MAC/20: Mines and Communities

Indonesian Update

Published by MAC on 2006-04-07


Indonesian Update

7th April 2006

Freeport's Grasberg continues to make international news. While Indonesian human rights NGOs continue to call for an end to the military oppression of the people around the Freeport mines, Freeport Chief Executive Richard Adkerson gets away with bizarre quotes in the international press such as the one in Dow Jones (April 7) that "the government has shown restraint in dealing with any protests that have been seen".


INTERVIEW: FCX Committed To Indonesia Copper Mine-CEO

by Andrea Hotter / DOW JONES NEWSWIRES

7th April 2006

SANTIAGO (Dow Jones)--The political risk of operating in Indonesia may be higher than in some other copper mining areas of the world but Freeport McMoRan Copper & Gold Inc (FCX) has never considered pulling out of the region, company President and Chief Executive Richard Adkerson told Dow Jones Newswires.

"We constantly monitor the situation for the safety of the people that work there but we have never got anywhere near the possibility of not working there," he said, speaking in an interview on the sidelines of the CRU 5th world copper conference in Santiago Thursday.

"Indonesia is a democracy that is emerging and developing and maintaining civil order is one issue that needs to be addressed. We don't get involved in the politics of the country, that isn't our intent. The government has shown restraint in dealing with any protests that have been seen, and order has been restored following demonstrations without having to forcibly remove protestors," he added.

The recent protests by illegal miners on the road leading to the company's Grasberg copper and gold mine in Papua province attracted "a lot of interest" after several years of relative calm in the region.

But the recent violence at a demonstration in Jayapura, 250 miles from the Grasberg mine, was "the turning point in the Indonesian government's reaction to the situation, and they realized that order needed to be restored," Adkerson said. The protests were lined by some to local elections.

The company has been operating in Indonesia since 1972 and has what amounts to a 50-year contract of work. Grasberg was discovered in 1988 and has since become the world's second largest copper producer and the world's biggest gold mine.

Freeport has an 80% stake in Grasberg with the state owning the remainder. The company is a major contributor to the Indonesian economy, providing $1.2 billion in taxes, royalties, dividends and fees in 2005.

According to Adkerson, Grasberg produces 250,000 tons a day of sustained output although this has increased at times to 280,000 tons a day. Grasberg, which expects to mine 2.2 billion tons of ore, has reserves of 3 billion tons grading an average 1.64% copper.

Grasberg's mine output accounts for about 80% of the mill's throughput, with the remainder produced in the DOZ mine. "DOZ has a design capacity to mine 35,000 tons a day but produces above 40,000 tons daily and is trying to boost this to 50,000 tons a day," Adkerson said. "The existing mill facility is one of the largest in the world, at between 240,000 and 250,000 tons a day," he added.

"The challenge is the mine rate, which we are trying increase significantly," Adkerson said. The Grasberg open pit is currently anticipated to last until 2015, at which point the mine will move to underground, where three times the current reserves are estimated. A series of mines will feed into the mill from this time.

A study in 1996 and 1997 determined the optimum pit shape for when Grasberg moves to underground mining. "To go deeper, you have to go wider," Adkerson said.

Freeport also owns a 25% stake in PT Smelting, which operates the Gresik copper smelter and refinery, also in Indonesia. "Gresik is Indonesia's only smelter. When we signed the contract of work in 1991, we came to an agreement with the government or a smelter to be built," Adkerson said. "The government was keen to secure some downstream copper operations in the country," he added.

The principle owner and operator of Gresik, which produces 275,000 tons a year, is Japan's Mitsubishi. The Gresik refinery recently expended from 250,000 tons a year to produce 270,000 tons last year, and will expand further in the future, Adkerson said.
In Spain, Freeport owns Atlantic Copper, which operates the 290,000 tons a year Huelva smelter and a refinery producing 260,000 tons a year of cathode. "Atlantic Copper is part of Freeport's concentrates marketing function," Adkerson said. The plant was acquired in the 1990s when it became difficult to place concentrates into the market, and uses feed from Grasberg.

