MAC: Mines and Communities

Indonesian Update

Published by MAC on 2006-04-22

Indonesian Update

22nd April 2006

When Freeport's Senior VP for Safety, Health and Environment Rusdian Lubis says "The studies showed that the Riverine Tailing Disposal or to be precise, Riverine Tailing Placement came out as the best choice." -he surely must be referring to the cheapest choice for Freeport and not for the rivers of Papua affected by the disposal. Meanwhile, the Indonesian president confirms yet again Freeport's power when it comes to regulating the company for its environmental or social impact. Meanwhile, Rio Tinto joins Inco with plans to exploit nickel on the island of Sulawesi. Rio Tinto has not been forthcoming on any details of a potential mine including where they even plan to exploit the nickel, once known as the devil's copper.

Freeport 'committed' to the environment

The Jakarta Post

12th April 2006

PT Freeport Indonesia (Freeport) has again come under fire for allegedly polluting the environment in its Grasberg mine in Papua. The Jakarta Post's Tb. Arie Rukmantara discussed the issue with Freeport's Senior Vice President for Safety, Health and Environment Rusdian Lubis. The following are the excerpts of the interview.

Question: The State Ministry for the Environment has publicly announced that Freeport has not met the government standards on several aspects of its environmental management. What measures will your company take?

Answer: For two weeks, staffed by 24 professionals, the Program for Pollution Control, Evaluation and Rating (Proper) audit team visited our mining operations. In its preliminary finding, the team acknowledged Freeport's effectiveness in environmental management practices in some areas and they also made several suggestions for improvements in other areas.

The State Ministry for the Environment then sent us a letter to follow up the suggested improvements. This is very common in an audit process. There are always things to be improved. We appreciated their suggestions and will work together with the ministry and local government in addressing these issues.
We are now preparing work plans and implementation schedules for approval. We and the government have common objectives, one of which is to continually improve our environmental performance.

The Proper audit also showed that the government staff and Freeport staff could work together and enjoy mutual respect as environmental professionals.

Is there any disagreement about the tailing management issue?

Both Freeport and the government want us to optimize our current environmental management programs so as to reduce our impact on the environment. In their public statement concerning their preliminary findings, the Proper audit team acknowledged that Freeport's disposal of tailings in the ModADA (deposition area) is in accordance with our Amdal (Environmental Impact Analysis).

Has the company found other alternatives to dispose of its tailings other than Riverine Tailing Disposal?

Several alternatives or options, as a matter of fact, have been assessed and analyzed. The studies showed that the Riverine Tailing Disposal or to be precise, Riverine Tailing Placement came out as the best choice.

The current system allows us to further manage and utilize the tailings as valuable resources. In the Amdal process Freeport -- with government approval -- invited experts (national and international) to conduct a series of technical studies. They assessed many options in tailings management and selected the best system for the site conditions.

The experts rejected tailings storage areas since there is no way to build an extremely high dam in a seismically active area with a lot of rainfall. If the dam fails, the environmental impact would be disastrous. They also rejected the use of a pipeline to carry tailings from the mill to the deposition area because of the distance and the difficult terrain. The construction of a pipeline would also significantly disturb the canyon systems.

On top of that, the pipeline could easily be damaged due to landslides, floods, and earthquakes. The Amdal concluded, with the approval of the Indonesian government, that the current system represents the best choice considering the geotechnical, topographic, climatological, seismic and water conditions.

Later, from 1998 to 2002, Freeport conducted a comprehensive Environment Risk Assessment (ERA) to analyze the potential risks associated with the Riverine Tailing Placement on human health, plants and wildlife and aquatic ecology. The risks identified in the reports were in line with the impacts predicted in the 1997 Amdal.

The ERA took four years to complete. It included 96 studies by national and international experts, more than 10,000 samples and more than 200,000 data points. Parametrix Inc. said that it was probably the most comprehensive ERA done in the mining industry in the world.

The ERA process and report was reviewed and feedback provided by a team of 19 independent experts from the government, academia and non-governmental organizations. The documents were submitted to the State Ministry for the Environment and the Energy and Mineral Resources Ministry in December 2002.

The government environmental audit report is made based on the Proper scheme. What motivated Freeport to participate in the scheme this year and why did the company participate in the previous years?

Most importantly, from this year onward Freeport will participate in the Proper audit. Our motivation stems from Freeport's commitment to continual improvement of our environmental performance. In practice, Freeport has always submitted itself to a rigorous program of environmental audits -annual internal audits, annual external audits to maintain our ISO14001 rating, independent external audits every three years and, now the annual Proper audit.

Those audits help us find new ways to improve our environmental programs and hence our environmental performance. Because Proper was conducted by the government, it has the added benefit of increasing communication and mutual respect between Freeport and the government's professional staff.

Do you believe that your company deserves a black or red label, the lowest scores given under the Proper scheme?

