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    Southeast Asia
     Dec 19, 2008
Page 1 of 2
Fools' gold in Indonesia
By Melody Kemp

NUSA TENGGARA, Indonesia - In eastern Indonesia's litter of islands, the remote Lembata seems an unlikely site to for a public battle over mining, replete with paid assassins, black magic rituals and allegations of official bribery.

The bizarre confrontation is emblematic of Indonesia's ongoing mismatch between the desire to attract foreign investment, national regulations and the rights of people seemingly sentenced to environmental degradation in the name of economic 

development. It also indicates the enduring provincial influence of former president Suharto's close allies, despite the enactment of various decentralization reforms since his downfall in 1998.

When weighing the bullish claims against the independent geological evidence being made about Lembata's gold mining potential, there is reasonable cause to suspect that Indonesia's well-connected and colorful mining magnate, Jusuf Merukh, is bidding to attract foreign investment based on tenuous claims.

Critics and officials say his recent assertions that there are major gold deposits in the area are akin to those made during the 1997 Bre-X scandal, where a gold mine in Kalimantan in which Merukh had a stake was touted as potentially the world's largest, but after luring foreign investment from US mining giant Freeport McMoran, which was coaxed into taking an 85% stake in the venture, it came up dry.

The 70 million ounces reportedly found by geologists at the time is the same figure Merukh is now telling local journalists could be found in Lembata. Merukh's wholly owned companies, PT Pukuafu Indah and PT Merukh Copper, aim to mine lodes of gold from Lembata's rocks and sand in Indonesia's poor and dry eastern region. But the mining magnate's intention to start construction of processing plants in 2009 has raised a mounting outcry on the island.

In 2007, more than 400 people demonstrated against the mining project outside the area's provincial offices. Regular protests have also been staged this year and more are planned for 2009. "The bupati [or regent, the senior sub-provincial local government official] refused to meet with us. He doesn't want to hear our voices, but we will die before we allow Merukh to mine our island," said Hendrikus Hala, an elderly but still spry farmer.

"We have built a camp on the mountain and someone is there all the time with a mobile phone. If they come we will stop them. No one gets in without our agreement," Ahmad Nuturamun, a farmer from the area said, an overly large black Stetson shading his eyes.

Merukh has so far remained undaunted by the local resistance. In November, he reportedly sent a letter to the local regent and the head of the local Legislative Council requesting that 75,300 hectares be set aside for mines in a joint venture partnership between himself and 10 Chinese mining groups led by state-owned Yunnan Copper Group Ltd. A memorandum of understanding for the deal is scheduled to be signed with China's ambassador to Indonesia.

Yunnan Copper is at present embroiled in a major corruption scandal, whereby the company's former chief executive officer, Zou Shaolu, and two of his aides were arrested by the Yunnan Communist Party's disciplinary agency and will soon face a public trial for allegedly accepting 35 million yuan (US$5 million) in bribes related to various dealings. There is no evidence that any of these allegations relate to the Lembata deal, but the scandal has raised questions about the Chinese company's viability.

If Merukh presses ahead and the local government refuses to acknowledge the protesters' demands, some fear the situation could escalate towards violence. Villages are already invoking their deceased ancestors to protect them from the mine, reviving traditional rituals and ceremonies - where chickens' throats have been cut and old weapons stripped of rust - not performed for years. Island communities are seemingly unified in their opposition, even if they are not directly threatened. "We cannot eat gold," many villagers said in Lembata.

The local government, meanwhile, is doggedly in favor of the mine. Lembata is a parched island, and like many of its neighbors has little opportunity for more than subsistence livelihoods. Its major sources of income are copra, candle nut, cashews, seaweed and clams. So the promise of a windfall from mining has been hard for local officials to resist. Strangely, though, the local government has dismissed alternative development plans put forward by the communities, which include tourism and agricultural projects.

Indonesia is top heavy with a burdensome bureaucracy: each district replicates all national departments. Many are starved of operational funds, so a large mine offers hope of much-needed income. However, that impulse is checked by national regulations related to environmental protection and community consultation, which must be enacted before any mining activity goes ahead.

Golden claims
While Merukh insists that below Lembata's stony soil lies "the third-largest source of gold after Chile and Russia", those claims are not borne out by independent geological reports, which claim that, while significant, the lodes are mostly uneconomic.

Indonesian Department of Energy and Mineral Resources geologist Rudi Gunradi reported in 2007 that there were gold deposits around Balauring on the northwest coast, which he described as thin-soiled, fragile and unsuitable for agriculture. But he recommended that the deposits would be of benefit only to small-scale outfits, not the major operation promoted by Merukh.

Gundari's reports build on corporate history. At Merukh's proposed site, an Australian subsidiary of PT Nusa Lontar dug up to 350 200-meter bores and another 15 500-meter bores with results revealing a mere 2 grams per ton, a far cry from Merukh's more glowing reports for the same area. The results were poor enough to convince the foreign company to let its lease go as the global prices for minerals did not warrant the investment.

Another Australian mining company followed up on some initially promising findings in 1997, but later reported that the traces of copper and gold were insignificant and like the many other outfits that preceded it left the site. A senior spokesman for Newmont Mining Corporation, the world's largest gold producer, said categorically that Newmont would not be drawn into working in Lembata, despite having been in partnership with Merukh in the troubled but successful Batu Hijau mine on the eastern island of Sumbawa.

Merukh could not be reached for this article. In an interview with The South China Morning Post in 2007, Merukh reported that "most of the workers and middle managers [in Batu Hijau] were hired from the local community. Now they drive Mercedes, not horse carts ... and when I visit they say 'Our king is coming'."

That did not stop the Sumbawa mine from closing down when simmering community unrest over environmental destruction, unmet compensation demands and social issues eventually erupted, with local people burning down areas of the mining camp

It's still unclear if the Lembata project has substantial foreign backing. Critics note that all of the companies Merukh lists as potential partners are banks or processors rather than operational mining companies, except for Yunnan Copper. Chinese miners have in recent years earned a bad reputation in Indonesia due to their lack of due diligence over environmental matters.

Indonesia's Investor Daily magazine reported in August that Merukh claimed to have the support from German processing giants Kupferprodudke, Nordeusche Affinerie, IKB Deutsche Industriebank along with Asian companies Agape Mining Singapore, which supplies tools and drilling equipment, and Asian Mining Management in Hong Kong. Other foreign companies associated with Merukh Copper or PT Putuafu in the past are Germany's ThyssenKrupp Fordertechnik, Kupfer Produkte and Poland's KGHM Polska Miedz.

Nordeutsche Affinerie subsequently said in an interview that it had terminated its relationship with Merukh over a year ago. Deutsche Industriebank failed to respond to requests to confirm or deny willingness to invest with Merukh. The German bank is not a signatory to the so-called Equator Principle, and thus not bound by strictures that limit funding for environmentally and socially sensitive projects.

Former environment minister Sonny Keraf is from Lambata and was born in Lamalera, one of the world's few surviving traditional whaling villagers and a source of potential tourist income. "Lembata is a small island. A mine would not only cause a lot of damage to the environment, but to the lives of the people. Mining as it is practiced in Indonesia has no benefit for the people. It's all bad," he said.

Asked whether environmental impact studies (AMDAL), which are required by national regulations, had been carried out in Lembata, he said: "No. I have sent many requests to the current minister to

Continued 1 2

Another miner going nowhere in Indonesia
Apr 4, 2008

The pitfalls of Indonesian coal
Apr 14, 2007

Freeport in Indonesia: Filling in the holes
Feb 22, 2006


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