Another miner going nowhere in
Indonesia By John Helmer
LONDON - According to the local tourist
literature, the clear blue waters off the soft and
sandy beaches of the Lembeh Strait in the Molucca
Sea have some of the best muck diving (exploration
of low-visibility waters) on the planet as home to
the colorful Ambon Scorpionfish, the Orangutan
Crab and the Hairy Octopus.
The area is
also the corporate setting for Australian gold
miner Archipelago Resources’ (AR) big investment
plans to dig the area’s untapped gold deposits
from a camp and mill site just five kilometers
from the sea. While some inhabitants of
Indonesia’s remote North Sulawesi province would
definitely benefit from the multi-million dollar
project’s job creation, many more fear the
proposed mining operations will spoil the area’s
pristine waters and tourism potential - claims
which AR has strenuously denied.
A local
and international protest movement opposed to the
mine
has
put off at least one big foreign bank, which has
withdrawn its lending to the project. For over a
decade, the contentious mining project at Toka
Tindung has run into fierce local opposition. More
recently the provincial governor, Ministry of
Environment and nongovernmental organizations have
joined the chorus against the project. AR
represents the third international miner to try
its luck at extracting the province’s supposedly
rich store of untapped gold resources.
The
project was first developed by Aurora Gold, an
Australian Stock Exchange-listed company that
acquired the original contract of work in 1995. By
mid-1997, Aurora had completed a feasibility study
and was preparing to raise funds for actual gold
production when the 1997-98 Asian financial crisis
hit and financing dried up.
Aurora sold
its interest in Toka Tindung to the well-known
Indonesian Tahija family, long the local partner
of choice for big foreign miners including Newmont
Mining Corp, Newcrest Mining and BHP Billiton. The
influential family later joined forces with
investors based in Perth, Australia, to form
Archipelago Resources. For unclear reasons,
Archipelago fails to identify the Indonesian
stakeholders in its nominee list of principal
shareholders detailed on its website.
Powerful opponent
Who is prominent is North
Sulawesi provincial governor Sinyo Harry
Sarundajang, the leading opponent of the project,
who has done everything in his political power to
foil AR’s designs on environmental protection
grounds. He has vetoed an environmental permit,
known locally as an AMDAL, which AR must obtain
before it may receive a formal mining permit. In a
February 2007 letter sent to the central
government in Jakarta, Sarundajang warned that the
project’s pit, tailings and processing were all
potentially damaging to the local environment.
Toka Tindung isn't the only
foreign-financed mining project in Indonesia to
run into opposition on environmental grounds.
US-based Newmont Mining Corp, the world's
second-largest gold miner, won in court last year
against criminal charges that its mining
activities in Indonesia had polluted the
environment and violated regulatory requirements.
Pressure from a wide range of Indonesian political
forces, including so-called "resource
nationalists", who believe extraction should be
reserved for national rather than foreign
developers, played a key role in that crippling
21-month criminal trial.
It’s not clear
yet that such nationalist forces have aligned
themselves against AR’s plans, but the company
nonetheless finds itself in a regulatory Catch-22
before digging has even been allowed to commence.
Without an official mining permit, it cannot
access bank financing for the project. If the
mine’s promoters are unable to overcome local
resistance and lift the governor’s AMDAL veto,
there is a risk that AR may lose altogether its
Sulawesi-based assets. AR’s total market
capitalization stands at around US$108 million.
Meanwhile AR’s bank syndicate, comprised
of South Africa’s Investec, Germany’s WestLB,
France’s Societe Generale and Australia’s ANZ,
requires that certain conditions be met before
loans may be drawn. A syndicate insider told Asia
Times Online that no new loans would be
forthcoming until the Indonesian government issues
the full permits.
Political pressures are
mounting against the project from outside of
Indonesia at a time Western banks are increasingly
sensitive to the reputation risks of lending to
environmentally controversial projects. WestLB
decided last December not to renew its agreement
with AR after German environmental protection
organization Urgewald led a high-profile campaign
against the project. Certain Indonesia-based
nongovernmental organizations have in their
opposition identified some of the big banks
supporting the project.
