MAC: Mines and Communities

Indonesia/West Papua Update

Published by MAC on 2006-05-17

Indonesia/West Papua Update

17th May 2006

When will the Grasberg mine be closed down? That must surely be the key question, following the recent comprehensive environmental indictment of the operation by WALHI (Friends of the Earth Indonesia).

Now an Indonesian parliamentary investigation has confirmed the organisation's key allegations. Just published, too, are highly alarming satellite photographs showing the extent to which the floodplain, river system, and forests in the mine's concession area, have been damaged between the years 1988 and 2003. Since then, of course, the mine has been expanded and the tailings burden increased. (See:

Recognising that Grasberg has become a major challenge to the corporate credibility of Freeport (now under fire for grotesque handouts to its chair and CEO), the London Financial Times alludes in passing to Freeport's joint venture partner Rio Tinto. Regrettably, the key role of the British company in bankrolling Grasberg's expansion - which led directly to the current socio-environmental disaster - has barely been acknowledged recognised by the UK media.

Following the ongoing Newmont case in Sulawesi, another suit against an allegedly damaging foreign mining company is being mounted in the Moluccas. This time, the alleged culprit is Australian-based Newcrest, whose new CEO will soon be Ian Smith from Rio Tinto. Visitors to this website may remember it was Rio Tinto that tried, unsuccessfully, to sell its Citra Palu operations in Sulawesi to Newcrest,when the UK company was violating forestry protection legislation. (see:

Another UK mining company is now trespassing on a unique habitat in northern Sulawesi. The managing director of AIM-listed Archipelago Resources defends his company's plans as meeting "local regulatory practices", and says the mine will deposit its tailings " the form of finely ground rock, which will be deposited in a submarine trench on the other side of Sulawesi, between 1,000 and 2,000 metres deep, where they will sink."

In fact, according to the mining advocacy group JATAM, this project is proceeding without legal environmental clearance. A former Indonesian environmental minister has already condemned the practice of submarine tailings disposal (STD). Supposition that the wastes are inert, remaining below the co-called "euphotic zone" without rising near the surface is defied, both by all previous experience of the practice, and the oceanography of the region. At this very moment, Alfred Russel Wallace, the Englishman whose identification of northern Sulawesi's unique fauna and flora, one and a half centuries ago contributed directly to CharlesDarwin's theory of the "origin of species", may well be rocking in his grave.

Lawmakers confirm report of pollution at Freeport

M. Taufiqurrahman and T.B. Arie Rukmantara, The Jakarta Post, Jakarta

11th May 2006

The tailing system used by PT Freeport Indonesia in its operation in Timika, Papua, has caused severe damage to the environment, a House of Representatives-sanctioned team says, confirming earlier similar findings.

The team, formed by the House working committee on Freeport to investigate the U.S.-owned firm's operation, said that rather than resorting to a more environmentally friendly system, the mining giant simply disposed of its hazardous waste in nearby streams.

"As a result of this method, tailings are scattered randomly in various locations, forming small islands. When they reach the beach front on the Arafuru coast, they bond strongly with the mangroves there," team member Sony Keraf said Wednesday.

The six-member group, headed by Catur Sapto Edy of the National Mandate Party, returned from Timika on May 7 after conducting a three-day inspection at the Freeport mine.

Sony, a former environment minister under the Megawati Soekarnoputri administration, said million tons of hazardous waste had caused severe destruction to the Arafuru coastline.

"The tailings have reached the surface and the water there has turned black with a silver sheen. Compared to this, what Newmont has done is nothing," Sony said, referring PT Newmont Minahasa Raya, an Australia-based mining company which the police accuse of polluting Buyat Bay in North Sulawesi.

Newmont disposed of hazardous waste from its mine site into Buyat Bay, although the company argues the disposal methods were safe and sanctioned by the government.

The Mining Advocacy Network (Jatam) environmental group estimates Freeport tailings in the area amount to around 800 million tons.

Another environmental group, Greenomics Indonesia said Tuesday that Freeport should restore the ecosystems in a 43,000 hectares of river basin areas in the Minajerwi, Kamura, Otakwa Blumen regions.

These wetlands are connected to the Otomona River, where the company dumps thousands of tons of its tailings every day.

Greenomics estimates repairing the ecological damage to the rivers would cost the company around US$7.5 billion based on current international standards.

The House team also criticized Freeport's book-keeping, saying for many years it was not transparent.

As a consequence, the government and the public never had information about how much Freeport had profited from its mining activities in Papua, Catur said.

"For 30 years now, Freeport Indonesia has been secretive about how much minerals they have exported or how much money they have reaped from the mining activities," Catur said.

The team suggested there should be an independent audit of the Freeport operation because the firm's current auditor, PT Sucofindo Indonesia, was on the company's payroll.

