By: Peter Gonnella
Posted: 2002/09/02 Mon 20:47 ZE8 | © Miningweb 1997-2002
PERTH - Indonesia and Papua New Guinea continue to live up to their high risk status after three people were shot dead near the world's largest copper-gold mine in the Indonesian province of Papua (formerly Irian Jaya) at the weekend. Only days after the Porgera gold mine in PNG was disabled for a second time by ongoing vandalism and violence, Freeport-McMoRan Copper & Gold's [NYSE:FCX] massive Grasberg operations became the indirect target of about 15 guerillas who ambushed a convoy of minibuses carrying mainly Americans, including school kids. These latest slayings have again put Indonesia's stability on the line. Earlier this year an independent foreign investment risk study conducted in Australia, which gathered the views of some Aussie-based resources companies as well as global miners with Australasian assets, found that Indonesia and PNG were perceived to be the 18th and 19th worst ranked countries to invest in, respectively, out of a total list of 20 countries, with Zimbabwe at the bottom of the pile. There are some fantastic operations and exciting projects in these three nations, but their sovereign risk profiles have taken a pasting this year - especially that of Zimbabwe - and therefore the recent insurrections have seen the countries' previously not-so-crash-hot standing in the global investment community deteriorate even further.
US-based Freeport announced in the weekend that the fatal shootings happened on a mountain road near the remote Grasberg mining town of Tembagapura in the rugged Indonesian province of Papua, which is located on the western half of the island of New Guinea. On the eastern half is PNG. "Unidentified assailants opened fire on several vehicles transporting international schoolteachers and some members of their families along the road between highlands and lowlands communities," the company said. "Two American teachers and an Indonesian national were killed." An additional eight expats including a school girl and two nationals were injured. The teachers were employees of International School Systems, which provides education services to children of expats working at Grasberg. Though mining and related operations were not interrupted, the murders were a reminder of the susceptibility of the mine and the town, despite both being heavily guarded.
Freeport is about 15 per cent-owned by the third biggest resources group in the world, Rio Tinto, but through a JV between the two companies Rio also has 40 per cent of production resulting from the expansion of Grasberg in 1998.
The Indonesian Government was quick to name those responsible for the bloodshed as the separatist group, Free Papua Movement, which has sporadically waged a campaign of independence (from the capital Jakarta's rule) for many years and has previously attacked Grasberg facilities. The rebel Papuans are also believed to oppose the substantial proportion of revenue outflow to Jakarta and Freeport's environmental management. But a Papuan human rights organisation suggested Indonesian military or police factions might be involved. Given the oppression of the East Timorese, one can't discount that possibility. Freeport was tightlipped about the attack. "Our primary concern is for the safety of our workforce, their families and the well-being of the injured," said chairman and CEO, James Moffett. One couldn't have expected anything else as the company was in the delicate position of having to appease both government and local Papuans, so was hardly going to lash out at either party.
The harsh reality is that without foreign investment and expertise, projects in Indonesia, PNG and Zimbabwe wouldn't be developed. Freeport pours around US$180 million into government coffers a year, with one of the Papuans' sticking points being that only about one-sixth of the royalties and tax take are distributed to the province by the government. In addition to the royalties and tax proceeds, and direct and indirect employment Grasberg provides, Freeport invests a percentage of annual gross revenues in local economic, infrastructure, education and social development initiatives.
Some of the projects stakeholders are hoping to launch in the next couple of years include BP's proposed US$3-4 billion Tangguh liquefied natural gas (LNG) project, also in Papua, while over the border in PNG, Aussie juniors Abelle (once it merges with Aurora Gold) and Highlands Pacific are advancing the promising gold projects in the Central province - where South African-based gold miner Durban Roodepoort Deep has its Tolukuma mine - and Eastern Highlands respectively. This year the Placer Dome-operated Porgera gold mine has been forced to suspend production (see related story), while last year ExxonMobil had to shut down its LNG operations in the Aceh province for a few months as bloody battles raged between Indonesian authorities and independence fighters. Lest we forget Rio's Bougainville nightmare.
Freeport forecasts operating cash flow of US$500 million and sales of 1.5 billion pounds of copper and 2.2 million ounces of gold in calendar 2002 from Grasberg, making it the second-largest copper producer and one of the biggest gold producers in the world. It hosts probably one of the biggest gold resources as well, a sometimes overlooked fact in gold equities markets.
Indonesian security troops were understood to have already killed one of the perpetrators of the school bus massacre - in itself a little unsettling.
A Freeport spokesperson said the company wasn't planning on evacuating expats.