Without bank
financing, the only way the West Australia-based
company can move ahead with its investment plans
is through equity-financing. To keep share prices
high enough to keep the funds flowing, AR is
trying to pump up investor sentiment by reporting
that the project is moving ahead - despite local
resistance, bureaucratic opposition and legal
hurdles.
AR chief executive officer Colin
Loosemore recently tried to sell shareholders in
London on the need for the company to launch a new
share issue. An emergency shareholder meeting to
discuss that plan is expected in the coming weeks.
Loosemore has claimed that if the company is able
to raise enough capital through new shares to
construct the mine’s plant, then the Indonesian
government had indicated to him it would authorize
the permits needed to commence mining activities.
Well-spun shareholders
Investment bankers and fund managers
in London have also been led to believe that for
the past 12 months management has successfully
played the central Indonesian government off
against governor Sarundajang and pressed the
latter into lifting his AMDAL veto. On March 17,
AR issued an announcement to the stock market
claiming a breakthrough in the impasse.
The company said that "the Director
General of Mineral, Coal and Geothermal [Purnomo
Yusgiantoro] on behalf of the Minister of Energy
& Mineral Resources, in his capacity as
representative of the Government of Indonesia,
issued decrees approving development of the Toka
Tindung Gold Project". The decrees, the statement
claimed, "accept the operating companies revised
Environmental Management Plans [AMDALs] and
entitlement to re-commence construction activities
under the construction phase of the project".
Opponents say that’s an overly optimistic
- if not wholly inaccurate - reading of what the
government actually agreed to, which stops at the
construction of the plant and fails to grant
approval for actual mining activities. Loosemore
was more explicit in remarks in London, where he
said that the construction go-ahead and the
environmental and mining AMDAL permits are
"inextricably linked". He said the AMDAL will be
approved as soon as construction reaches 75% of
plan and that receiving it is now "automatic".
If so, it represents a sharp turn from
previous government positions. In June 2007,
Environmental Minister Witoelar told reporters
that his ministry would not issue a license to the
project due to opposition from the local
government, parliament and people near the
intended mining site. He was at the time backed by
statements from the central ministries of
fisheries, and of social affairs. In July 2007
Governor Sarundajang publicly declared that he
wanted sustainable and eco-friendly development
for the island and that AR’s plans would mean
waste dumps on land and contamination of inland
and sea water.
Sources at Indonesia’s
environment ministry in Jakarta who requested
anonymity say that its minister, Rachmat Witoelar,
was infuriated by a decision by a mid-level
official at the energy and mineral resources
ministry to issue the construction go-ahead and by
the subsequent upbeat spin Loosemore put on the
development during recent presentations in London.
Indonesian sources say it is legally
impossible for the Ministry of Energy and Mineral
Resources to influence - let alone force - the
environment ministry to issue an AMDAL and that
the latter won’t consider doing so until and
unless North Sulawesi’s governor lifts his veto on
the project. Witoelar and his advisor, Arif
Yuwono, did not respond to Asia Times Online
questions sent by telephone and e-mail.
Other ministry officials who spoke on
condition of anonymity contend that AR's
announcements have put the cart before the horse
in that construction will not be permitted at Toka
Tindung until the AMDAL is issued - and not vice
versa. Witoelar has also made public his refusal
to countenance any support for AR's permits unless
the North Sulawesi governor agrees first.
Investors appear to be taking a doubtful
view of AR's claims of a breakthrough. AR's
London-listed and highly volatile shares have
tumbled about 18% from their 52-week high of 35.25
pounds, touched on March 18, the day after AR
issued its stock market announcement. The shares
are still up 45% from the December 6 low of 20
pounds and at 29 pounds on Wednesday are now
trading in the same range as this time last year.
