November 15, 2004

Newmont Mining Gets the Shaft

'It's frustrating,' says Newmont chief executive Murdy. 'There's no rational explanation.'

By Eric Ellis


There are difficult places to invest in, and then there is Indonesia.

Just ask Newmont Mining CEO Wayne Murdy. He's wondering why he has $2 billion staked in this country. The Denver company stands accused by Indonesian police of polluting picturesque Buyat Bay, near its Minahasa gold mine in northern Sulawesi. Environmentalists have filed a $540 million lawsuit against Newmont in court in Jakarta, alleging that the company has poisoned nearby villagers, even killing one of them. And in October, five Newmont executives were incarcerated for a month without charges. Newmont's reputation is being dragged through the mud daily in a David-and-Goliath propaganda battle.

"There's no rational explanation," says Murdy, who points out that his company has been cleared by Indonesia's own environment ministry and the World Health Organization. "It has been extremely frustrating."

The Newmont case may prove a testing ground for Indonesia's first directly elected president, Susilo Bambang Yudhoyono, who won office by promising to rid his country of graft, corruption, and poverty. "My duty as president is to restore our country to normalcy," he told FORTUNE during an interview in late October, shortly after his inauguration.

That will be challenging. Transparency International ranks the country as one of the most corrupt in the world. Up to a third of the nation's 250 million people live in poverty, and 40 million of them are unemployed. Murdy's predicament illustrates the depths to which Indonesia has sunk as a venue for foreign investment. In 1997, the last full year under President Suharto, the country had $ 34 billion of foreign direct investment. So far this year foreigners have invested a mere $ 3 billion. Meanwhile, $ 5 billion in net capital has left the country every year since Suharto was overthrown.

Yudhoyono recognizes that the Newmont issue will influence other potential foreign investors and says he wants the case to be resolved without political influence. "I told the national chief of police that the case should be resolved using a transparent, fair, and accountable process," says the new president. "Any decision should be based on the rule of law. It should be logical and reasonable and accepted by all parties."

For Newmont, what's happened so far has been anything but reasonable. It employs 7,000 people in the country, often building roads and hospitals in the areas in which it operates. But when Murdy came to Jakarta in mid-October to try to free his jailed executives, he says, neither Indonesia's police chief, outgoing President Megawati Sukarnoputri, nor Yudhoyono would see him. "It's outrageous," Murdy says. "No one is willing to take any responsibility."

Newmont has mined at Minahasa since 1996 but has been slowly shutting down operations there since 2001 to exploit bigger sites in Indonesia. Local villagers and environmentalists claim that the mine tailings that Newmont dumped into fishing grounds off tiny Buyat Beach village contained poisonous mercury and arsenic. "They can't do this in the U.S., so why do they do it here?" asks Raja Siregar, case officer for Indonesia's Forum for the Environment.

The controversy has caused deep divisions among nearby communities. Five elders from the two villages neighboring Buyat Beach say they support Newmont. But at Buyat Beach itself, villagers wearing T-shirts proclaiming "Newmonster" display lumps and rashes, which they claim come from eating fish caught in Buyat Bay. Newmont's Murdy cites the WHO study, as well as reports from Australia and Japan, that show Buyat Bay's waters well within Indonesian and international standards. The offending tailings, he says, are cleansed of toxins, including mercury and arsenic. But Siregar says Indonesian police studies have put mercury levels in the bay at almost five times Indonesia's legal limits.

The anti-Newmont campaign has been a triumph for Jakarta's homegrown environment lobby, which was silenced during the Suharto dictatorship. But to boost the economy, Yudhoyono needs to encourage foreign investment. It's a difficult balancing act. "There are plenty of corporate bad guys in Indonesia," says Jeffrey Winters, professor of political science at Chicago's Northwestern University. "But the evidence would suggest that Newmont isn't one of them."