PT KPC - latest situation update

Following the termination last week of 66 employees who have been involved for the past three weeks in the illegal blockade of mining operations, Bambang Susanto, General Manager External Relations of PT Kaltim Prima Coal announced today that it may be necessary soon to cease all operations at the Sangatta mine site. Bambang Susanto said, "A small group of people are gradually taking control of facilities and providing obstruction at key points of the operations so that the remaining employees are unable to continue working."

In the past two days, these blockaders, some supported by women and children broadened action and used force and intimidation to close all administration areas of the mine; they have also blocked some bus routes using heavy plant equipment; they have impounded about 40 light vehicles and even threatened the safety of some people who continue to work. Of this Bambang Susanto said, "KPC's first concern is the safety and security of its employees and families. Until the Police take control of these few people and their organizers, employees and their family will not be put at risk."

When asked about what actions the Police were taking, Bambang Susanto said, this is not an industrial matter; it is clearly breaking the law. The community and the shareholders are very concerned. The police have been very patient, but the illegal disruption to our operations gets worse every day. I believe that the message this sends to the international community seriously jeopardizes foreign investment."

The mine blockade is costing the Indonesian Government up to Rp. 3 billion a day in royalties and tax revenue. KPC yesterday declared a "Force Majeure" on its sales contracts but is working with its customers to mitigate where possible the effects on their businesses. All customers have expressed concerns that illegal action has stopped operations but KPC is maintaining regular contact with them to ensure that they fully understand the situation and are kept up to date with developments. Coincidentally in the last two weeks buyers from Korea, China, Malaysia and Brazil have visited the mine site.

The blockade action follows the refusal of the Serikat Buruh Sejahgtera Indonesia (SBSI), only one of three unions at the site, to accept a recent P4D decision on a number of its claims and to follow the appeal processes to the P4P in Jakarta. Workers at the mine already enjoy salary levels and benefits that are among the best in Indonesia, with the average equipment operator at the mine having a gross salary and other benefits many times the normative monthly basic wage set for workers in East Kalimantan and most other parts of Indonesia.

The local Sangatta community continues to express strong concern about the illegal action and all Community Leaders are unanimous in their support of the Company and their condemnation of the rebel workers. The Leaders have called on the workers who are blockading operations to stop their illegal actions. In a meeting with community leaders on 20th June, the President Director Dr. Grant Thorne stressed "Please be very patient, follow the processes of the law and under no circumstances take the law into your own hands.' The community urges Police to stop all illegal activities so that no more damage to both local and national interests is caused. (*)