Is It Time to Steer Clear of Indonesia?
By Jon A. Nones
20 Mar 2006 at 05:07 PM EST
St. LOUIS (ResourceInvestor.com) -- After weeks of relentless protests staged against Freeport-McMoRan’s Grasberg mine, it would appear Newmont is the next target. But as most of us know, Newmont is no stranger to trouble in Indonesia. When is it time to say enough is enough in this volatile country?
Barely one month after Newmont Mining [NYSE:NEM] agreed to pay Indonesia $30 million to settle a civil suit over pollution at Buyat Bay, an unidentified group of 50 people today torched a worker camp on the company’s Sumbawa Island property.
According to various press wires, the assailants were demanding unspecified amounts of “compensation” for the exploration activity. Newmont was forced to close the Elang camp and suspend exploration in the area, but work at its massive Batu Hijau copper-gold mine on the island was unaffected.
Fortunately, no one was injured in the attack, which is more than we can say for the ongoing protests aimed at Freeport-McMoRan [NYSE:FCX].
Just last week, three policemen and a soldier in Indonesia's Papua province died in clashes with protesters over Freeport-McMoran’s Grasberg mine. Around 19 other police officers had to be rushed to the hospital due to injuries.
Freeport was forced to suspend operations on March 1 after 500 locals set up barricades on a road leading to the site. The protestors were demanding the right to illegally sift through and sell tiny amounts of gold and copper in the tailings river.
And this followed with protests in Jayapura and Jakarta led by the anti-mining NGO groups, where “scuffles” were and still are frequently erupting.
Richard Adkerson, President and CEO of Freeport-McMoRan, told listeners at the BMO Nesbitt Burns Global Resources Conference earlier this month: “This is just part of the scenery of being in the mining industry today.”
However, even Indonesia's President Susilo Bambang Yudhoyono said he was sending officials to the scene and his ministers would investigate issues raised in controversy over the mine.
There have also been rallies over a deal last week between Indonesia's state-owned oil company and Exxon Mobil Corp. [NYSE:XOM] to jointly operate the country's largest untapped oil field in Cepu, Java Island.
And don’t forget, Newmont executive Richard Ness still faces criminal charges in the country. And the list goes on and on....
Granted, giants like Newmont, Freeport-McMoRan and Exxon Mobil have more resources per say at their disposal to overcome much of this risk. But what of the juniors currently exploring?
Junior Companies
Aside from the big boys mentioned above and nickel giant Inco [NYSE:N; TSX:N], there are a number of junior exploration companies currently braving Indonesia.
Pencari Mining Corporation [TSXv:PMC], formerly Azure Resources Corp., has a 90% interest in the Pani Property, located in North Sulawesi, Indonesia. The property was previously explored by BHP and Utah Mineral International Corp, and has an indicated resource of 431,451 ounces of gold and an inferred resource of 31,814 ounces.
Petromin Resources Ltd [TSXv:PTR] maintains a 70% interest in the Muko Muko gold mining property in the province of Bengkulu in south Sumatra, Indonesia. The land covers over 500 square miles (approximately 151,000 hectares) within the northern portion of the Lebong Gold District, which includes a trend of old mines and mineral properties that stretches for approximately 150 km along the west side of the Great Sumatran Fault.
Twin Mining Corporation [TSX:TWG] has an 85% interest in the Layuh gold-copper property, located in the province of South Kalimantan. According to the company, a number of short trenches have returned encouraging results: one trench showing 15 metres at 2.15 g/t Au and anomalous samples occurring throughout the whole length of the 40 metre trench.
Vista Gold Corp [AMEX:VGZ; TSX:VGZ] acquired the Awak Mas property in May 2005, located in Sulawesi, Indonesia. The deposit contains a measure and indicated resource of 1.65 million ounces of gold, according to company.
Waseco Resources Inc [TSXv:WRI] owns the Tewah Alluvial Gold property in Kalimantan. The deposit contains 750,000 ounce gold resource with an additional 2 million ounces identified by riverbanks. Should financing become available, the company predicts a cash cost of $93/oz with a mine life of 17 years.
The junior companies above all have interests in Indonesia, but not solely. The companies below have all their eggs in one proverbial rickety basket.
Indonesia Only Juniors
Apolo Gold Inc. [OTCBB:APLL] has the development rights to a gold-silver property in Sumatra, Indonesia. According to the company, the mine will be a low cost operation once production is achieved with costs under $100/ounce. The company also boasts excellent relationships with government, the property owner and the local mining community.
Kalimantan Gold Corporation Limited [TSXv:KLG] has four porphyry copper-gold-silver prospects located in Kalimantan, Indonesia: Baroi, Beruang Kanan, Focus 1 and Mansur. The company has 18 years of experience working in Kalimantan and has identified 38 prospects in that time, according to the website.
Pacific Wildcat Resources Corp’s [TSXv:PAW-H] Sulut gold property is located adjacent to the town of Kotabunan on the northeastern tip of the island of Sulawesi in Indonesia. According to the company, Sulut has 1.2 million ounce of gold resource as well as an extensive regional reconnaissance program.
Weda Bay Minerals Inc [TSX:WDA] owns the rights to develop the Halmahera property, located on Halmahera Island in the North Maluku province of Eastern Indonesia. Based on the extensive nickel and cobalt resources identified to date, the company is proposing to develop a mine and processing operation with the capacity to produce up to 60,000 tonnes of nickel and 5,000 tonnes of cobalt annually.
Southern Arc Minerals Inc [TSXv:SA] has a total of seven mineral properties located in Lombok, Sumbawa and Flores Island. The company’s goal is to become “the premier mineral exploration and development company” in Indonesia.
Conclusion
Based on the findings of Newmont and Freeport-McMoRan, we know that Indonesia has ample resources at a very low cost of production. However, the recent attack on the big boys, whether it isolated or specific to each case, still leaves an unsettling feeling in regards to the little guys.
Alex Turkeltaub, Managing Director of Frontier Strategy Group, told Resource Investor that the next five years are going to be very slow years for investment in the country.
With things as they are in the country at present, “any junior that hopes to get a big buy out or investment from a major, won’t get it,” said Turkeltaub.
The Frontier Strategy Group recently gave Indonesia a triple “C” rating in its “Above-Ground Risk Report” - one of the lowest scores.
Turkeltaub said this is because Indonesia has a high level of corruption, community unrest and a government that will do little about it.
However, Indonesia’s willingness for political cooperation with the U.S. is “the light at the end of the tunnel,” said Turkeltaub. He added that 10 years from now we could see a serious turnaround in the country.
But until then, investors proceed with caution.
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