"The smelter was owned by the Kuwait Investment Agency, which was struggling at the time, so when the opportunity came to us we acquired the operations and upgraded them," Adkerson added. Production at the smelter is consumed domestically in Spain, as well as in Italy and France.

Looking at the copper mining sector, Adkerson said the clear thing that distinguishes the period of current high prices is the absence of good deposits. "Historically, the mining industry had good deposits to develop. But the quality margins have gone and there are also now constraints on cost, currency factors and political risk - the supply response characterizes this period of time," he told Dow Jones Newswires.

"There is plenty of money available to mining companies and there is certainly the strategic need for producers to find new production, given dwindling reserves and grades at existing mines. But the good deposits are few and far between," he said.

Freeport is based in New Orleans.

By Andrea Hotter; Dow Jones Newswires; +44 207 842 9413; andrea.hotter@dowjones.com


The Papuans Say, This Land and Its Ores Are Ours

by JANE PERLEZ, The New York Times (JAKARTA)

5th April 2006

Titus Natkime, 31, the son of a tribal leader who encountered the first Americans to walk into the wilderness of Papua nearly 50 years ago, was clearly upset with his employer the American mining company, Freeport-McMoRan.

For generations, Mr. Natkime's clan has laid claim to much of the land in Papua, the Indonesian province where Freeport mines some of the world's largest copper and gold reserves. Now it was time for a payback, he said.

He brought out a draft document showing Freeport's offer: $250,000 to set up a foundation for the clan, plus $100,000 annually, a sizable amount in Indonesia's most remote and poorest province.

"Why should I accept it?" asked Mr. Natkime, who works in the company's government relations department, though he is hardly an ardent spokesman. "It's an insult." In comparison, he said, Freeport was making tens of millions of dollars every day. In the end, the family accepted the money, he said, but he is planning a lawsuit and demanding royalties.

Such defiance is symptomatic of the growing troubles in Papua, where four people have been killed in recent weeks in protests against Freeport. And it shows that times are changing for multinational companies and governments long used to working out concessions in remote areas with a handshake, over the heads of local people.

In March, Citigroup echoed the theme, saying in a report that such companies could no longer afford to ignore environmental and social issues. "In recent years, a groundswell of public opinion has caused sustainable development to become a serious business consideration for investors," the report said.

Mark Logsdon, an American geochemist who has visited the Freeport mine, agreed. Mining companies must seek and take seriously the "consent of the governed," he said. "Whether in Indonesia, Latin America or Africa, the increase in communications capability means that the essential isolation of 'resource colonies' is largely a thing of the past."

The protests in Papua provide an example of what can happen when a natural resource company, backed by an unpopular central government and a heavy-handed military, fails to pay careful attention to the local people, whose lives have been disturbed and who feel the riches in the ground are theirs, not the foreigners'.

At one time, there was hardly a place more remote than Papua, where Freeport's first explorers encountered Papuans armed with bows and arrows and wearing penis gourds, practices that still exist. Yet, try as the government might to preserve that isolation — for the past two years it has banned foreign journalists from the province, granting only very occasional permits — the extent of the problems is impossible to hide.

In March, long-simmering tensions exploded when Indonesian riot police officers and several hundred Papuan protesters clashed in the provincial capital, Jayapura, leaving three policemen and an air force officer dead.

Freeport's profits are soaring as gold prices have reached 25-year highs of more than $550 an ounce. The company, which is based in New Orleans and is in partnership in the Papua mines with the Rio Tinto group of Australia, is one of Indonesia's biggest taxpayers, and has been for many years.

But Papuans argue that they have never received a fair portion of the estimated $33 billion in direct and indirect benefits the company says it provided to Indonesia from 1992 to 2004.

Repeated efforts to reach the spokesman for Freeport in Indonesia, Siddharta Moersjid, were unsuccessful.

As evidence of the neglect, the Papuans, who are indigenous Melanesians with broad features and curly hair that contrast with the Malay heritage of most Indonesians, point to their relative lack of progress compared to the rest of Indonesia.

In the current ugly mood, the people around the mine give short shrift to the more than $150 million that the company says it has spent on community development.

