EXCLUSIVE: Gag Island Nickel project hampered by forestry law

Australian firm BHP Ltd said the forestry law, which forbids open pit mining in protected forests, had hampered its plan to develop its nickel project on Gag Island in Irian Jaya,

BHP Indonesia' s president director Andrew Wilson told Petromindo.Com in an interview on Monday that the Forestry Law No. 41/1999 was preventing development of the nickel resource on the island as the ministry of forestry and plantation had declared the island's forest as "protected".

However, Wilson was optimistic that the legal obstacles would finally be resolved and the company would finally be allowed to develop the nickel project, citing the fact that Nickel mining had already occurred on Gag Island under a prior joint venture between Antam and Queensland Nickel, before BHP joined the project.

However, Wilson was confident that the issue could eventually be resolved.

"The project is healthy, the environmental work is going on, all the parties are quite confident, and have a very good relationship with Aneka Tambang and Falconbridge," said Wilson.

"We are also confident that things are going to be in the right direction. The joint task force headed by Rizal Ramli that will report its findings in 3 month. And we also have regional autonomy (to be implemented soon). I see all that as good news. Even though it may take a while before that good news lead to positive outcome," said Wilson.

He referred to the joint task force formed by coordinating minister of economy on September 18, with the task of studying the possibility to develop open pit mining in protected forest despite the Forestry Law no 41/1999. The joint task force which comprises governmental officials of various ministries including Forestry and Plantation, Finance and the executive director of the Indonesian Mining Association (IMA) was given three months to complete their study.

Wilson said BHP had spent approximately US$ 50 million over the last four years on the project and it estimated that there were 240 million tons of high-grade nickel and cobalt resources there.

The government awarded the contract of work on the island to PT Gag Nikel, a joint venture company of BHP in partnership with state mining company PT Aneka Tambang (Antam) in February 1998, but Wilson said both partners had been co-operating since 1996. The contract of work is the basis of Gag Nikel right to mine on Gag Island, he said.

Separately, Antam ' s corporate secretary Dohar Siregar acknowledged that the forestry law had hampered the development of the Gag Island nickel project.

But, aside from the protected forest issue, Antam and BHP were struggling to settle disagreement over share ownership.

Dohar said BHP now holds a 75 percent stake in the project with the remaining 25 percent owned by Antam.

However, Dohar said, in July, 2000, BHP had reached an agreement with Falconbridge of Canada allowing the latter to inject US$75 million to finance the project ' s bankable feasibility study in exchange for BHP ' s 37.5 percent shares in the project.

Falconbridge was invited to participate in the project because of well-known experience in developing nickel projects, said Dohar.

The problem is that under the joint venture agreement with BHP, Antam has the option to obtain another 15 percent shares in the project after 13 years of operation.

It remains unclear whose shares would be sold to Antam when the state company intended to exercise the option, Dohar said.

"The matter is still under negotiation, " Dohar said.

Industry sources said Falconbridge insisted that Antam should hold only 25 percent shares in the project and will not exercise its 15 percent share option.

Dohar said Falconbridge also voiced concerns over the forestry law, which bans open-pit mining in protected forests.

Unless the shareholding and protected forest issues were resolved, Falconbridge would not disburse its $75 million investment, according to Dohar.

Wilson said Falconbridge had given deadline for the resolution of both problems but he refused to specify the deadline.

Dohar said assuming everything went as planned, the commercial operation of the nickel mine should start in 2005 with the annual output of 60,000 tons of nickel per annum, which would account for approximately 5% of world ' s nickel output.

He also said the total investment needed for the project would be somewhere around US$ 1 billion.

Dohar said as far as Antam was concerned, the Gag nickel project was very important as the company could use the technology to be used in the project to process the nickel resources extracted by the company elsewhere in the country. (Alex)