Norwegian finance minister blacklists Rio

Vancouver A $400 billion Norwegian government pension fund has dumped all of its $820 million worth of Rio Tinto (RTP-N, RIO-L) shares for the company’s part in a joint-venture at Freeport-McMoRan‘s (FCX-N) Grasberg mining complex in Indonesia.

Alleging complicity in severe environmental damage at the mine related to direct riverine disposal of about 230,000 tonnes of tailings a day, the Norwegian Finance Minister Kristin Halvorsen said in a statement, “The Fund cannot hold ownership in such a company.”

The company responded, “Rio Tinto is surprised and disappointed by the announcement by the Norwegian Finance Minister of the decision to sell the shares that the Norwegian Pension Fund holds in Rio Tinto.”

Although Grasberg is owned and operated by Freeport it has a 90.6% stake in the mine with the Indonesian government holding the rest in 1996 Rio and Freeport formed a joint venture giving Rio a 40% share of production over 118,000 tonnes. To get it Rio paid for a mine expansion, an exploration program and invested in Freeport shares it has since sold.

Freeport vice-president of communications Bill Collier says in an e-mail that the Norwegian pension fund is basing action against Rio Tinto on its 2006 decision to blacklist Freeport.

He calls the portrayal of Freeport and its Grasberg operation by the pension fund “utterly false” and says it bears “no resemblance to our company and its operations.”

Freeport has operated the Grasberg mining complex since 1972 where at two mines, one open pit and one underground, it extracts the world’s largest recoverable copper and gold reserves. In 2007 these weighed in at 2.8 billion tonnes grading 1.04% copper, 0.90 gram gold per tonne and 4.16 grams silver per tonne.

The controversy centers around Freeport’s direct riverine tailings disposal. It dumps these into the Aghawagon River, a tributary of the ocean-bound Otomona. They are then captured by two levees in the lowlands and coastal zone of the Ajkwa estuary in a government sanctioned 230-sq km containment area.

The Norwegian Ministry of Finance contends these cause severe and irreversible environmental damage. According to the pension fund’s ethical guidelines companies that cause “severe environmental damage” can be vetted by its council on ethics and referred to its blacklist.

In February 2006, in coming to its decision to dump Freeport, the council announced: “Riverine tailings disposal has inflicted serious damage on the river system and parts of the nearby riverine rainforest and has considerable negative consequences for the indigenous peoples residing in the area.”

The council noted that riverine tailings disposal is no longer an accepted practice in most countries and further charged Freeport with taking advantage of lenient environmental and enforcement standards in Indonesia.

But Collier counters the fund’s claims, arguing the decision to pump tailings into the river has little to do with those standards and everything to do with location.

“Alternative tailings storage areas were rejected,” he says, “due to lack of capacity or the necessity of building an extremely high dam in a seismically active area with high amounts of precipitation.”

As for the council’s claims of environmental damage, Freeport argues that the water in which tailings are transported meets Indonesian and EPA standards and that the area downstream of the tailings deposition area supports a functioning eco-system including fish and shrimp.

Freeport also contends that the impacts will be reversible once the mine closes up shop in about 2041, noting that in river habitat where it has ceased to release tailings, revegetation has begun.

Ultimately the feud comes down to differences of opinion on whether the end immense generation of wealth justifies the means direct riverine tailings disposal and its effect on the environment.

“The government of Indonesia, at the central, provincial and regional level, reviewed these impacts” Freeport says in its rebuttal to the pension fund, “and concluded that they were acceptable in light of the benefits the mine would bring to the local community and national economy.”

As for the Norwegian Ministry of Finance it says, “There are no indicationsthat these practices will be changed in the future, or that measures will be taken to significantly reduce the damage to the environment.”