Instead, they complain that they have lost their most precious assets: their land; their river system, which is used as a waste chute; and their sago plants, which have disappeared under more than 90 square miles of mine waste, accumulating at a rate of some 700,000 tons a day.

Resentment is compounded by the presence of the Indonesian military, an almost entirely non-Papuan force that is often most intent on extracting its own cut of the province's resources, which run not only to gold and copper but also to timber.

"Freeport is being held hostage for its relationship with the armed forces and the police," said Agus Sumule, a professor of agriculture at the University of Cenderawasih, the province's main campus. "There is no way they can do their operations without the armed forces, and that's because of their bad relationship with the local people." The tight grip of the military fuels calls for independence that send shudders through the Indonesian authorities, he said.

The government knows it is in a tough position. The defense minister, Juwono Sudarsono, justified the ban on foreign journalists in February, saying they believed in human rights standards that did not necessarily apply in Papua. "Papua is a very touchy issue for us," he said.

From the start, it has been sensitive for Freeport, too. The Natkimes are a case in point.

Freeport has already paid for Mr. Natkime's travel across the United States, financed his English language training in New Zealand and given him a house in Jakarta. In a further effort to placate his family's claims, it offered him the job in government relations.

But he wants more, not just for him but for all Papuans.

This contrasts sharply with how the company appeased Mr. Natkime's father, Tuarek, in 1967. Balfour Darnell, a self-described roughneck who built Freeport's first base camps, soothed Tuarek Natkime's suspicion of the outsiders with a simple tool that was half hatchet and half hammer.

"Boy, that did it," Mr. Darnell said of Mr. Natkime's evident pleasure, according to the account in the book "Grasberg," by George A. Mealey, a former Freeport executive. "He was in seventh heaven with that thing."

With the promise of a few sacks of salt, the tribal leader said he would clear a landing area for the company helicopter. "So we blasted off and that was the end of that meeting," Mr. Darnell marveled. "We were safe."

Now, in the age of Tuarek Natkime's more educated, more worldly son, it is not clear anymore how safe.


Freeport subdued by government pressure

Thonthowi, Retno, and Ramidi, Jakarta

Source: Tempo Interactive

29th March 2006

PT Freeport Indonesia promises it will fulfill the government's recommendation to repair environmental management in its mining area. This attitude is related to the government's view that the pollution level due to the US company's operation is the same as other blacklisted companies, the worst category for a company's environment management. "We admit that. The government also suggested a way that it might improve," said PT Freeport Indonesia spokesperson, Mindo Pangaribuan, in a message received by Tempo last night.

The Deputy of Environment Pollution Control, Gempur Adnan confirmed that promise. "They will officially issue a statement," he said. The official statement will declare Freeport's willingness to improve within a maximum period of three years.

The audit team from the Environment Ministry which was sent to Timika in February found that one of Freeport's violations is the acid management in the mine's west side of Grassberg, which has not yet fulfilled the basic water quality in the gold mine. Moreover, Freeport has not obtained a waste disposer permit.

The State Minister for the Environment, Rachmat Witoelar, promised to ask Freeport to process the audit team's recommendation. "I will keep an eye on them (Freeport)," he said

Several state officials yesterday inspected the Freeport mine in Tembagapura, Papua. Among them were Minister Rachmat, Home Affairs Minister M. Ma'ruf, Indonesian Military Commander Marshall Djoko Suyanto, Indonesian Police Chief General Sutanto, and Minister of Energy & Mineral Resources Purnomo Yusgiantoro. The group was led by the Coordinating Minister for Politics, Law and Security Affairs Widodo A.S.

After holding a closed meeting with Freeport leaders and local officials, Widodo explained, his visit is aimed at monitoring the entire situation . "This is the government's concern for economic, social, and political upheaval," he said.


Govt rebuked for not suing Freeport

Tb. Arie Rukmantara, Jakarta

The Jakarta Post

28th March 2006

Legal experts have slammed the government for not taking legal action against PT Freeport Indonesia over its alleged violations of the country's environmental laws. The environmental law experts said there was no reason for a delay in legal action, which was mandated in the government's working contract with the U.S.-owned copper and gold mining firm.

