Freeport, Indonesia at loggerheads over mine's waste disposal methods

Toronto

EVERY year, Freeport-McMoRan Inc dumps tens of millions of tonnes of mining waste into the Ajkwa River system in Indonesia. The company has been doing it for decades, and is demanding the right to keep at it for decades to come.

The discharge of what are called tailings, the leftovers of mineral extraction, is perfectly legal under Freeport's current contract with the government. But recently, after more than a year of tense negotiations over the terms of a new deal, Indonesia suddenly changed the rules.

The Grasberg mine in the highlands of Papua province would have to operate by heightened standards. It shouldn't have been a surprise, really, considering almost every other miner in the world has been forced or has elected to stop discarding tailings in rivers.

Freeport, though, has said that won't happen at Grasberg. Chief executive officer Richard Adkerson has been blunt about it. "You can't put the genie back in the bottle," he said in April. "You simply can't say 20 years later 'we're going to change the whole structure'."

Grasberg's waste management, he added, has "always been controversial". The tailings tussle is the latest twist in the complicated relationship between the mining giant and the South-east Asian nation. How it plays out will have far-reaching consequences in Indonesia.

Freeport is a major taxpayer and job provider and has built homes, schools and hospitals in one of the poorest provinces. But Grasberg has also long been a target for environmentalists, indigenous and separatist groups and human-rights watchdogs.

At stake for Freeport are reserves that Bloomberg Intelligence estimates to be worth US$14 billion at the world's biggest gold deposit and second-largest copper mine. Grasberg accounted for 47 per cent of Freeport's operating income in 2017, according to data compiled by Bloomberg.

"What happens at Grasberg has global significance," said Payal Sampat, the mining programme director at the mining watchdog group Earthworks. "It involves some of the largest global players in the mining industry and one of the leading mining economies."

Most countries have banned tailings deposits in waterways over concerns they can be toxic, destroying habitats, suffocating vegetation and changing the topography of rivers, causing floods.

Most miners have said they're against the practice regardless of local rules. The industry's biggest, BHP Billiton Ltd, won't "dispose of mined waste rock or tailings into a river or marine environment", as the company put it in a statement.

Only two other industrial-scale mines - and a third, small operation - are known to get rid of tailings as Grasberg does, and they're in Papua New Guinea, which occupies half of the island of New Guinea; Indonesia owns the rest, which is home to the Freeport-run mine.

In recognition of risks that could leave "a massive environmental burden for future generations", the practice has been phased out everywhere else, according to the United Nations' International Maritime Organization.

Freeport sees things differently. The Phoenix-based company maintains that much of the sediment in the Ajkwa River system downstream from Grasberg is caused by natural erosion, and that tailings pose no significant - or at least unexpected - threats.

The company's partner in the Grasberg complex, Rio Tinto Group, recently addressed concerns about waste removal.

"Riverine tailings disposal is very, very far from best practice," chairman Simon Thompson told a meeting in London in April, perhaps highlighting one of the reasons Rio may be willing to sell its 40 per cent interest to a state-owned company for US$3.5 billion. A spokesman for the company declined to comment for this story.

"If you think about it from Rio Tinto's perspective, one of the biggest problems with this mine is the environmental issue. I think that's an incentive for Rio to get out," said Christopher LaFemina, an analyst at Jefferies LLC. "This is a critically important part of Freeport's overall value. For Rio Tinto, it's not."

The problem for Freeport and Indonesia is that there's no easy solution. "There has been no realistic alternative identified," Mr Thompson said. Freeport's local unit studied 14 alternatives for tailings disposal - including dams and pipelines - and concluded all were too risky in a mountainous terrain prone to earthquakes and heavy rainfall.

As it is, the heavy ooze finds its way through glacier-capped valleys, descending almost four kilometres to tropical lowlands and a 230 square kilometre deposition zone, where roughly half the tailings are parked. The rest flows on to a river estuary and the Arafura Sea.

"The company has sacrificed not just the river, but also the coastal area," said Pius Ginting, coordinator of Action for Ecology and People's Emancipation, an Indonesian environmental group.

According to Earthworks, Freeport sends more than 76 million metric tonnes of tailings and waste rock into Indonesian rivers every year. The company puts the 2017 figure at 50 million tonnes.

Without spelling out precisely how the requirement should be met, Indonesia told Freeport that it would boost to 95 per cent from half the amount of tailings that must be recovered from the river system, according to Mr Adkerson. BLOOMBERG