Fri, 22 Dec 2000

Newmont Nusa Tenggara enjoys quiet year amid reform euphoria

By Berni K. Moestafa

JAKARTA (JP): Copper and gold mining company PT Newmont Nusa Tenggara (NNT) began its operation at a time when mining companies in Indonesia were badly affected by the unruly reform euphoria.

NNT, however, was among the few mining companies that had enjoyed not only a relatively quiet year, but also better than expected first year results.

Within one year of its opening, NNT has generated in the third quarter of 2000 its first equity net profit of US$700,000 for Newmont's 56.25 percent stake in the project.

Thus far, the company has paid $8.67 million in royalties to the government and another Rp 1.5 trillion ($157.89 million) in taxes and other contracted obligations since its four-year presence in Indonesia.

NNT's early success rests on the company's quick ramp-up process to full production.

Richard B. Ness, president of PT Newmont Pacific Nusantara, which is NNT's parent company in Indonesia, attributed the feat to the quality of its workforce and the plant's construction design.

"We are very satisfied with the start up, people have done an excellent job," Ness told The Jakarta Post in an interview.

In reflection of its rapid progress, NNT estimates its copper production to grow 20 percent and that of gold by 50 percent next year.

NNT's 2000 projected production level is 495 million pounds of copper and 280,000 ounces of gold.

Ness said that the NNT plant was now producing at 96 percent of its production design rate.

"The challenge was getting to know the plant, how it reacts, to know the process," he said of the first stages of operation.

With construction costs of $1.85 billion Batu Hijau is considered to be the largest ever "green field" mining project.

Batu Hijau's deposits contain reserves of 10.5 billion pounds of copper and 11.8 million ounces of gold, and has a mine life span of over 20 years.


The company started its operations in September 1999 amid haunting uncertainties over the country's mining industry.

The downfall of the authoritarian president Soeharto in May 1998 not only gave birth to the reform era, but also to a rapid deterioration in the country's law and order.

As security and legal certainty eroded, foreign mining companies saw themselves confronting locals in various disputes over land compensation claims, taxes, environmental issues and human rights violations.

But Ness said that NNT nurtured a relationship with the local community before Indonesia plunged into its current state of crisis.

"Community relations began long before we started operating," he said.

Among the first interaction with the local community was the search for a workforce for the construction of the mining site.

He said that when NNT started construction in 1997, the country's economy was booming and the company actually feared a shortage of labor.

"But as a result of the crisis, we had thousands of people from Java and other areas coming to us -- job seekers," he said.

NNT gave priority to recruiting local people and even recruited women as truck drivers, Ness added.

During the mining site's construction, the company employed some 14,000 workers. At present, 3,726 workers have found employment at NNT, of which 2,160 come from the province of West Nusa Tenggara.

When NNT opened its plant, the company did not invite President B.J. Habibie for the inauguration ceremony, Ness continued.

Instead, he said, the budget for the plant's opening ceremony was used to invite the local people.

"The company sliced opened a bull and threw a garden party," he explained. "That's our recognition of the changing situation in Indonesia," he added.

But Ness took particular pride in NNT's environmental safety measures.

"We try to contain the impact of the mining site on its environment," he explained.

The company, he said, controlled the quality of the water flowing in and out of the mining site so as to minimize the impact of its mining operation.

NNT constructed a wide ditch that curves along the slopes of the site's surrounding hills and catches rain water flowing down the hills before it enters the site area.

The water is then sent into a nearby river after it flows through a water treatment facility.

The same goes for rain falling onto the mine's sensitive areas, such as the waste rock disposal area. The rain water flow is directed into a water treatment facility before it is released into the river.

"The water is actually cleaner after we release it then it was before," according to Ness.

Community development

NNT's community development program, he said, placed priority on promoting the people's health and education.

"But it takes time to see the benefits of schools and health programs," he said.

Many people mistake the development of basic infrastructure as the measure by which to rate a company's community development program, said Newmont Pacific Nusantara's technical affairs director Edward Pressman.

"Some mining companies say, look at the wonderful roads we have built, we paved the roads. But that's just the starting point; that's the standard package," Pressman said.

Another consideration was that the people's capacity to actually absorb the funds in the community development budget was limited, he added.

"The money that is going to the local community is wasted, it doesn't hit the target," he went on.

Community development is not about how much money is spent but how it is spend," Pressman said.

He said that what counted in a community development program was the community's ability to stand on its own after the mining company was long gone.

While NNT entered production with an apparent harmonious relationship with its local community, sister company PT Newmont Minahasa Raya was under pressure from local residents to close its operations.

Mining gold in the Ratatotok regency in North Sulawesi, Newmont Minahasa Raya barely survived a local court order to close its mine in a tax dispute with the local government early this year.

The company mining operation was later forced to shut down anyway, when locals occupied its mining site several times to demand higher land compensation payments.

Asked what lessons NNT had learned from its sister company's experience, Pressman responded that the communities surrounding the two companies were different.

"The villages at Ratatotok are more unified in how they view our mining operation," he said.

Pressman admitted that the community relations in Sumbawa were actually more difficult because of competitiveness among the villages.

"If you ask one village for their aspirations, the other villages get upset. You don't want to give too much attention to one village," he added.

Bomb explosion

In October, a small bomb explosion at NTT's office in Mataram hinted at a crack in its relationship with the locals.

Speaker of the local legislative council H.L. Srinate had speculated that the bomb explosion was connected to the people's disappointment over what they saw was a small contribution by the company for the promotion of the people's welfare.

But Ness dismissed the bomb explosion as a minor incident.

The bomb, he said, was in fact only a fish bomb, placed between two palings of a fence that enclosed the office's backyard.

Yet the timing of the bombing, coincided with the heightening crisis in the Middle East, which added to the shock, he said.

He was referring to the eruption of renewed confrontations between Palestinians and Israelis soldiers in early September that gave rise to a surge of terrorists threats against American companies.

Ness said that the implementation of regional autonomy next year was a welcome move in helping regions become stronger.

Unfortunately, he said, foreign investors were mostly left in the dark about the details of the autonomy laws and their impact.

"For the most part there is confusion about it (regional autonomy). Sure we like to see much of the benefits going to the local government," he said.

But Ness said he too had yet to understand the ramifications of the regional autonomy.

He also hoped the government would soon replace the current mining law, Law No 11/1967.

"A new mining law would clarify many things that are being contemplated, like the regional autonomy," he said.

Furthermore, he went on, a new mining law would give a solid foundation to attract more mining investment into Indonesia.

NNT is 20 percent owned by PT Pukuafu Indah and 80 percent by the Nusa Tenggara partnership, which itself is 43.75 percent owned by a consortium led by Sumitomo Corp. and 56.25 percent owned by Newmont Indonesia Ltd., a subsidiary of Newmont Mining Corporation.