Norwegian wealth fund sells stake in Rio Tinto

The opencast Grasberg mine in West Papua, Indonesia, has been called one of

the worst eyesores in the world

From The Times
September 10, 2008

David Robertson, Business Correspondent

One of Rio Tinto’s largest shareholders has sold its £500 million stake in the company over concerns about the Grasberg goldmine, which has been called one of the world’s worst eyesores.

The $375 billion (£213 billion) Norwegian sovereign wealth fund said on Tuesday that it had sold its shares after failing to persuade Rio to improve operations at the West Papua mine.

The Norwegian Finance Minister publicly shamed Rio in a statement that accused the company of “severe environmental damage”.

The Grasberg operation in West Papua, Indonesia, is the world’s largest goldmine and the third-largest copper mine, but it is notorious among human rights and environmental campaigners.

Grasberg is operated by Freeport McMoRan, a New Orleans-based miner, and Rio is a 40 per cent shareholder in the opencast pit.

Human rights advocates assert that Freeport’s security guards and the Indonesian military have been responsible for the rape, torture, murder and arbitrary detention of people living near the mine. Freeport has consistently denied these claims.

The Australian Council on Overseas Aid reported that in 1994 and 1995 the Indonesian military, assisted by mine security, was responsible for the death or disappearance of 22 civilians and 15 others described by the Indonesian Government as guerrillas.

After shareholder pressure, Free-port confirmed to the US Securities and Exchange Commission that it had paid the Indonesian military $4.7 million in 2001 and $5.6 million in 2002 for security services.

The environmental credentials of the Grasberg mine are also a source of controversy. The mine dumps 230,000 tonnes of tailings, or waste rock, into the Ajikwa River every day and campaigners claim that this has produced high levels of pollution.

Mine tailings are often laced with cyanide, which is used in the gold extraction process, and toxic quantities of metals such as lead, copper and zinc. A report by Friends of the Earth said that acid mine drainage, a common side-effect of opencast mining, had caused toxic levels of selenium and arsenic in the nearby river systems. It said that up to 70 per cent of aquatic life was suffering from chronic toxicity.

A spokesman for Rio Tinto said: “We work closely with Freeport and are comfortable with the work they have done at Grasberg. The tailing management system is the right one to use and the environmental damage that has been alleged is not the case.”

However, this was not a view shared by the Norwegian Government Pension Fund, which manages wealth generated by the country’s North Sea oil.

Kristin Halvorsen, the Norwegian Finance Minister, said: “There are no indications to the effect that the company’s practices will be changed in future. The fund cannot hold ownership interests in such a company.”

Rio Tinto responded by saying that it had been aware of the fund’s concerns but was surprised and disappointed by its decision to sell.

Owen Espley, a spokesman for Friends of the Earth, said: “It is excellent to see the Norwegians trying to use their influence to change behaviour and then walking away if that engagement is not successful.”

The Grasberg mine contributed $159 million to Rio’s profits of $7.3 billion last year, but the operation is scheduled for a large expansion from this year. It is estimated that the mine, which is located in a World Heritage-listed national park, will cover 230 sq km (89 sq miles) when completed. Richard Solly, a campaigner with the London Mining Network, said: “In terms of environmental pollution, this mine is undoubtedly one of the worst in the world.”