State Minister for the Environment Rachmat Witoelar last week said Freeport's Grasberg mine in Papua had violated environmental standards on acid drainage and tailings disposal. The company had also not secured a permit to dump its tailings into local rivers, Rachmat said.

The government has said it would give the company time to comply with the regulations and has threatened to sue if Freeport failed to improve its waste disposal standards by the end of the year.

"The findings of the government's environmental audit clearly show that Freeport has violated our environmental laws. It has also violated the working contract," said Andri Akbar, a senior legal advisor to non-governmental organization GreenLaw.

Activists speculated the government was worried a legal dispute with the firm would stop work at the mine, depriving the state of revenue, and might only be settled through international arbitration. The government and Freeport first signed a working contract in 1967 and extended it in 1991, allowing the company to extract minerals in the province until 2021.

Andri said all working contracts signed by the government and foreign mining companies, including Freeport, contained articles on environmental standards, which firms must abide by. "Should a company violate the country's environmental law, then it has violated its contract," he said.

Article 16 and 26 of the 1991 working contract, a copy of which was obtained by The Jakarta Post, stipulate that Freeport must comply with by the country's environmental regulations and say the government has the right to halt the company's operations if they are found to have harmed the environment.

Andri said under the 1997 Environment Law, the government could slap administrative sanctions on Freeport, revoke its license to operate or file civil or criminal lawsuits against it. "The government can even take Freeport to international arbitration for violating the (working contract) agreement," he said.

If managers of the mine are found criminally liable for environmental misconduct, they could face 15 years' jail and a Rp 750 million (about US$82,000) fine.

An environmental law lecturer at East Java's Airlangga University, Suparto Wijoyo, said the 1997 law required the government to prosecute all violators.

Indro Sugiantoro of the Indonesian Center for Environmental Law said the government's hesitance to sue Freeport proved it had no intention of upholding the law. "Any act to avoid enforcing the law is a crime in itself," he said.

Freeport executives could not be reached for comment. However, in a statement sent to The Jakarta Post last week, the company reiterated it had complied with Indonesian laws and pledged to cooperate with the government to improve the environmental management of the mine.


ICEL, JATAM, and WALHI

Press Release

24th March 2006

FREEPORT MUST CEASE OPERATIONS BECAUSE OF ENVIRONMENTAL CRIMES

Freeport Indonesia's Productivity Assessment Report issued by the Indonesian Ministry of Environment on March 23rd, 2006, stated that Freeport had violated a number of environmental laws, such as not having a license to dump liquid acid produced by mining activities, and not meeting suspended solid in waste guidelines in its disposal into the Ajkwa estuary. The Ministry of Environment has only sent a warning letter asking the company to improve its environmental management system and this is not regarded as enough by several organizations including the Indonesian Center for Environmental Law (ICEL), the Mining Advocacy Network (JATAM), and the Indonesian Forum for the Environment (WALHI). The following three statements were issued by the three organizations:

1. The deployment of the Proper Team to merely observe Freeport's productivity is highly improper as well as manipulative. The government should have sent a necessary audit team in accordance to enforce Law No. 23 / 1997, Article 28 on Environmental Management.

2. The Ministry of Environment's plan to only send a warning letter is but a trivial sanction to the responsible parties. Such a letter is normally sent to warn those guilty of minor environmental destructions/pollution at the early stages. Therefore, it is very strange that such a letter is sent to a large-scale mining operation such as Freeport's whose level of damage has been huge .

3. The environmental pollution/destruction in Freeport's mining location has occurred repeatedly over a long period. There is indication that the environmental monitoring systems are breaking down and the Ministry of Environment has a legal obligation to ensure this does not occur.

4. The Ministry of Environment only focuses on observing and adhering to physical environmental aspects (plant, tailing processing units, sea water quality, etc.) and not on social quality. A team from the Ministry of Environment has reduced its comprehension on the environment and has shoved aside social realities of those living around Freeport's mining area. Because of that, essential problems around the mining area will never be settled.