Environmental
enemies Environmental groups,
meanwhile, are becoming more vocal in their
opposition to the project. Local environmental
group Friends of Lembeh has published reports
accusing the Australian company of threatening
environmental damage and misleading local public
opinion. Open pit mines are known to eat away at
forests, emit heavy exhaust fumes from excavators
and generate noise pollution through dynamite
blasts. There is also the risk that tailings and
cyanide-leeching dams will flow into the
water-table and sea.
As designed, the Toka
Tindung project will be 200 meters above sea
level, and slopes down to the seashore where
locals aim to develop a national resort zone for
tourism. Several developers have started building
resorts and grooming beaches hoping to attract
tourists away from nearby Bali. Other critics
contend that Loosemore’s attempt to go around the
provincial governor and environment ministry, by
dealing instead with the energy and mineral
resources ministry, might trigger legal sanctions.
Indonesia’s 1998 Environment Law allows
for fines, loss of business licenses and possible
imprisonment for violations of AMDAL requirements.
If the new plant construction causes or is
perceived to cause environmental damage, the
governor would have the power, and may have
grounds, to file criminal and civil charges
against AR, its executives, as well as its
Indonesian partner companies, they note.
On March 6, AR issued a statement denying
that its proposed activities at Toka Tindung pose
any environmental risks, claiming the project
"meets World Bank standards [and] does not believe
there is a negative perception of the project
within the local community". AR also claims to
have modified its original mine plan to eliminate
a proposed dumping of tailings at sea - although
this modification has not been acknowledged by
sources contacted at the environment ministry in
Jakarta.
What AR’s alternately upbeat and
defensive statements clearly fail to acknowledge
is that AR’s original bank syndicate has refused
to disburse any new loans until the AMDAL conflict
is resolved. Loosemore has reportedly told
associates that reports of WestLB's withdrawal
from the syndicate are "false" and that the
project financing is being handled by WestLB's
Australian mining arm.
At its Dusseldorf,
Germany, headquarters, WestLB denied those alleged
claims and reaffirmed its December 21 statement
that it had withdrawn from the project by not
renewing its financing agreement with AR. Now the
only viable way for AR to fund its construction
scheme will be through a new share issue - which,
with a declining share price, would appear to be
poorly timed.
If all had gone well, AR
would have started production in 2007 and begun to
reap the gains of spiking global gold prices.
Instead, the once-promising project appears headed
for the same legal and environmental troubles that
have recently bogged down other foreign-invested
mining ventures in Indonesia. Because Archipelago
has been unable to start production in the time
period required by its two contracts of work,
which implement the licenses, cancellation of
contracts and mining rights, its contract is now
under administrative review. AR does not readily
acknowledge the revocation risk in its
presentations and reports.
The company’s
last annual report, from 2006 and issued in June
2007, acknowledged the AMDAL obstacles but noted
that "there is no basis in fact for concerns
raised." Still AR has apparently hedged the
possibility that Toka Tindung may be lost through
a proposal to shareholders to spin off its
non-precious metal assets into a separately listed
vehicle, Archipelago Metals.
Another hint
that AR’s management may try to make a virtue of
necessity and prepare to refocus company assets
elsewhere came in the same annual report in the
suggestion that AR is already gearing up in
Vietnam and the Philippines for alternative gold
projects.
Local newspapers from Sulawesi
have been splashed with photographs and reports of
demonstrations against Toka Tindung - and more
demonstrations are apparently expected. If
governor Sarundajang intervenes to limit the
protests by halting the project’s construction,
Loosemore's divide-and-rule bluff will be called.
And if that happens, AR’s troubles could turn out
to be as unstoppable as the tides rolling in from
the Molucca Sea.
John Helmer,
currently a Moscow-based reporter, was at one time
a member of the Priorities Review Staff in
Canberra which advised the Australian Prime
Minister on economic and political strategy
relating to Indonesia.
(Copyright 2008
Asia Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing .)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road,
Hua Hin, Prachuab Kirikhan, Thailand 77110
