicable to the mining industry are:

       GR No. 19/1973 on Regulation and Supervision of Work Health and Safety in Mining
       MEMR Regulation No. 01/PM/Pertamb/1978 on Supervision of Mine Dredging Work
       MEMR Decree No. 2555.K/201/MPE/1993 on Implementation of Work Health and
        Safety and Mining Environment Mines Inspection in General Mining
       Joint Decree of MEMR and the minister of manpower No. 1245.K/26/DDJP/1993 on
        Supervision Implementation of Work Health and Safety and Mining Environment

7.2. What is the environmental review and permitting process for a mining project? How
long does it normally take to obtain the necessary permits?

Mining companies must prepare AMDAL documents (Reference Outline, Environmental
Impact Analysis (ANDAL), RKL and RPL) (see MEMR Decree No. 389.K/0088/M.PE/95).

AMDAL documents are open to the public. Review of AMDAL documents is carried out by
either a central review team (located in Jakarta) or a regional review team (ie, a team
designated in the relevant province). Central review teams report to the minister and
regional review teams report to the provincial governor for their respective approvals.

A first step is the conduct and completion of baseline studies. This is the collection and
analysis of data on all physical aspects and issues, including climate, flora, fauna, soils, river
flows, tides, waves, topography (land and sea), social studies on population, health,
education, employment and religion. Community consultation is required. For a substantial
mine project, this could take at least one year.

This is followed by submission of the Terms of Reference for the ANDAL for approval (a
process normally requiring no less than three months), preparation and submission of the
ANDAL, RKL and RPL (six to nine months), and approval of the ANDAL (three months). The
entire process can take between 18 and 30 months.

7.3. `What is the closure and remediation process for a mining project? What performance
bonds/guarantees and other financial assurances are required?

Reclamation obligations are defined by MEMR Decree No. 1211.K/008/M.PE/1995; minister
of forestry and plantation Decree No. 146/Kpts-II/1999 and Regulation No. P-12/Menhut-
II/2004; and DGGMR Decision No. 336.K/271/DDJP/1996.
Holders of mining rights are required to submit annual plans for environmental management
that include a reclamation plan before commencing exploitation. Reclamation must be
conducted in accordance with reclamation plans and applicable laws. Completion of
reclamation must be confirmed by a DEMR decision.

Before commencing exploitation, a KP holder and a COW company must deposit a
reclamation fund in a bank appointed by the relevant government authority (ie, central or
regional). The amount of the reclamation fund is based on estimated reclamation costs
under the relevant AMDAL.

International treaties

8.1. What international treaties apply to the mining industry or an investment in the
mining industry?

Indonesia is not a party to any international conventions or treaties specifically applicable to
the mining industry. Indonesia is a party to a number of bilateral treaties on foreign

                                 CONTRACT OVERVIEW

                                         ARTICLE 1
                          TITLES OF THE JOINT VENTURE COMPANY

Both Parties agreed that joint ventures’ company between Sichuan Jinguang Industrial
Group Co. LTD in China and ZTCG corp. This JVC will set up head office in Jakarta Indonesia
and branch in China and other cities and area both in Indonesia, or overseas.

                                    ARTICLE 2

Article 2.1

Authorized capital of the JVC will be ____________ divided into _______registered shares
with ______each shares. First Party acquires __% of the total shares and Second Party will
take __% of the total shares. Capital funds will be injected to the JV Company in various
installments according to the needs and requirements of the progress of the project. Capital
funds of the JVC can be utilized for the project.

Article 2.2

Capital funds of the First Party as stated in the article 2.1 will be deposited in cash funds. All
the expenses for primary operation in Indonesia will be contributed by the JVC. For that
matter, the First party agreed to deposit a sum of US$ 500,000 as advance payment of First
Party’s Share, for Second’s party services/contributions. Whenever any cash for operation is
required stated in article 2.2 shall be contributed by First Party as an advance payment of
First Party Shares.

                                        ARTICLE 3
                                  MANAGEMENTS OF THE JVC

Article 3.1 - Board of Directors of the JVC

The JVC will be under the direction of a Board of Directors. Each party is entitled to
nominate a number of directors, hence, First Party is entitled to nominate 2 (two) or 3
(three) person(s) as Directors and Second Party shall be entitled to nominate 2 (two) or 3
(three) person(s) as Directors. The Parties agreed based on mutual cooperation to nominate
the Chairman and the Vice-Chairman of the Board of Directors.

