Rio Tinto in new Sulawesi nickel project

Down to Earth No. 70, August 2006

A dramatic rise in the price of nickel is prompting the development of a major new nickel mine in Sulawesi. What will be the impacts for local people and their environment?

The Indonesian government and Anglo-Australian mining multinational Rio Tinto are negotiating the terms of a contract to develop the La Sampala nickel deposit on the borders of Southeast and Central Sulawesi. Spokesman for Rio Tinto in Indonesia, Anang R Noor, said the company plans to invest US$1 billion in the project. Exploration is due to continue and a feasibility study to be carried out once the contract is signed.

With this new investment, the company is expected to produce 46,000 tonnes of nickel (over 101 million pounds) and employ around 5,000 workers, according to Rio Tinto's chief executive for copper and exploration, Tom Albanese.

La Sampala, according to the Indonesian news agency Antara, contains two laterite nickel deposits covering more than 60 square kilometres.

Indonesia's president Susilo Bambang Yudohoyono has endorsed the project, saying it would create employment, economic activity and would give Indonesia 'added value' - a reference to the fact that the project may help attract other investors into the country.

Rio Tinto stands to make large profits from this venture: nickel prices have quadrupled since 2001 largely due to demand from Chinese steelmakers. The company's own profits have increase eightfold in five years.

The contract, which is expected to be awarded in September this year, will require Rio Tinto not to sell the mine before the production stage has been reached, according to Mangantar S Marpaung, an official at the Ministry of Energy and Mineral Resources. He said the government's royalty would be 3% of sales. However, an official at Indonesia's Investment Coordinating Board, Muhammad Lufti, said Jakarta was promising tax breaks and 'smooth sailing' through the bureaucracy to encourage Rio Tinto to invest. In June, after meeting Rio Tinto executives, he said the deal was 80% complete and his office was working on sweeteners in the form of tax incentives.

The La Sampala deposit was identified by Rio Tinto as a project with 'development potential' as early as 2000. The company was issued with a licence for survey preparations in Southeast Sulawesi the year before (see DTE 43). In its 2002 Annual Review, Rio Tinto reported that La Sampala's potential nickel laterite resources amounted to more than 370 million tonnes of material containing 1.3 per cent nickel and 0.1 per cent cobalt. An 'order of magnitude' survey, to assess how much nickel can be produced, was completed in 2005.

Poor record
What can communities living around the La Sampala concession expect from this development? The company's poor record on environment and human rights in Indonesia and globally offers a bleak prospect.

Rio Tinto is well known in Indonesia for its involvement in the West Papuan gold and copper mine operated by Freeport - a project associated with decades of serious social and environmental impacts, plus human rights atrocities committed by military guards (see DTE 69 for recent reports). The company also runs the Kelian gold mine in East Kalimantan, now in the closure process. This is another project which has been associated with forced relocation of local people, human rights abuses and pollution. The company was joint partner with BP in the giant Kaltim Prima coal mine, East Kalimantan, before this was sold off to Indonesian interests. Kaltim Prima was associated with environmental degradation and labour disputes. A Central Sulawesi gold mining concession held by Rio Tinto (Poboya), for which the company denies any immediate plans, has met with stiff resistance from local people (see DTE 57 and DTE 56 for background.)

Existing nickel mining operations in Sulawesi hardly offer any more encouragement: Decades of mining at PT Inco Indonesia's Soroako mine in South Sulawesi have brought hardship to local people through land loss, inadequate or non-existent compensation, pollution and environmental damage. Additional exploration in parts of neighbouring Central Sulawesi threatens to disadvantage local communities there. (See DTE 67 for more background.)

Weda Bay nickel project sold to French company

A French mining firm, Eranet SA has said it will invest US$1.5 billion in a nickel and cobalt mining project on Halmahera Island, North Maluku. Eranet took over Canadian company Weda Bay Minerals in May this year. NGOs have protested against the company's plans to dump waste from the project into the sea - the much-condemned method used by Newmont in its North Sulawesi and Sumbawa Island gold and copper operations.

BHP-Billiton's Gag Island nickel development on hold

A huge nickel mining project on Gag Island, off West Papua is still on hold. Australian-UK multinational BHP-Billiton Gag Island told the Sydney Morning Herald in April "We continue to consult with the local community, local government and our Indonesian partner as these studies progress…As we have said previously, we will not use deep sea tailing placement and we will not proceed with any development on Gag Island if it is gazetted as a world heritage area." (SMH 1/Apr/06).

Both the Gag Island and Weda Bay nickel projects were effectively excluded from mining in protected forests, according to an Indonesian Constitutional Court decision last year (see DTE 66).

(Sources: Jakarta Post 20/Jun/06; Reuters 20/June/06; Bloomberg via Joyo Indonesia News 7/Apr/06; AFX News Ltd 20/Jun/06; Antara 5/Jul/06; Rio Tinto Annual Reports

Note: the Indonesian version of Rio Tinto's statement of business practice, The Way We Work (Cara Kita Bekerja) is on the company's website