"How can there be an independent audit if the surveyor is paid by Freeport," Catur said.

For years, audit reports produced by Sucofindo had been the primary information source for the government about Freeport's operational activities, he said.

The team called for the Supreme Audit Agency to inspect the company, also scrutinizing Freeport's community development program, security system, human rights record and environmental policies.

Freeport has repeatedly said the company complied with all of the country's environmental regulations.

Rio Tinto evades questions on Panguna at AGM

Press release from Mineral Policy Institute, Australia

6th May 2006

Rio Tinto directors evaded questions over whether they would take responsibility for the legacy of environmental problems at the Panguna mine on Bougainville Island, and failed to make any clear commitments that they would engage the Indigenous traditional landowners before continuing discussions over resumption of the operations. While they said they had "no plans' to reopen the mine, they did admit that discussion where taking place amongst some stakeholders.

The issue is highly charged, given the tens of thousands of lives lost when the environmental problems caused by riverine waste dumping and the exclusion of traditional landowners concerns shut down the mine and lead to a civil war. There remains significant sentiments on the island that the project should never be reopened, and legitimate concerns that failing to respond to community sensitivities could be a receipe for disaster.

Moses Havini, the International representative for Bougainville for the last fifteen years who attended the A.G.M in Melbourne sought commitments for independent environmental studies and acknowledgement of the rights of traditional owners before discussions on the mine could continue, and sought commitments that Rio Tinto would halt any talks until traditional landowners impacted by the mine would be included as equal participants.

Mr. Havini is concerned that the essential commitments and necessary discussions with local people are not taking place.

"Mining companies must radically change their terms of agreement with traditional landowners in the Pacific region. Firstly, further independent environmental impact studies must be carried out before any decisions are made regarding mining in Panguna, or elsewhere. Secondly, the traditional landowners should be given a fair share of any mining venture, and their right to free, prior and informed consent for any developments respected.

Thirdly, mining companies in the Pacific must not pump their tailings any more into the river systems or into the seas. Fourthly, the Panguna Landowners Association are still to be fully compensated including arrears by Bougainville Copper Limited, and Fifthly, RTZ must fully commit itself to a full environmental cleanup of toxic materials and chemicals strewn from the Panguna Copper mine to the Port of Loloho" Mr. Havini said.

Rio Tinto said that they were continuing discussions with the other shareholders in the mine and the provincial and P.N.G. national government, but made no commitment that the traditional landowners would be included in these discussions.

With customary landownership by traditional indigenous owners the primary form of landholding across Papua New Guinea and the recent approval of a Constitution for Bougainville that firmly places the ownership of land and resources with the people, Rio's top down approach, and the question of ownership of the lease itself is unresolved and set to inflame issues.

"One would have hoped that previous experiences would have taught the company that customary indigenous landowners whose lands will be impacted need to be included from day one of any discussions, and their rights to exercise free, prior informed consent over projects on their land acknowledged." stated Techa Beaumont of the Mineral Policy Institute. " Rio Tinto has done as much in Australia at mine such as Jabiluka, so why will they not do the same in our neighbouring countries? In the context of what people of Bougainville have suffered as a result of Rio Tinto's former operations, any other approach shows a reckless disregard for the suffering and loss of life that has occurred."

Rio Tinto was also under fire for its involvement in the Freeport mine.

"Freeport is contributing to the suffering in West Papua because it funds the Indonesian government and military", West Papuan refugee Herman Wanggai told the meeting.

"You can't separate what the mine is doing from the political situation in West Papua. It is directly linked to the human rights problems."

Claims about the environmental impact of tailings released into the river system, and ongoing breaches of environmental laws were also raised following the release of a report into the mine this week by Indonesian environmental NGO WALHI.

Rio Tinto defended the contraversial practice, which BHP Billiton ruled out ever using again after admitting the environmental disaster it caused at the Ok Tedi mine. Chairman Paul Skinner continued to defend its use at Freeport, saying that the company believed its use was best practice for the Freeport mine. He did concede however that they would not consider utilizing it again in any proposal to reopen the Panguna operation.

"Rio's defense of riverine tailings disposal at Freeport as an example of 'best practice' is disturbing," Minerals Policy Institute Executive Director Techa Beaumont said.

Skinner also refused to answer questions on when the mine would stop breaching Indonesia's environmental regulations. The breaches led to the Indonesian environment ministry calling on the company to comply with Indonesian laws earlier this year. Mr Witoelar was reported by Reuters news service in April as saying "If they don't do it (points necessary to comply) then we would give a warning. If they still don't do it then we will bring them to court."