Article 3.2 - Approval of a Resolution

A resolution shall be deemed to have been passed and adopted a resolution of the Board of
Directors if approved by consultation with a spirit of cooperation. If in the consultation has
not reached an agreement, the decision will be made by voting, if approved by at least 49%
of the votes. Each Director has one vote. In the event of a tie, the Chairman or
Vice-Chairman of the Board of Directors or his nominee is always the Chairman of the

Article 3.3 - Accounts Managements of the JVC

Directors of the JVC shall monitor and supervise movement and status of the corporate
accounts of the JVC. The Party with holding stakes will appoint the financial manager of the
JVC, while the other Party will appoint the Vice Financial Manager.

                                           ARTICLE 4

Article 4.1
Second Party undertakes the seeking of a KP (“KP” is defined as mining concession as the
instruments or instruments issued by the Ministry of Energy and Mineral Resources of the
governors of province or head or region (BUPATI) according to the laws & regulations in
Indonesia, which gives the right to explore for and exploit nickel ore in the KP Area.) granted
to date has been duly granted and issued and are in good standings.

Article 4.2

Second Party undertakes that the KP is not and will not be subject to people’s mining rights
or small scale mining rights; the KP is not subject to any dispute or any legal proceedings nor
is such pending or threatened.

Article 4.3

Production, management, marketing and purchase of the nickel ore or other mining
products of the JVC will be handled by the JVC. Second Party shall apply for all formalities or
permit for production, sales, and export of the nickel ore and other mining products with
relevant authorities.

Article 4.4

Second Party shall coordinate will with all government authorities or offices in Indonesia and
other organizations for smooth production, management and operation for the JVC.

                                       ARTICLE 5
                               EXPENDITURE & MINING COST

Article 5.1

All costs and expenses occurred at the initial stage of survey and exploration office,
dormitories, canteen and other expenses related to the joint venture project will be charged
to the account of the JV Company.

JVC will pay for the expenditure and cost directly related to geographical survey, exploration
plan, rental of equipment and purchase of equipment in the event of non-availability of
rental of equipment.

Article 5.2

All salaries, labor costs, travel expenses and social welfare expenses of the workers and staff
related to the joint venture project will be charged to the account of the JV Company.
Article 5.3

All machinery and equipment required for the exploration, exploitation, production and
transportation will be locally acquired on rental basis. Such rental costs will be charged to
the account of the JV Company.

Article 5.4

Other expenses occurred in realization of the purpose of the JV project or achievement of
the job targets of the JV project will be charged to the account of the JVC after verification
and approval by the Board of Directors.

                                        ARTICLE 6
                                DIVIDEND POLICY OF THE JVC

Article 6.1

Dividend policy shall be drawn to each party in proportion to their percentage of shares
holding in the JVC after consideration of reserved operation funds and deducting all
operation cost, including any tax imposed by the Government or other levies directly related
to the mining operation of utilization of the KP.

                                        ARTICLE 7
                                    IMMEDIATE ACTIONS

Article 7.1

Second Party shall be responsible for obtaining all license or permits (customarily called
“nine licenses and permits”) required for the exploration/exploitation/building of nickel
mine/factory as well as export of the mining products. After signing of this agreement,
Second Party will assist in obtaining all relevant government approvals and such other
approvals and license as may be necessary to enable the establishment of the JVC and the
operation of its business in accordance with its purpose and objectives.

Article 7.2

After signing of this agreement, Second Party shall assist in coordinating with all authorities
concern, setting up temporary office, accommodation facilities and acquiring
exploration/building equipment and appliances of survey and testing.
                                           ARTICLE 8
                                  SELL, TRANSFER OR DISPOSE

Article 8.1

If a Party intends to sell, transfer or otherwise dispose of all or part of its shares (“Offered
Shares”), such party (“Offering Party”) shall give to the other shareholder (“Non-Offering
Party”) written notice to that effect; which shall include a statement of the stated price
and terms at which it intends to sell such shares.

Article 8.2

Within 30 days after receipt of the written notice as per Article 7.1, the Non-Offering Party
shall have the pre-emptive right, exercisable by written notice given to the Offering Party, to
purchase the Offered Shares at the Stated Price and terms.

                                            ARTICLE 9

Both Parties will express professionalism, fairness, credibility in all along side cooperation
with each other on mineral mining exploration, exploitation, machining, trading and
smelting minerals mining plant process.

Any dispute arising from this agreement shall be settled as far as possible by friendly
consultations between First Party and Second Party. However, in case the First Party and the
Second Party fail to achieve a friendly settlement, the Parties hereby agree that any dispute
arising out of or in connection with this agreement, including any questions regarding its
existence, validity or termination, shall be finally resolved by arbitration under Badan
Arbitrase Nasional Indonesia. The place of Arbitration shall be in Jakarta, Indonesia. The
decision of BAIN shall be final.