Cablegate: Sumbawa Mine Showcases World Best Practices

VZCZCXRO6310
PP RUEHCHI RUEHDT RUEHHM
DE RUEHJA #1855/01 1900746
ZNR UUUUU ZZH
P 090746Z JUL 07
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC PRIORITY 5344
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHKO/AMEMBASSY TOKYO 0576
RUEHBY/AMEMBASSY CANBERRA 0878
RUEHBJ/AMEMBASSY BEIJING 4146

UNCLAS SECTION 01 OF 02 JAKARTA 001855

SIPDIS

DEPT FOR EAP/MTS AND EB/ESC/IEC
DEPT PASS OPIC, EXIM, TDA
DOE FOR CUTLER/PI-32 AND GILLESPIE/PI-32
COMMERCE FOR 4430/BERLINGUETTE

SENSITIVE
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E.O. 12958: N/A
TAGS: EMIN CASC EINV PREL ID
SUBJECT: Sumbawa Mine Showcases World Best Practices

1. Summary: (SBU) The PT Newmont Nusa Tenggara (PTNNT) copper and
gold open pit mine at Batu Hijau on the island of Sumbawa is a
showcase for state of the art mining technology, environmental best
practices, and responsible community development policies. During a
June 22 to 24 site visit, the Charge d'Affaires (CDA) had the
opportunity to see a successful business venture that supports local
community employment and provides enormous wealth to the Government
of Indonesia. The mine receives much less attention than Newmont's
other venture in North Sulawesi, but both underscore the firm's
commitment to technological and environmental global best practices.
End summary.

Mine Operations
---------------

2. (SBU) Located on the island of Sumbawa in the south central
portion of the Indonesian archipelago, Batu Hijau is 950 miles east
of Jakarta. PTNNT is a joint venture with Sumitomo Corporation and
local firm PT Pukuafu Indah. Denver-based Newmont is the operator
with an ownership interest of 45%. Construction cost $1.8 billion.
Newmont signed its initial fourth-generation Contract of Work in
1986 and commenced exploration activities that same year. They
discovered the Batu Hijau copper-gold deposit in 1990. The GOI
approved the required environmental impact study in 1996 and the
firm began commercial production in 2000. Under current scenarios,
Director of Operations Leigh Taylor said they will be processing ore
until 2034, though mining will cease many years before that date.

3. (SBU) The project covers an area of 87,540 hectares, according
business planning superintendent Dave Sellers, but only 2,000 to
3,000 hectares of forest will be disturbed for mining. The mine
site itself is 1,476 feet above sea level and nine miles in-land
from the company's purpose built port in Benete Bay. The pit
plunges 3,445 feet into the ground and measures 1.6 miles in
diameter. Electric shovels work 24 hours per day, seven days per
week putting the ore into 240-ton haul trucks, which convey the ore
to be crushed and then onward four miles to the concentrator which
makes use of two grinding mills and five flotation lines. The
flotation lines use physical processes only, not chemicals, to
separate the copper and gold from the rock slurry. The end product
concentrate is then pumped through pipelines to the port at Benete,
where it is filtered and then shipped to smelters in Asia and
Europe. On average they mine 784,000 tons of rock per day. With a
strip ratio of 2 to 1, each day the mine yields 392,000 tons of
commercial-grade ore. Since the mine opened PTNNT has mined a total
of 3.8 billion tons of rock. In 2006 they mined 294 million tons of
rock at a cost of $319 million. In 2006, PTNNT milled 46 million
tons of concentrate at a cost of $144 million. On typical day, they
mill 156,200 tons of ore to obtain 2,300 tons of concentrate,
according to operations superintendent Rachmat Makkasau.

Economic and Community Development
----------------------------------

4. (SBU) PTNNT has approximately 4,320 employees and 2200
contractors, almost 98% of whom are Indonesian and more than 60% of
whom are from West Nusa Tenggara province and local communities.
Batu Hijau's performance in environmental management, safety
management and community development is among the best in Indonesia,
according to external relations manager Kasan Mulyono. He said the
company has injected $324 million into the Indonesian economy over
the life of the mine as follows: $84 million in salaries for
national employees, $135 million in the purchase of domestically
sourced goods and services, $101 million in government taxes and
royalties, and $4 million on community development projects.
Mulyono added that the company has tried particularly hard to steer
goods and services contracts to local communities, generating $5.8
million for them. Finally, Mulyono showed the CDA several of the 14
schools and health clinics PTNNT has built in Sumbawa since
commencing operations. He said the company has also built two large
dams for irrigation and several smaller ones that have revitalized
local agriculture. In addition, Newmont funds an agriculture
extension service that helps local villagers take advantage of best
practices and reap increased crop yields.

Environment
-----------

5. (SBU) One of PTNNT's biggest challenges is the public relations
involved with its management of tailings from the mine. The Newmont

JAKARTA 00001855 002 OF 002

Minahasa pollution trial in North Sulawesi centered on false
accusations of pollution from tailings disposal process. Tailings
are the finely crushed rocks that remain after copper or gold has
been extracted from the ore. They look similar to very fine black
sand. Tests show that the tailings are completely inert. In Batu
Hijau, PTNNT decided that it was not possible to store the tailings
on land due to the island's heavy rainfall, fear of earthquakes,
proximity to populated areas, and a scarcity of land. Due to these
factors and the mine's proximity to an offshore submarine canyon,
the GOI decided that submarine tailings placement offshore was the
preferred disposal method.

6. (SBU) PTNNT disposes daily of hundreds of thousands of tons of
tailings in a system known as submarine tailings placement . The
process involves transporting the tailings through a pipeline
extending 2 miles offshore at a depth of more than 300 feet below
the ocean surface to the edge of the continental shelf. The inert
tailings are deposited into an underwater canyon, where they settle
at depths of 9,840 to 13,100 feet below the ocean surface. PTNNT
also chose the canyon because there no coral reefs there. With its
tailings permit up for renewal in 2005 and in the face of the bad
publicity from the Minahasa case, PTNNT's staff held seminars on its
tailings disposal for news media, NGOs, local, provincial, and
national government officials and neighboring villages and coastal
communities. PTNNT also signed an agreement with the Indonesian
Fishermen Association on coastal community development programs.
Based on their vigorous outreach and education, PTNNT has
encountered virtually no public resistance to their operations.

7. (SBU) PTNNT's Environmental Manager Grant Batterham told us that
their community outreach on the tailings issue focused intensively
on the key differences between PTNNT's copper mining and Minahasa's
gold mining operations. Unlike in gold mining, copper mines like
Batu Hija do not use cyanide. Batterham said that mercury and
arsenic levels offshore in the tailings disposal site are lower than
background levels elsewhere in Indonesia. Since 2004, PTNNT has
also engaged Australian and Indonesian scientists to conduct water
and sediment monitoring studies on its tailings disposal system. He
said the company continues regular testing for trace metal and
cyanide concentrations in the water and sediment at locations in the
vicinity of the mine site. He added that even though mercury and
cyanide are not part of the Batu Hijau metallurgical processes, the
firm continues to test those levels as well. He said PTNNT also does
extensive sampling of fish from the offshore canyon and other local
waters to assure they are healthy.

8. Batterham said that their monitoring study results have
consistently showed that the effects of tailings were confined to
bottom waters and sediments within the offshore canyon as predicted
in the site's environmental management plan. He said also that the
study verified that the tailings have no impact on surface waters,
the coastal environment, coral reefs or inter-tidal areas.
Hume

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