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28. Gag Island nickel project remains on care and maintenance
Our nickel exploration project on Gag Island in Papua commenced in August 1996, when PT Gag Nikel was established following the signing of a Joint Venture Agreement between BHP Billiton (75 per cent) and PT Antam (25 per cent). A Contract of Work was awarded in February 1998, and a program of exploration and preliminary evaluation was conducted. Since early 2000, following a change in forestry status that precluded open pit mining on the island, the project has been on care and maintenance status. PT Gag Nikel is maintaining close relationships with the local community and continuing a low-level environmental monitoring program.
Gag Island is located 150 kilometres west of Sorong. It is approximately 12 kilometres long and 8 kilometres wide, with terrain consisting of hills and plateaus. Dutch geologists first discovered nickel mineralisation on Gag in the 1950s. Subsequent investigations have confirmed that approximately two-thirds of the island is mineralised; however, the commercial viability of the deposit has yet to be confirmed.
A community of approximately 450 people live at Gambier Bay, adjacent to the Company's exploration camp. The community was established in the early 1960s by people from neighbouring islands who moved there in the hope of finding work. They have remained on the island since that time, despite a series of long delays in the development of the deposit, and remain supportive of mining and the related employment opportunities it may bring.
PT Antam, which is owned by the Indonesian Government, acquired Gag Island's mineral rights in the early 1990s. Following the establishment of PT Gag Nikel in 1996 and the undertaking of exploration and preliminary evaluation, the Company received a Contract of Work in February 1998. At that time, Gag Island was classified as ‘Production Forest’, allowing open pit mining.
In September 1999, as a result of Forestry Law (Number 41/1999) being enacted by the Indonesian Government, Gag Island was reclassified as ‘Protection Forest’, prohibiting open pit mining. No mine development work had commenced on the island at the time of reclassification.
As we will not operate in any protected forest area if it is contrary to Indonesian law, no development work has occurred since the reclassification. Studies associated with baseline environmental and social impact assessment have also been suspended.
These studies would need to be recommissioned before any further feasibility of the Gag Island project could be assessed. The studies would need to determine the most appropriate method of disposing of waste material from any mining or processing of nickel ore on the island. Preliminary options have included conventional dam storage, returning waste to the mined-out pits and the use of deepsea tailing placement.
Our consideration of this third option has attracted some criticism from NGOs concerned about potential impacts to reef environments around the island. We have made it clear in our communications on this issue that we would only consider this option if investigations prove that it is environmentally acceptable. Any decision will involve extensive consultation with the local community and the approval of the local government and the Indonesian Government.
The deferral of activity on Gag Island has been a major disappointment to the community at Gambier Bay, as short-term employment opportunities have had to be curtailed and the prospect of long-term, meaningful employment delayed once again. While the nickel project is in suspension, a small crew of Indonesian staff on Gag Island and Sorong in Papua are continuing to provide the community with potable water, assistance with a ferry service and local development activities.