For more information: Techa Beaumont, Executive Director, Mineral Policy Institute: 0409 318 406

Moses Havini, International Representative of the Bougainville Autonomous
Government: 0409 226 428

Protests grow over group's Grasberg revenues

By Rebecca Bream and Shawn Donnan, Financial Times

11th Apr 2006

Freeport-McMoRan has faced a litany of criticism in recent months over the operation of its Grasberg copper and gold mine in Indonesia's remote and conflict-torn Papua province.

Its practice of paying the Indonesian security forces to safeguard the open pit mine - a legacy of Freeport's ties to the regime of former strongman Suharto - has for years prompted allegations of human rights abuses. The policy has also led to investigations by the US Securities and Exchange Commission and the US Justice Department following a request from shareholders.

The company is facing increasing calls from Indonesian nationalists for its contract to be reviewed, and growing protests by pro-independence Papuan students demanding the mine's closure. One demonstration in Jayapura, the provincial capital, last month ended in the deaths of four members of the security forces.

"To us, you take, take, take and never give back. We don't see any benefits coming back to our island . . . that's why we are out there calling for Freeport to be closed," a Papuan student leader, who asked not to be identified, said yesterday. Adding to those problems, police in February clashed with illegal miners panning for gold in Freeport's tailings and a recent landslide crushed a staff mess hall adjacent to the Grasberg pit, killing three workers.

Meanwhile, Freeport's top two executives have reaped the financial benefits of a global commodities boom.

Between October last year and February this year, James "Jim Bob" Moffett, Freeport's chairman, and Richard Adkerson, president and chief executive, netted almost US$59m after taxes by cashing in stock options. This followed the award of 2005 compensation packages to the pair worth a total of US$77.3m, according to company SEC filings. It also comes as Freeport faces renewed questions from activists, academics, politicians, and even government officials over the distribution of its revenues. And over whether - in what is a perpetual question for multi-national mining groups operating in the developing world - the indigenous people around its mine are getting their fair share.

Freeport says last year it spent US$64m on community development projects around the mine with US$42m of that going to a "1 per cent [of revenues] fund" established to appease angry local communities following riots in 1996.

But the contrast between that figure and the windfalls enjoyed by its top two executives rankles some.

"When you compare the sorts of salaries and benefits their top two executives have received with the sorts of benefits the community receives, the contrast couldn't be starker," says Chris Ballard, an Australian National University expert on Freeport. Mr Adkerson, Freeport chief executive, says this is "an apples and oranges comparison" that ignores the US$1.2bn in taxes and royalties the company paid Jakarta last year.

The 2005 compensation packages were the appropriate result of a banner year for the company while the pair's disposal of shares was "just a matter of personal financial prudence". "From the terms of performing for our shareholders, which is what our compensation is tied to, I think we've performed," Mr Adkerson says.

"And then if you look at the support we've provided for the Papuan community, it's far beyond what would be expected of a miningcompany in any situation."

He says the company paid the government more in royalties and taxes than would be expected anywhere else in the world: "If it was in Canada, Australia, Chile, Peru, the US, the taxes and royalties would be less than what we pay the government of Indonesia."

Mr Moffett, a colourful 67-year-old mining engineer who served as chief executive until 2003, has faced questions over his pay packet before.

But his 2005 compensation, which included a record US$19.4m cash bonus, and his recent moves to dispose of shares, have prompted fresh questions about whether he plans to stay at Freeport.

This has rekindled speculation about a possible sale of the Grasberg mine, a joint venture with Rio Tinto, the Anglo-Australian mining group. One analyst says Mr Moffett has wanted to sell the mine for years but there have not been any buyers: "No one is prepared to take on the political risk of Indonesia."

Mr Adkerson will say only that "we have not had any announced intention to sell the company, [Freeport], or to sell the Grasberg mine".

Mr Moffett remains a major shareholder. The combined worth of his existing holding and the shares underlying his stock options is at least US$155m atcurrent share prices of about US$60.

Freeport says Mr Moffett remains "actively involved daily in the management of the company" and is under contract until 2008.

People close to the company also say, however, that in recent years his involvement in Freeport has waned. His primary residence is now in Austin, Texas, rather than New Orleans, where Freeport is based.

Indon villagers planning to sue Newcrest

The Age, Melbourne

17th May 2006

Villagers in eastern Indonesia plan to sue Australian gold producer Newcrest Mining, accusing the company of environmental vandalism and failing to deliver on promises to improve their welfare.

Newcrest operates two controversial gold mines on remote Halmahera island, in the Molucca chain, and has clashed with local people and environmental groups amid accusations of heavy-handed security tactics.

In 2004, one protester was shot and killed near the gates of the $US100 million ($A130 million) Toguraci mine during a demonstration over operations in protected forest areas.

Kao villagers said they now planned to sue Newcrest.