As we understand it, these ratings are not issued until late in the year. We believe we have done our best. We have good environmental programs, but we know we are not perfect. Hence, we are open to ideas on how to improve our environmental performance. That's why we participate in so many audits including Proper.

To conclude, we respect the Proper audit program. They have made some good suggestions and now we are working with them to devise corrective actions and how to implement them. Remember that we share and work for a common objective, that is, to continually improve Freeport's environmental performance.

Grasberg will remain open: Indonesian President


18th April 2006

INDONESIAN President Susilo Bambang Yudhoyono said Monday his government would never cave in to demands from protestors to close the massive US-owned Grasberg copper-gold mine in the province of Papua.

His comments came weeks after violent attacks targeting Freeport McMoran's office in Jakarta as well as protests in the Papuan capital of Jayapura that claimed the lives of five Indonesian police and military personnel.

"We will try to solve this (the Freeport) case as well as possible so that nobody is hurt," he said in Jakarta on Monday, according to Associated Press.

Indonesia's department of environment is currently investigating the mine for allegedly polluting a nearby river system due to the large volumes of tailings emitted from the mine's operations.

"But if we unilaterally close down Grasberg, we'll be taken to the antitrust court where we'll certainly lose and we'll have to pay billions of dollars (in legal damages)," Yudhoyono said.

Protestors have previously claimed the $US1 billion ($A1.35 billion) in taxes payed by Freeport to Indonesian Government every year is not being redistributed properly to those living in the area affected by the mine's operation.

Last month, a landslide near the open pit at Grasberg slammed into a service facility for the mine's workers, killing three people.

The Grasberg mine has reserves of around 40.5 billion pounds of copper (and 46.5 million ounces of gold), and has produced 16.6Blb of copper and 22.9Moz of gold since discovery in 1988. The Grasberg open pit has around 10 years of life, with the majority of reserves remaining as an underground resource.

New Orleans-based Freeport recently reported full-year net income of $934.6 million, compared with $156.8 million in 2004.

Freeport's share of 2005 sales totalled 1.46Blb of copper and a record 2.8Moz of gold.

The world's largest miner, Rio Tinto, holds a 40% stake in Grasberg.

Rio Tinto may spend US$1b on Indonesian mine, Purnomo says

Joyo Indonesia News, JAKARTA (Bloomberg)

7th April 2006

Rio Tinto Group, the world's No. 3 mining company, is in talks with the Indonesian government to invest US$1 billion in a nickel mining project as prices rise, Energy and Mineral Resources Minister Purnomo Yusgiantoro said.

The company is studying a laterite deposit containing nickel on Sulawesi Island, Purnomo said in an interview late Thursday night. Rio Tinto and central government officials are in Sulawesi to discuss the plan with regional authorities, he said.

Rio Tinto is considering the venture after nickel prices almost quadrupled since 2001 on demand from Chinese steelmakers.

Indonesia has about 16 percent of the world's nickel in laterite, which is more costly to process than other deposits. A global commodities boom has increased Rio's profit eightfold in five years, and may prompt $9 billion of spending on mines.

"All the big mining companies are going to spend money on new projects as they pay off debt," said Martin Potts, an analyst in London at Teather & Greenwood. Still, the Indonesian project "ismany years away."

Heather Keers, a spokeswoman in London for Rio, couldn't immediately be contacted for comment.

"We are negotiating a contract of work for a nickel mine in Sulawesi," Tom Albanese, chief executive of copper and head of exploration at Rio, said on March 30, without giving details.

Overseas miners have to sign a so-called contract of work to tap resources in Indonesia.

Nickel has soared because of rising demand, fueled by economic expansion in China and sustained consumption in the U.S. and Europe. Metal for delivery in three months gained 1.2 percent to $16,950 a ton Thursday on the London Metal Exchange. That's near a 15-year closing high of $17,100 set Jan. 5,

The metal adds strength and corrosion resistance to stainless steel and is a key component in jet engines, gas turbines and batteries. Inco Ltd., the world's second-largest nickel producer, and BHP Billiton, the biggest mining company, are among other companies expanding output from new projects.

China's economy grew 9.9 percent in 2005, overtaking the UK as the world's fourth largest and fueling demand for raw materials such as nickel. Global nickel demand is growing an average of 4 percent a year, according to analyst Greg Barnes at TD Newcrest Inc.

Rio Tinto's possible investment would be among the biggest in a new mining project in at least five years. Spending on Indonesian exploration dropped to an average of $33 million a year in 2001-2004 from $80 million a year in 1998-2000 and $134 million a year in 1995-1997, according to a survey
by PricewaterhouseCoopers released in January.

Investments in new Indonesian mines were unchanged at $7 million in 2004 at a time when global spending on new projects rose 52 percent to $1.6 billion, according to the survey.

The project "will create employment, economic activity," Yusgiantoro said.

"It will give added value to us."

Nickel prices probably will rise to $6.90 a pound on average this year from $6.68 last year as global demand outpaces production, creating a supply deficit.

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