Mining companies in RI view Newmont as test case

Mining companies in RI view Newmont as test case

James Attwood, Dow Jones/Sydney

Despite a string of terrorist attacks against western interests
in Indonesia, foreign mining operators and prospective investors
in the country are more concerned about legal uncertainties than
security risks, industry participants said on Wednesday.

According to multinational mining companies and analysts, a
criminal trial involving Newmont Mining Corp., the world's
biggest gold producer, is of greater significance to Indonesia's
appeal as a mining destination than terrorism.

In the trial, which reconvenes on Friday, Denver-based Newmont
is charged with dumping mercury and arsenic from its Minahasa
Raya mine into Buyat Bay, on the northern tip of Sulawesi, making
local villagers sick.

Newmont's Indonesia country manager, Richard Ness, faces up to
10 years in jail if found guilty.

"The Newmont case will be a benchmark for current and
potential future investors in the resources sector to gauge what
kind of risk they're facing," said Standard & Poor's principal
sovereign analyst for Indonesia, Agost Benard.

Meanwhile, Muslim fundamentalist terrorism against westerners
in the country is unlikely to find its way to remote mine sites
staffed mainly by locals, said analysts and miners.

"If we assume it's the same terrorists with the same aims,
then I don't think mining interests will be likely targets," said
Benard.

"Although conceivably, mining interests could become targets
for other reasons, such as local interests who for one reason or
another are against projects or try to extract some kind of rent
from the operators."

Australia's largest independent gold producer, Newcrest Mining
Ltd., has firsthand experience of Indonesian social unrest, with
bloody clashes between Christians and Muslims during the
construction of its mine on Halmahera Island, Maluku.

Tensions have eased since then, but according to Tony Palmer,
managing director of Melbourne-based Newcrest, "security remains
the greatest challenge in Indonesia. I get concerned for our
people there... Who knows what could happen?"

The recent terrorist attacks and the Newmont case, however,
don't necessarily make Newcrest any less likely to get involved
in new projects in Indonesia, he said.

"One of the things we've done to mitigate risk is just to stay
as low-profile as possible. If you go to Jakarta, you won't find
a Newcrest office there, and if I go there, I go practically
unannounced," Palmer said.

But S&P's Benard said the Newmont case, if perceived to be
flawed, would have an impact on the country's investment risk.

Newmont's Australian managing director, Paul Dowd, blames
anti-mining NGOs for funding a campaign that sparked the case. He
said scientific evidence shows that tumors, skin rashes and
dizziness among locals are likely the result of poor nutrition
and hygiene rather than any poisoning.

No matter the outcome, Newmont is highly unlikely to vote with
its feet on the issue, given its US$2 billion commitment in the
Batu Hijau mine on Indonesia's Sumbawa Island, analysts said.

However, the world's biggest gold miner may be less inclined
to get involved in new projects in the country, especially if
Ness is found guilty.

"What sort of mining company wants to put their employees at
risk when the evidence is clear that there has been no breach of
environmental laws?" said Haydn Dare, a partner in Freehills, a
legal firm representing Newmont.

Others aren't so convinced Indonesian authorities are acting
capriciously in the case.

"It's unfortunate, but I think there is more to that story
than we're all hearing from Newmont," said Milan Jerkovic, chief
executive of Australia's Straits Resources Ltd., which operates
the Sebuku coal mine in Indonesia.

Jerkovic said terrorism and the Newmont case would have little
impact on Straits' ability to raise funds for its Indonesian
operations but said the company will look to build its asset base
in less risky Australia before pursuing anything else in
Indonesia.

The legal uncertainties spurred by the Newmont case also put
the spotlight on Indonesia's legislative uncertainties for
foreign investors.

Jerkovic and others are looking forward to a long-awaited
mining code, still under review, that would replace the current
work contract system with lease status, thereby offering some
tenure certainty.

The current system means some work contracts require
foreigners to reduce their ownership in projects to below 50
percent after a certain time. Investors also complain of
"nuisance" taxes created by provincial or local authorities.

The new law, while apparently still at an early stage of the
legislative process, is expected to boost the appeal of mining
projects to prospective financial backers and unlock more of the
country's geological wealth.

S&P's Benard said the overall operating environment in
Indonesia still compares unfavorably with that of its neighbors
but is slowly improving.

"Legal issues, tax uncertainties, security risks -- these
things don't change overnight," Benard said.

"Even if you have an administration that is serious about
improving investment conditions -- and the current government is
-- you can't expect fast change."