A landslide that occurred in the early morning of March 23, 2006, in an area 68 miles away from Grasberg mine site, Timika, Papua, killed three people and injured thirty others. This is proof of how unsafe mining operations continue to be. Based on the previous mentioned items, ICEL, JATAM, and WALHI urges:

1. The Government of Indonesia to immediately order Freeport Ltd. to stop its operations because the operation has violated a number of environmental Laws. The closure is needed to stop further environmental destruction, labour and social problems.

2. The Minister of Environment to announced legal infractions by Freeport by not supervising and preventing environmental destruction/pollution as determined in Articles 10 and 22 of Act No. 23/1997, hazardous waste management as stated in Article 3 of Governmental Regulation (PP) No. 18 /1999 on Toxic and Hazardous Materials, as well as not meeting its obligation in environmental monitoring and management reporting as required in the Environmental Impact Assessment Governmental Regulation No.27, Article 32.

3. The Minister of Environment to immediately bring Freeport Ltd. to court and resolve several problems by implementing principles of full and consistent access to information, participation, and justice in an effort to realize environmental justice.

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Note: Productivity Assessment Report of Freeport Indonesia Ltd. issued by the Ministry of Environment on March 23rd, 2006 at: www.menlh.go.id.

Media contacts:
Indro Sugianto, Executive Director, Indonesian Center for Environmental Law (ICEL), cell: 08159434228
Maharani Siti Shopia, Press Manager, ICEL, cell: 08123108853
Siti Maemunah, National Coordinator, Mining Advocacy Network (JATAM), cell: 0811920462
Torry Kuswardono, Mining and Energy Campaign Manager, Indonesian Forum for the Environment (WALHI), cell: 0811383270.


MINING ADVOCACY NETWORK (JATAM)

Press Release

17th March 2006

Stop the Military Intervention at Freeport

The actions demanding the closure of Freeport Indonesia (FI) Ltd. since last February has taken victims. The actions, which were started peacefully by students and Papuan communities in the form of blockades on the road connecting Abepura and Sentani located in front of Cendrawasih University on March 16 2006, ended up in riots and casualties. Military interventions seem to be the government's response to community demands involving mining companies. Communities have been faced with military intimidation instead of support in solving their problems.

Communities from Papua and several other regions have urged the Government of Indonesia to close the Freeport mine. Actions in Abepura were followed by a chain of previous actions in a number of cities both in Papua including Timika and Jayapura as well as in other Indonesian cities including Jakarta, Semarang, Jogjakarta, Makassar, and Solo. The demonstrators demanded the closure of Freeport Indonesia Ltd. for violating human rights, causing environmental destruction, and not providing prosperity to Papuan communities. The last action, the blockade on the road in front of Cendrawasih University, left four military officers dead and dozens of others injured. Fifty seven suspects were arrested as police swept the university area.

Military means have always been used by the Government to curb popular protests against mining companies. Shootings of farmers occupying the PT Indo Muro Kencana's Central Kalimantan gold mine location in mid 1999 and fishermen blockading the Unocal site in 2001 are only two examples. Peaceful demonstrations by farmers and fishermen at Newcrest's North Maluku mine in 2004 also involved shootings.

Government's preferred bias towards Freeport is apparent yet again. The Indonesian President Susilo Bambang Yudhoyono's statement on the evening of March 16, 2006 ordering the Coordinating Minister of Politics and Security (polkam), the Armed Forces Commander, the Chief of Police, and the Chief of the National Intelligence Body to resume securing the Freeport area is additional evidence.

The Mining Advocacy Network (JATAM) expresses its disappointment with the way that the Government continues to handle the Freeport case. Militarization is not the answer to the community's problems. Pockets of money in the form of community development funds is also not the answer. It is time for the Government to listen to the people. Right now it means shutting down the Freeport operations and proceeding with genuine community consultation on what to do next regarding Freeport. By not doing this, the Government will only be prolonging the social conflict and adding to the environmental destruction, which will cause great losses to the country.

JATAM calls for all parties involved to stay calm and avoid all forms of violence. JATAM expresses its deepest condolences to the families of the victims of the demonstrations at Cendrawasih University. JATAM urges the Government not to resort to repressive measures in handling future demonstrations demanding the closure of Freeport.

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Media Contacts:
Adi Widyanto, Tel: 794 1559, Cell: 0815 11655 911

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