Page 1 of 2 AN ATol INVESTIGATION 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
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.
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
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
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
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