PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Matt Lee, Clarkson Kamurai and Brad Handler

March 4, 2026

The Payne Institute’s recent observations that inferred likely Artisanal and Small-scale Mining (ASM) contributions to Indonesia’s nickel production received an array of feedback from nickel industry and Indonesian stakeholders. This feedback illustrated prevailing views within the nickel mining industry regarding ASM companies’ limited capability and pointed to how even informal ASM is integrated into larger local actors’ planning. Further, it highlighted the impacts of the deficiencies of the current system, which nominally has a legal structure for ASM but in practice discourages formalization.

ASM’S APPARENT ROLE IN INDONESIA NICKEL

The Payne Institute commentary, published in April 2025, identified a gap between reported nickel ore production in Indonesia and reported inputs of ore from other countries (largely Philippines) versus smelter throughput. We attributed this gap to informal production of nickel in Indonesia, which comes from ASM. The inferred contribution to nickel mining in the country was 24% in 2022, although it fell to 10% in 2024 on (1) a crackdown on illegal mining in Indonesia and (2) elevated ore demand that pushed large, licensed producers to pursue lower grade deposits that were previously left for ASM to develop.

ASM presents both opportunities and risks in Indonesia. On the one hand, it can respond quickly to market signals and unlock smaller deposits that large operators may overlook. It has also traditionally integrated with (has been subsumed by) formal mining operations. On the other hand, without effective governance and safeguards, ASM activity can heighten environmental and social harms and increase miners’ exposure to unsafe working conditions and exploitation.

The latter risk has become more pronounced with the growth of smelting capacity in the country, with most of smelters Chinese majority-owned, as Indonesia has pursued its vertical integration strategy and banned exports of raw ore. One of these smelters is not infrequently the only buyer of ASM production. Thus, official nickel ore prices notwithstanding, the smelters have market power (and loopholes in the law give them pricing latitude). With that said this dynamic does not always overwhelm other market forces; for example, a relative shortage of production vs. smelter capacity strengthened miners’ leverage since late 2023.

ASM PERMITTING LEFT TO THE PROVINCES

Indonesia’s national mining law (Law No.3/2020 amending Law No.4/2009) addressed ASM by providing (1) a ‘Smallholder and Community Mining Area’ (Wilayah Pertambangan Rakyat, WPR), with zoning up to 100 hectares (Ha) and mining <100 meters depth and (2) a ‘Smallholder and Community Mining License’ (Izin Pertambangan Rakyat, IPR), with zoning up to 10 Ha that is available to individuals/local cooperatives. Also, recent legislation has pushed authority to provinces and allows specific granting of licenses to Small and Medium Enterprises (SMEs). Specifically, PR No. 55/2022 delegated controls over specific mining licenses to provincial government and law No.2 in 2025 Introduced “priority granting mechanism” of ‘Mining Business License Area’ (Wilayah Izin Usaha Pertambangan, WIUP) to SME, cooperatives, and religious groups.

However, although ASM can be licensed, few such permits are issued. As of January 2026, only 13 IPRs are active, 12 of which were for gold and none for nickel. Channel checks have suggested both that permitting is being handled as one-offs, with a high-context governance culture, and that limited administrative capacity and resources have constrained actual application of IPR.

DEFINITION FLUID; OTHERS BRING CAPITAL

The Payne Institute analysis was met with skepticism by some industry participants, who challenged that ASM was even capable of mining nickel, let alone in such large quantities. The response suggested that these industry players were applying a traditional conception of artisanal — informal, small-scaled, low-tech (and mostly seasonal). However, over time, “small-scale mining” has become increasingly difficult to define consistently across countries and contexts. Importantly, small miners are adopting technological innovation and have access to more capital. To address this, the umbrella term ‘ASM’ has emerged to capture a wide spectrum of operations.

Specifically in Indonesia, small-scale miners are not infrequently backed by larger entities and/or investors, including some with connections to the government and military. These entities then provide access to capital and/or the equipment required. Not only does this system raise ASM capabilities, it presumably also can alter the traditional “calendar” nature of ASM mining — as workers have incentive to mine throughout the year as opposed to just during non-farming seasons.

