ISSUE:
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?
ANALYSIS:
I believe that Paul Lahti made the correct decision in the closing of the Minahasa Raya mine for a number of reasons. First, Indonesia is not currently the best place or atmosphere for a business to be relying on the government for rules and regulations. The government itself is not completely stable which is a huge problem. Foreign investors try to find a place where the government seems to be a stable place to conduct business so that incase there is any trouble they can fall back on the local government for help. They also look for a country whose economy might be on the rise. Indonesia should be a good place for foreign investors; however it is a “place some are glad to escape from.” (The Economist 78) At the time when operations began in Indonesia, they had arranged with the government a plan as to which both parties would be in a high=profit situation with minimal expenses. However, since the change of power and new rules and regulations have been enforced, the company has been experiencing major problems.
Another major reason for which I believe Lahti’s decision was correct is that the local people were beginning to take action against the company for a number of reasons. One of the reasons includes, “studies have found that the number of fish has drastically decreased in the area and the health of the local people has been affected.” (Daniels 100)
This problem will not just go away, the people with continue to take action against Newmont leading to more lawsuits. For example, in September of 1999, the local Minahasa district demanded $8.2 million in back pay taxes for waste material. They later settled with Newmont for $500,000 and another $2.5 million that was to be added into the employee program and community development projects. 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. (Times Picuyane 5) These are just a few reasons as to which I feel he made the correct decision by not reopening the mine in Minahasa.
More evidence as to why the closing of the Minahasa Raya mine was good fro Newmont is the illegal mining that was going on taking away from their business. The locals “dug up ore with shovels and mallets, drove it in trucks right past Mr. Lahti’s office and processed it just outside Newmont’s front gate.” (Schuman 1) He had been told by the central government that they would put an end to illegal mining, however it did not stop at all. At some point there were some 3,000 miners occupying one part of the mine. Mr. Lahti ceded a part of his land to the illegal miners in return for government help in removing the intruders from other areas of the mine. (Schuman 1) This did little to help the corporation’s situation here in Minahasa Raya. Too much controversary, paying all different types of back taxes, conflicts with the local government and not enough profits led to the closing of the mine. This could have been the best thing that happened to Newmont in a long time. They no longer have to deal with the locals and government officials that always had their hands out waiting to receive more money from the company. Now they can direct their attention in other places such as the Batu Hijau mine.
Although still in Indonesia, Newmont is dealing with a different local government. Throughout all the ongoing problems that were faced in the Minahasa Raya mine, people overshadowed the other mine that Newmont possessed in Batu Hijau. Before going into Indonesia Newmont was the 2nd largest gold mining company in the world. During their time here they have encountered many situations both good and bad. Considering all the problems faced in Manahasa Raya and all the money that they had to pay to the government and the money lost to the illegal miners, never would you have thought that since the closing they have become the worlds largest gold mining company. 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.