Major Issues in Mining Industries - 2006: A Lesson Learn

Balikpapan, February 28, 2006

On February 2006, I identify two outstanding external issues that might relevant to business environement. Those two issues are as follows:

1. Goodwill Agreement between Government of Indonesia and PT Newmont Minahasa Raya (PT NMR) on sustainable development and scientific monitoring in the post-mine era in North Sulawesi. That was the optimal result of the out-of-court settlement over the civil lawsuit (pollution case) against the company that had previously been filed the Indonesian government as represented by the Indonesian ministry of environment. In fact, PTNMR and the Government of the Republic of Indonesia agreement will not stop the ongoing criminal case that directed to Newmont Minahasa Raya President Director Richard Ness.


2. PT Freeport, the world's largest gold and copper mine, suspended their operation on February 22 – 25, 2006, after “illegal miners” blocked the road leading to the site in Indonesia's remote Papua province .

Remarks: Local people in Papua earn living from what present around operation. They retrieving and selling tiny amounts of gold and copper from waste rock dumped by the mine. Hundreds of families in the area are believed to earn a living by searching for small deposits of gold in waste rock left behind by the mine. Experiences in Papua tells us that security approach to disperse local people was not a good choice.


PT. Newmont Minahasa Raya Case

Issue:
· Civil case: The Environment Ministry had lodged the civil case to PTNMR in 2005, seeking damages of around $133 million. In November, a lower court dismissed the case, but lawyers for the ministry appealed.

· Criminal case: In the criminal trial, Newmont Minahasa Raya President Director Richard Ness, from Minnesota, could face a jail term of up to 10 years and be fined around $68,000 if convicted.

Controversies
· PT Newmont Minahasa Raya dinned of wrong doing.
· A government-commissioned probe and a police study have concluded that the bay was polluted, but several other studies, including one by the World Health Organization and the Indonesian Health Ministry, did not support that charge.

Settlement
· On February 15, 2006, PTNMR and the Government of the Republic of Indonesia signed a scientific monitoring agreement as part of an effort to resolve the long-standing Buyat Bay controversy. The agreement also provides for enhanced community development programs in North Sulawesi.

· PT NMR will also provide a fund of USD30 million that will be spent during the period of 10 years. The company will provide initial funding of $12 million to cover the cost of the monitoring and community development programs. Over a ten-year period, Newmont will contribute an additional $18 million. The funds will be managed by an organization governed by interested stakeholders. Accountability for the fund will be ensured through yearly reports that will be made available to the public. The transparency of the scientific panel's activities will also be assured through annual reports to the public.

Unsettled issues
· PTNMR and the Government of the Republic of Indonesia agreement will not stop the ongoing criminal case.
· Meanwhile Indonesian non-governmental organizations (NGOs) rebuke the agreements between the central government and Newmont over the case of environmental pollution at Buyat bay in North Sulawesi.


PT. Freeport Incident
Chronology of Incident in Freeeport, February, 2006

February 21, 2006
Police and company security guards tried to disperse the miners, who earn their living retrieving and selling tiny amounts of gold and copper from waste rock dumped by the mine. Hundreds of families in the area are believed to earn a living by searching for small deposits of gold in waste rock left behind by the mine.

February 22, 2006
Production at the world's largest gold and copper mine was suspended Wednesday after “illegal miners” blocked the road leading to the site in Indonesia's remote Papua province. Around 400 “illegal miners” set up wood and stone barricades on the road leading to the Grasberg mine in Indonesia's Papua province, which is run by a local unit of New Orleans-based Freeport-McMoRan Copper & Gold Inc.

Note: Copper & Gold Inc., in a telephone interview today. Grasberg produced 660,000 metric tons of copper in 2005, about 4 percent of global output.

February 23, 2006
Students attacked the building housing offices of a U.S. gold mining giant in Indonesia's capital on Thursday, as the company's mine in western Papua province remained shut for a second day due to protests, police said. Up to 20 Papuan students broke windows and damaged facilities in the lobby of the building in the pre-dawn attack, said police chief Gen. Sutanto. Thirteen people were arrested.

February 24, 2006
Talks between protesters blockading the world's largest gold mine and its U.S. owners yielded no visible progress. The government was sending hundreds of troops Friday to safeguard PT Freeport Indonesia as a roadblock continued at the mine site in Papua province, halting its production for a third consecutive day.

"Today, the government has mobilized 300 police personnel and one battalion of (about 700) Army soldiers to secure Freeport," National Police spokesman Brig. Gen. Anton Bachrul Alam said in Jakarta.

The deployment of troops was ordered by Coordinating Minister for Political, Legal and Security Affairs Widodo Adisucipto, Energy and Mineral Resources Minister Purnomo Yusgiantoro said separately.

A solution to the standoff was reached Friday night during a meeting between protest leaders, local tribal figures and Freeport management

February 25, 2006
Hundreds of protesters ended their three-day roadblock at the entrance of PT Freeport's Grasberg mine in Timika, Papua, on Saturday with a traditional outdoor peace ceremony, officials said.

The illegal miners lifted their barricades and abandoned the mine after holding a traditional ceremony in which they burned stones as a sign of peace and read out their demands.

Spokesman Siddharta Moersjid was quoted as saying by Reuters :"We are very pleased to report that the situation at the Grasberg Mine in Papua has been resolved peacefully and our operations resumed at approximately 6 p.m. on Saturday,"

After reaching an agreement with the company, protesters obstructing access to the site left on Saturday after conducting a tribal ceremony, and wanted to benefit from the initiatives and programs established by the company for locals in the vast province of Papua.

The Amungme tribe leader said he had assured Freeport management there would be no more trouble at the mine as long as Freeport pay attenetion to the following matters:

1. Freeport and the government were committed to hearing the protesters' demands.

2. Protesters want to meet directly with Freeport Chief Executive James Moffet to deliver their aspirations.

3. "The company said it would try to meet the demand within a month," he said.

4. Locals wanted Freeport to improve their welfare by offering them more employment opportunities in the mine and promotions for existing employees, Yoseph said.

5. The protesters also urged Freeport to stop using soldiers as its security guards.

6. The locals want the nine Freeport security guards from military backgrounds replaced with civilians.

Note: A recent U.S. report revealed the company has made direct payments to soldiers who guarded the mine, leading to allegations Freeport had acted improperly and was fueling corruption in the military


DISCLAIMER:
This research is only for historical analysis, and information on this research were adopted from several deferent sources. The future analysis on this research is an efforts to foresee possible challenges that may impact the business environment, and there is no guarantee the challenges that described in analysis will happened.