FORMALIZATION AS A PATH OF SUPPORT

As noted, small-scale mining remains largely informal in Indonesia, which presumably is  a function of some combination of lack of political will to enforce regulation, lack of government administrative resources to do so, at least to some extent because current stakeholders benefit from the current system and that the formalization process is cumbersome and resource-consuming for local small operators. Further, there is little incentive for ASM miners to become formally recognized given the ensuing responsibilities, including environmental practices and tax obligations. These barriers point to the need for government to both facilitate formalization, including active support from government entities, and provide greater financial incentive to ASM miners.

The lack of data/information about the scale of informal activities contributes to the current state. Public data on Indonesia’s nickel industry is limited, even for the formal sector. Our previous report noted, for example, meaningful discrepancies in reported production figures and statements from government officials. Stakeholders linked this to several structural factors, including limited central government capacity — and a sense of political sensitivity — to either monitor and verify site-level activity across a geographically fragmented country of >17,500 islands or to press on provincial governments to do so.

Related, stakeholders also pointed to weak coordination between ministries. Addressing ASM effectively requires transparency on both the supply side (informal mining) and the demand side (ore intake at smelters). In practice, with the responsibilities split — the Ministry of Energy and Mineral Resources regulates mining, while the Ministry of Industry oversees smelters — no single institution is accountable for end-to-end oversight of the nickel value chain. This contributes to inconsistent monitoring, which fosters enforcement gaps and policy loopholes.

In conclusion, while our estimates may be debated, ASM’s role should not be overlooked when assessing Indonesia’s nickel value chain. Bringing ASM into clearer view, and addressing it through appropriate governance and support, can improve efficiency and transparency across the supply chain, and, importantly, increase the share of rents captured by the state and local communities. A critical first step is improving the quality and availability of data about ASM. Efforts by NGOs such as EITI, along with engagement of institutions like The Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) are helping to build momentum; however, more targeted and coordinated data collection is still needed to move from broader awareness to actionable policy.

ABOUT THE AUTHORS

Matt Lee, MS, Mineral and Energy Economics, Colorado School of Mines
Matt Lee is a researcher at the Payne Institute for Public Policy. He holds an MS in Mineral and Energy Economics from the Colorado School of Mines and a BS in Energy Resources Engineering from Seoul National University. Matt has prior experience in corporate development within the critical minerals sector, with a particular focus on the Asia-Pacific region, including Indonesia.

Clarkson Kamurai, Payne Institute Critical Minerals Program Manager and Research Associate
Clarkson Kamurai is a Critical Minerals Program Manager and Research Associate for the Payne Institute at the Colorado School of Mines. Clarkson is a mining engineer with over 20 years of mining engineering experience, in which he holds a Master’s degree. He has experience in precious and energy metal development and extraction. Clarkson’s experience in these areas is drawn from numerous mining operations and projects development across much of Sub-Saharan Africa and South America. He is currently enrolled in the Energy and Mineral Economics PhD program at the Colorado School of Mines’ Economics and Business Division. His research studies relate to critical minerals supply chain, an area he has a deep passion for.

Brad Handler, Payne Institute Program Director, Energy Finance Lab, and Researcher
Brad Handler is a researcher and heads the Payne Institute’s Energy Finance Lab. He is also the Principal and Founder of Energy Transition Research LLC. He has recently had articles published in the Financial Times, Washington Post, Nasdaq.com, Petroleum Economist, Transition Economist, WorldOil, POWER Magazine, The Conversation and The Hill. Brad is a former Wall Street Equity Research Analyst with 20 years’ experience covering the Oilfield Services & Drilling (OFS) sector at firms including Jefferies and Credit Suisse. He has an M.B.A from the Kellogg School of Management at Northwestern University and a B.A. in Economics from Johns Hopkins University.

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The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

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DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.