Developing a world class nickel and cobalt resource in Indonesia

By Malcolm G. Baillie
Pt Weda Bay Nickel president and director

PT Weda Bay Nickel holds a Contract of Work, covering an area of 55,000 hectares on the island of Halmahera in Eastern Indonesia, some 3000 km from Jakarta, about 600 km South of the Philippines and 1200 km North of Darwin.

The Contract of Work contains extensive occurrences of ultramafic rock, which is the source of the nickel/cobalt laterite discovered by the company.

Exploration to date has identified a global resource of over 340 million tonnes grading 1.36% Ni and 0.11% Co at a cutoff of 1% Ni or 0.1% Co. However, much of the prospective area has not yet been drilled and it is expected that the ultimate resource size will exceed 500 million tonnes. This will rank the Weda Bay resource as one of the largest of its type in the world.

Exploration, metallurgical testwork and preliminary economic studies have been in progress for over eight years. During this time, the project has faced its share of challenges. These included technical issues, such as the selection of appropriate drilling and assaying methods, the development of an innovative process flowsheet which enables the treatment of both the limonitic and saprolitic components of the orebody and the logistical challenges associated with such a remote site.

However, by far the most challenging issues are those related to the political, environmental and social aspects.

During the past eight years, Indonesia has undergone a sequence of dramatic political changes - from Soeharto autocracy, through Habibie's academia and Megawati's reign to the fledgling democracy of today. All have had their impact on how the Government works and the role of Parliament. In the Soeharto period, government was largely an extension of the President's own authority and Parliament was a rubber stamp. This has since changed, with Parliament now asserting its role as a law-maker and actively overviewing Government. Furthermore, regional governments have been given more authority and it is now necessary to seek additional approvals at these levels. These changes in themselves represented and continue to represent a challenge to investors attempting to align their activities with the emerging and sometimes conflicting aspirations of the respective authorities. The level of administrative red tape has also touched new heights. It is impossible to cover all the challenges which have been faced by the Indonesian mining industry in the past 8 years. A selected few of them are related below with specific reference to the Weda Bay project.

The enactment of Law No. 41 on Forestry in 1999.

During the Habibie presidency, a large number of new laws were rushed through Parliament. Law No. 41 on Forestry imposed a ban on open pit mining in forest areas categorized as Protection Forest . Although Protection Forest was classified as such for the purpose of watershed control, some anti-mining NGO's represented it as having unique biodiversity and sought the same level of preservation as applies to a National Park. As most of the ground which is prospective for mineral discovery lies within such forest areas and the majority of new mines will involve open pits, this law significantly reduced Indonesia 's potential to develop its mineral resources.

Of particular consequence to Weda Bay was the failure of legislators to include a grandfathering clause. Hence, despite the high legal status of the Contract of Work, the conflict with this law effectively put a halt to exploration and development activities.

On the positive side, once the impact of this law had been recognized, Government took action and worked closely with industry to resolve the problem so that existing Contracts of Work would be honoured. However, it took over three years of effort before President Megawati issued a Decree in lieu of law (later ratified by Parliament), amending Law No. 41 on Forestry and allowing companies holding Contracts of Work prior to 1999 to proceed.

Conditions were laid down under which these companies could proceed but, to date, only 13 of a potential 150 have met these conditions. Weda Bay is one of these, but development of the project was set back by around two years as the result of the ill-considered law.

Future mining developments are still inhibited by this law and it is hard to see how the Indonesian mining industry can grow to its full potential while its restrictions are in place.

Regional Autonomy Laws (1999)

As with the 1999 law on Forestry, the Regional Autonomy laws were drafted in haste during the Habibie era. In principle, they represent a commendable move as regional authorities have a better understanding of the aspirations of the local people and have a direct interest in investment in their region. Unfortunately, the laws were not specific regarding the nature and extent of the delegation of authority from Central to Regional Governments. This has encouraged different interpretations as to what authority they hold, resulting in conflict between the various levels of Government and with the Contract of Work holders. For a developing project, such as Weda Bay , this means a further set of negotiations to clarify their respective roles and, more importantly, to agree on how the various benefits from the operation should be shared.

Environmental Issues

With every passing year, there is greater recognition by society in general of the importance of social and environmental issues. There is a natural focus on the performance of mining companies because mining projects are usually located in remote areas where neither the environment nor the local people have been exposed to prior development. The vast majority of Halmahera , including the Weda Bay area, falls into this category. In principle, procedures leading to approval on environmental grounds are the same worldwide, but mining companies are often in a position to make a more positive contribution.

The interior of Halmahera is forested and is home to a wide variety of birdlife, much of it unique to the island. This presented the company with an opportunity to cooperate with Birdlife International, which has been working to establish a National Park adjacent the Weda Bay Contract of Work, for over 8 years. The first step in the declaration of the park occurred last year but long term maintenance of the park's sanctity is a more difficult proposition, given the pressure of human habitation.

Weda Bay has undertaken to participate in a management scheme for the National Park and to assist with the provision of relevant support facilities. It will also manage its mining operation to ensure that the Contract of Work can act as a buffer zone for the park. These undertakings are additional to obligations which will be imposed by the Government-approved EIS.

Social Issues

The population of Halmahera is low, with almost all inhabitants living in the coastal region. There are no people living within the areas to be mined, because of the distance from the coast and because of the very poor laterite soil. Along the coast, there are three villages within or adjacent the Contract of Work, separated by about 10 km of essentially unoccupied land. The proposed plant site is equidistant between two of these villages with populations of 1500 and 500 people. This is ideal as no relocation is required. However, when considering the impact of a construction work force of 3000 and an ultimate operating workforce of over 1000, the potential impact is a matter for concern. Consultation with local government and village representatives has resulted in a conceptual plan to address and minimize the impact.

During construction, it is proposed that the entire workforce will be imported and housed within an enclosed compound. Movement outside the compound by this work force will be restricted and enforced. In parallel, a major training program for locally sourced future operating employees will take place. Surveys in the local villages have established a literacy rate in excess of 95% together with a good level of manual skills. Given that construction will occupy 30 months, it will be possible to significantly develop these local skills.

After construction, all contract employees will leave. They will not be offered employment in the operation. It is anticipated that at least 50% of the 1000 operating employees can be sourced locally. The balance will be employed on a fly-in fly-out basis and housed in a hotel-like complex distant from the two nearest villages. It is not proposed to establish a company township but improvements to village facilities, particularly in the areas of health, education and services are a key element of planning.

The Weda Bay project will be the first new major mining project in Indonesia since Newmont's Batu Hijau project in 1996. The new era presents both challenges and opportunities and the Weda Bay management is committed to make the project a model for future mining operations in Indonesia in terms of its technological excellence, its environmental sensitivity and social responsibility.