JAKARTA, Indonesia—Indonesia threatened to terminate the operating contract of Newmont Mining Corp. after the U.S. gold-producing giant failed to meet a Monday deadline to divest a 10 percent stake in one of its subsidiaries.
The two sides said separately they would bring the case before the Austria-based U.N. Commission on International Trade Law.
Newmont, which has mined gold and copper from Indonesia’s vast and resource-rich archipelago for around two decades, only last year won a bitter legal battle against pollution charges that could have landed one of its top executives in prison.
Foreign investors hailed that verdict as sign of a progress in a country long plagued by corruption, red-tape and legal uncertainties—but Monday’s development raised fresh concerns.
“We had a very simple request, that (Newmont) divest the stake, but it has repeatedly failed to do so,” Energy and Mineral Resources Minister Yusgiantoro Purnomo told reporters following several rounds of talks.
“We see arbitration as a means of maintaining a good investment climate, in which all parties respect the conditions of the contract.”
Purnomo said operations at Batu Hijau, a sprawling open-pit mine in Indonesia, would be allowed to continue until the completion of the arbitration, a process that could take years.
The Denver-based company’s subsidiary PT Newmont Nusa Tenggara began commercial operations at the Sumbawa Island mine in 2000, a decade after copper and gold was discovered there. Together with its joint-venture partners—Japan’s Sumitomo Corp. and Indonesia’s PT Pukuafu Indah—it has invested more than $1.9 billion.
Newmont insisted Monday it had not defaulted on its divestment obligations and said the government had no right to terminate its contract. It, too, would “file arbitration to ensure that all rights are preserved,” Newmont said in a statement.
“We have worked diligently and in good faith to complete the sale of PTNNT’s shares to Indonesian participants,” Newmont’s President and Chief Executive Officer Richard O’Brien said in a statement.
“We continue to do so even though arbitration notices have been filed,” he said. “We remain committed to resolving this issue in a fair and transparent manner.”
Under the terms of Newmont’s 1986 contract negotiated with the cronies of former dictator Suharto, the company and any foreign partners are required to sell 51 percent of the mine to Indonesian parties by 2010.
Newmont said Monday relevant shareholders reached an agreement with a local government in late January to sell a 2 percent stake of the subsidiary, and that efforts to divest the additional 8 percent from 2006 and 2007 were ongoing.
But the company expressed concern about the integrity of the process after The Financial Times reported Friday that a nongovernment business enterprise was trying to acquire shares through the local government’s right of first refusal.
“Given the secret deal between Bumi Resources and the local governments, arbitration seems to be the only way to return confidence, fairness and transparency to the divestiture process,” Newmont spokesman Omar Jabara said.
Blake Rhodes, Newmont’s chief counsel and a company vice president, said that by entering arbitration, the Indonesian government is honoring an agreement that the contract cannot be terminated without a decision by the Commission on International Trade Law.
“The one positive aspect of this is that the government has recognized those rights in its arbitration notice, and we expect now that there will be no further talk of unilateral termination of the contract of work,” Rhodes said.
Rhodes said Newmont expects the commission to rule the company is not in default and to preserve the contract.
The dispute Monday was the latest in series to plague Newmont’s operations in Indonesia.
Last April, an Indonesian court acquitted Newmont and regional director Richard Ness of dumping dangerous amounts of toxic waste from the Mesel Gold Mine into a bay near the village of Buyat on Sulawesi island—a criminal charge with a maximum penalty of 10 years imprisonment. The Mesel mine ceased operations in August 2004 due to ore depletion.
Months later, the U.S. mining giant also won a civil case filed by environmental groups alleging pollution.
Newmont’s earnings are not published, but the company Web site says it annually pays hundreds of millions of dollars (euros) to the Indonesian government in taxes and royalties. It employs several thousand workers.
The Batu Hijau mine is about 950 miles (1,528 kilometers) east of Jakarta.
Newmont has a 45 percent stake in PT Newmont Nusa Tenggara, which owns the mine. A local unit of Sumitomo Corp. has a 35 percent stake and PT Pukuafu Indah the remaining 20 percent. ———
Associated Press Writer George Merritt in Denver and Dow Jones Newswires writers Fawziah Selamat and Edhi Pranasidhi contributed to this report.
