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Did Paul Lahti, the director of the Minahasa Raya mine, make the correct decision in the closing of Newmont Mining Corporation's Minahasa Raya mine?

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Introduction

Scott Reisman 12-18-04 International Business Prof. Milton Newmont Mining Term Paper BACKGROUND: Indonesia is a country full of civil unrest, political reforms, economic struggle, and government turmoil. Paul Lahti, the director of the Minahasa Raya mine for Newmont Mining Corp. choose to do business in this country. After Japanese rule a man by the name of Ahmed Sukarno took power and Indonesia claimed their independence on August 17, 1945. He was the first president and tried getting rid of all the communist presence that was left there by killing them. After a financial crisis in 1997 hit, the economy was sent spiraling out of control, and citizens demanded that Sukarno give up his reign. In 1999, Abdurrahman Wahid was elected president, and was expected to restore an already fragile economy. Newmont Mining faced many new challenges in Indonesia. There was the change of political power, illegal mining, environmental protestors, and declining gold prices. The change in political power directly effected Newmont Mining. Newmont dealt primarily with the central government, rather then dealing with local governments. Newmont was hit hard by the new court system and local protestors fighting against the mining in their region. In the old regime under Sukarno they didn't have to pay taxes to the government. But the local laws that were passed said local companies had to pay taxes. Newmont ended up paying $3 million for taxes and employee programs and community development projects. ...read more.

Middle

As a result Minahasa's government has decided to help Newmont and it will "crack down on rampant illegal gold mining activities in the area due to mercury pollution" (Platt Medals Week 10) Newmont had been taking the blame for the dangerously high levels of mercury pollution and finally received some kind of help from the local government. Local government support was extremely rare during the time the Minahasa Raya mine was open. In 2000, another legal dispute took place over more tax payments. Initially the central government had sided with Newmont, however they changed their minds and together both governments ordered Newmont to close the mine on April 16. This is a prime example of why foreign investors want to get out of Indonesia so badly. As part of Indonesia's transition to democracy, the central government was given more power to provinces and regions to collect tax revenue from companies operating in their areas. Richard Ness, the president director of PT Newmont Minahasa Raya stated, "We regret the decision by the Tondano District Court and are quite frankly outraged at the blatant disregard for the due process if law that the court displayed here." (Times-Picuyane 5) The company still has not chose to take the matter to arbitration before and international court. Reopening the mine may not be worth it simply because there is about 800,000 ounces of gold and only about 2 and a half years of life left. ...read more.

Conclusion

In Batu Hijau they have had lowered exploration expenses on copper and gold mining. They have also an income tax benefit and equity income of $33 million. (Raabe 2) Due to the closing in Minahasa Raya, Newmont has been able to direct their resources and money into the Batu Hijau mine. This has resulted in Newmont becoming the world's largest gold mining companies. CONCLUSION: With all the uncertainty in terms of government, protests, and change in laws Newmont should have never invested their time and money in the gold mine in Indonesia. There is too much risk, which they eventually found out about. And they had to shut down for good in 2003. It was a long run but with all the problems that country has, it is not a good idea to start or run a business in a country with so many problems. Paul Lahti was beginning to pay a lot of money in a situation that seemed to be becomingly less profitable. They took advantage of Minahasa Raya while the opportunity and its profits were at their peak and then they abandoned it before letting their profits turn into losses. Only time will tell whether Indonesia will become a good place for foreign investment. Until then I feel that the best thing was for Newmont was to shut down the Minahasa Raya mine. I also feel that as soon as any problems similar to the Minahasa mine happen in the Batu Hijau mine they should immediately get out. ...read more.

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