NGO’s ready for BHP in Indonesia

A battle could be brewing for BHP Billiton (BHP-N, BLT-L) on a small island in Indonesia.

The company that has worked hard at building a solid reputation on the social and environmental side of mining could soon find itself in the sights of environmental groups should it make a false step.

BHP has agreed to a 50/50 partnership with the Indonesian state-owned company Antam for two nickel projects in the country — the most contentious of which lies on Gag Island.

Gag is situated just off of West Papua where Freeport McMoRan‘s (FCX-N) massive Grasberg mine sits and is known as an environmental jewel for both its forests and the coral-based marine ecosystem which lies just off its coasts.

BHP has already felt the push of environmental organizations seeking to protect the area. Development of the site was suspended back in 1999 after environmental groups convinced the government to classify the region as a protected forest.

And while the area went on to be nominated for UNESCO’s world heritage site designation full recognition has not been forthcoming.

UNESCO says it can’t grant the designation unless the national government gives it the highest form of protection and lists it as a national park.

But rather than tighten protection in 2004 the government changed regulations to allow BHP and Antam to mine there amidst allegations that it did so after considerable pressure from the Australian government.

While BHP has been tight lipped about the deal it has issued no press releases about it its chief executive Marius Kloppers referred to a US$2 billion-plus investment in an “eastern Indonesian facility” during an investor’s presentation in mid-June.

And while the company has acknowledged the deal with Antam it says the agreement is conditional upon board approval, which while expected in July, has still not materialized.

If it is approved, the project would set out to not only build nickel mines but also refineries which would dovetail with Antam’s stated intent to become more involved in downstream mineral processing.

BHP’s interest in Indonesia extends beyond just nickel as it is in the process of building a coal mine in East Kalimantan the Indonesian portion of the island of Borneo with production slated for the end of this year.