KEREBOK, Volume 3 Number 20 March 2002

KEREBOK, Volume 3 Number 20 March 2002

BHP Pursues Nickel Mining in Gag Island Protected Forest Area

PT Gag Nikel, 75%-owned by Anglo-Australian miner BHP Billiton Ltd., has stopped operating temporarily on Gag Island, Sorong, Papua. The company is waiting for clarification on a legal matter where regulations state that open-pit mining is not allowed in protected areas. However, the company possesses a contract of work to conduct open-pit mining activities in the area. The company has halted operations until they are able to receive a guarantee that they will be able to mine in the area. PT Gag Nikel has already spent two years mining in the area despite the unresolved forestry issues. The Indonesian Forestry Department and the Mining Department are still debating allowing mining to go ahead in this area.

Ingrid Macdonald, the Mining Ombudsman at Community Aid Abroad/Oxfam Australia wrote a letter to PT Gag Nikel on February 1, 2002, requesting clarification of the background of the "temporary termination" of the contract of work at Gag Island.

David A. Higgins, Director Manager of PT Gag Nikel responded to Ms. Mcdonald's letter on March 7, 2002, explaining that during this 'suspension ' phase, "PT Gag Nikel will be decreasing its workforce, retaining only a skeleton care and maintenance crew of Indonesian staff on Gag Island and Sorong. The care and maintenance team will concentrate on maintaining close relationships with the community, the regional and provincial authorities, on securing the physical facilities on Gag Island and continuing its environmental monitoring programs." During the suspension period, the Managing Director of PT Gag Nikel also stated in the letter that "they will also maintain basic services to the community including: the provision of potable water, assistance in transportation of farm produce and to small business development, and most particularly a continuation during the coming academic year of the education assistance program."

The letter from BHP shows that BHP is planning to pursue the PT Gag Nikel project. The company has been pushing the government to reconsider policies dealing with forest status and to change the status and function of the forest area on Gag Island.

"At the time of the signing of the agreement with Falconbridge in June 2000, resolution of the issue seemed imminent and Falconbridge proceeded to establish a project team to go forward with evaluation studies; their commitment to significant expenditure was, however, withheld pending resolution of the forestry issue in a manner that would ensure the company would have secure legal right to mine the resource by open pit methods as contemplated by the Contract of Work," stated Mr. Higgins in the letter to Oxfam.

Higgins also outlined the changes in the overall Government and replacement of individual Ministers as further delaying a resolution of the issue. Since there was no sign that the forestry issues would be resolved shortly, BHP Billiton made its own decisions in October 2001 whether to continue or not. It was decided that they would opt to suspend the Contract of Work. According to Higgins, coincidentally, Falconbridge chose not to be involved in the project any longer and pulled out based on the unresolved forest issues.

The latest information on that PT Gag Nikel has asked 68 employees to voluntarily resign from work. However, thus far none of them have done so. This policy was taken as the company because the company is facing crucial problems with no sign of resolution.

Problems associated with this project involve the status of Gag Island forests that have changed from limited production forest to protected forest area and that has caused Falconbridge to withdraw their $ 75 million investment. There has also been a suspension or delay from the government to give a deadline when these issues will be resolved.

PT. Gag Nikel obtained a Contract of Work in February 1998 and at that time the status of the forest was still production forest. Legally, with this status, open pit mining is allowed. This is the only method of mining that can be used to dig the nickel on this island. At the end of 1999, the government established a new regulation that prohibited open pit mining in all areas in all areas with the status of "Protected Forest." This included Gag Island. Thus, Gag Island could no longer be mined unless the status of the forests were changed back into "Production Forest" again.

Depending on the Department of Forestry

According to Suryatono, Director of Mineral-Coal Engineering and Director General of Geology and Mineral Resources, the integrated team formed to study the status of the Gag Island project has already submitted a report to the Department of Forestry. "Now all we can do is wait for the Department of Forestry," stated Suryatono to Bisnis Indonesia in Jakarta.

Recommendations from this integrated team state that PT. Gag Nikel should be allowed to continue their project on Gag Island. Thus, the Department of Forestry must changed the status of the forests on the island from protected forest to production forest so that open pit mining can be carried out. However, this would not be permissible without written permission from the Department of Forestry.

With Falconbridge leaving this nickel project, BHP's other partner in this project, Indonesian state mining company, PT. Antam (25 % shares) has been looking out possibilities of other interested investors to replace Falconbridge in the project. The Gag Island nickel reserve is estimated at 216 million metric tons with an estimated value of US$800 million with a mining duration period of 100 years.

The Department of Energy and Mineral Resources is discussing the continuance of three other mining projects that have been put on hold due to Act No. 41/1999 concerning Forests. These projects are PT Citra Palu Mineral, PT Weda Bay Mineral, and Nusa Halmahera Mineral.

Source: Cenderawasih Pos, March 27, 2002, All gag Nikel employees are requested to resign, Bisnis Indonesia, March 18, 2002, Gag Project mining depend on Forestry Department, David A. Higgins (Director manager of PT Gag Nikel) letter for Ms. McDonald, March 7, 2002, Gag Island Nickel Project- Termination of the Contract of Work, Dow Jones, April 4, 2002, Indonesia Forestry Min advised to let nickel project proceed.