They claim the company had violated an agreement struck in 1997 with local people and joint-venture partner Pt Nusa Halmahera Minerals, which owns a small share in the mine.

"We have many times warned them to do what's been agreed with Kao traditional society, but they never pay attention," local elder Ahmad Arifin told Waspada online from the North Maluku capital Ternate.

"They are ignorant."

In Melbourne, a spokesman for Newcrest said the company and senior mine managers on Halmahera were unaware of the looming legal case.

Newcrest was plagued by intermittent protests at the Toguraci site, with local people variously occupying the mine for five weeks in 2003 and staging blockades in 2004.

Villagers accused the mine of operating illegally in a protected forest area until the former government of then President Megawati Sukarnoputri changed the law in 2004.

Activists have previously demanded Newcrest distribute Rp500 billion ($A83 million) in profits from its nearby Gosowong mine, while spending 10 per cent of future profits from Toguraci site on local community projects.

Arifin said the legal case against Newcrest was still being prepared and refused to divulge the details of claims.

He denied the villagers were against development, but said international investors should lead to an improvement in the lives of local people.

"If their presence only brings problems, then we will refuse it," he said.

Newcrest recently announced Rio Tinto executive Ian Smith would take over the helm of the company in August, promising he would improve the operations side of the business,

Higher-than-expected arsenic levels and lower gold grades have caused problems gold and copper mine sites in Western Australia.

The company has advised its net profit for 2005/06 would range between $US125 million ($A163.3 million) and $US135 million ($A176 million), after posting a first half profit $US74.2 million ($A96.94 million).

A legal case in Indonesia could add to Smith's challenges

US-based Newmont Mining Corporation, has been fighting a long-running legal battle in Indonesia after local people claimed tailings from its Minahasa Raya mine polluted Buyat Bay in the North Sulawesi, causing nearby villagers to become seriously ill.

In February, the Indonesian government said it would settle a civil suit with Newmont for $US30 million ($A39 million), including increased scientific monitoring and more community development.

Mine plan threatens marine park

Daily Telegraph (London)

6th May 2006

Waste from British-owned project could devastate award-winning site, say experts. Tim Ecott reports

Environmental groups are campaigning to save an award-winning marine park on the island of Sulawesi, in Indonesia, from the potentially devastating effects of pollution.

The Bunaken National Marine Park, winner of a prestigious Tourism For Tomorrow Award in 2003, is threatened by plans to dispose of waste from a new gold-mining operation.

According to Angelique Bituna, the World Wildlife Fund for Nature site manager, ocean currents will drag any pollution from the proposed mine at Toka Tindung towards the reefs of nearby small islands. These include the marine park, which contains 400 species of coral - more than the Great Barrier Reef - and thousands of fish species, as well as several rare varieties of pygmy seahorses. She added that the park is now being considered for listing as a World Heritage Site.

The mine at Toka Tindung is also close to Tangkoko nature reserve, home to the Celebesian tarsier, the world's smallest primate.

The gold mine will be operated by Meares Soputan Mining (MSN), which Indonesian newspapers report is mostly owned by Archipelago Resources, a British company. Toka Tindung is thought to hold substantial gold reserves, and Indonesian environmentalists believe that they will be extracted using cyanide, which will form part of an estimated 4,000 tons of waste to be disposed of at sea.

Dino Vega, the chairman of North Sulawesi Chamber of Commerce, is asking the Indonesian government to intervene to prevent the mining project.

"I understand the necessity for business in the region," he said. "But this is a get-rich-quick scheme, and the environmental assessments for this mine are woefully inadequate. Even the provincial governor has stated publicly that he is opposed to the scheme.

Unfortunately, the mining concession was granted under a former regime. We are hoping that we can alert the wider world to this environmental disaster in the making."

With an estimated 40 per cent of tropical reefs worldwide now dead or dying, the reefs around Sulawesi are regarded as a natural treasure.

A petition signed by more than 10,000 local people in North Sulawesi has been presented to the government in Jakarta, claiming that thousands of local fishermen will suffer if the mining goes ahead. At present, 22 local communities are supported solely by marine park entrance fees collected from divers and snorkellers.

Local residents in North Sulawesi are also fearful that heavy metals will pollute the ground water near the mine, bringing further danger to fish, on which 60 per cent of the population depends for its livelihood.

Contacted by Telegraph Travel, the managing director of Archipelago, Colin Lucemore, said that the mine would operate to internationally recognised environmental standards, even exceeding stringent guidelines set by Australia's national parks.

"We are complying fully with local regulatory practices," he said. "And believe that the mining is sufficiently far removed from the marine park that there will be no environmental damage.

"Our mine tailings will be in the form of finely ground rock, which will be deposited in a submarine trench on the other side of Sulawesi, between 1,000 and 2,000 metres deep, where they will sink."

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