Kem Se Report 2002

ContentsForeword.......................................... 2

KEM and Sustainable Development 4

The Local Community ................... 6

KEM Employees.............................. 11

Environment.................................... 15

Economics ....................................... 23

KEM Community Programmes ..... 26

Operational Performance Indicators & Targets ............................................. 26

Mine Closure .................................. 27

Closing Words ................................. 35

Glossary ........................................... 36

External Assurance .......................... 37

Contributors .................................... 38

Feedback.......................................... 38

KEM Social & Environmental Report 2002 1

ForewordKelian Equatorial Mining (KEM) operates in a remote location in the West Kutai Regency in East Kalimantan. KEM is an important part of the regional community and is committed to being a responsible partner to local communities and government.

In 2002 KEM continued the development of productive relationships with all key stakeholders. Local communities, employees, government and KEM have been able to work together to meet the challenges associated with the mine’s operation while also working out the key directions needed for responsible mine closure.

Th e constructive working relationships and success of the KEM operation in 2002 have contributed to an environment where, despite the uncertainties and tensions which

currently exist in Indonesia, employees and local communities have been able to improve their economic and social wellbeing.

A particular feature of KEM’s relationships with stakeholders is interdependency – KEM is not able to operate successfully without the support of government and local communities. Equally, government and local communities need KEM to operate successfully if they are to enjoy the many benefi ts that fl ow from the KEM operation.

KEM has had a major impact on communities during all the phases of the mine’s development. Th ese impacts have included the benefi ts of community and regional development, providing direct and indirect employment, stimulating economic activity and capacity-building. Although there have also been some negative eff ects associated with the impact of commercial and non-local

2 KEM Social & Environmental Report 2002

infl uences on traditional community values, KEM has worked with communities to resolve these.

One of the major challenges ahead is to work with communities to help them prepare themselves for the post-closure period. KEM is working with the Rio Tinto Foundation, the Mine Closure Steering Committee (MCSC), government and various community representative groups to achieve a smooth transition through the closure period.

KEM’s focus is increasingly on achieving responsible mine closure in 2004. Th e MCSC includes representatives from all key stakeholder groups. In 2002 the MCSC met fi ve times to review mine closure recommendations from stakeholder working groups and from independent expert advisers. Th e MCSC agreed on all the key directions to be followed by mine closure, and implementation of these will take place

over the next fi ve years.

Th is report outlines the activities and programmes which are being implemented by KEM and describes the ongoing relationships with communities and government. It also outlines KEM’s future direction in these areas.

We hope that you will fi nd this report informative and useful and we welcome your questions and comments.

Charlie Lenegan

President Director

PT Kelian Equatorial Mining


KEM and Sustainable DevelopmentKEM gold ore reserves will be exhausted in 2004 and KEM is committed to achieving responsible mine closure through sustainable development that off ers sustainable solutions for key stakeholders. Th e stakeholders will have achieved sustainable solutions if the quality of life for existing and future generations has been enhanced as a result of the KEM development.

Sustainable SolutionsSustainable solutions and enhanced quality of life for stakeholders can be achieved by:

� responsible operations by KEM, based on effi cient use of resources, recognition of environmental and social requirements and development of human capital,

� responsible mine closure

with engineered, social and environmental solutions which endure for the long term,

� sound government and community management of the economic wealth generated from the KEM operation,

� eff ective use of human skills developed through KEM employment and KEM community capacity-building programmes, and

� increased agricultural production through KEM self-help groups and food security programmes.

KEM�s Sustainable Development DirectionKEM recognises that sustainable development is achieved through the commitment and contribution of all key stakeholders. Th is approach is described by the statement: “Working Together for Sustainable Solutions”, which has formed the basis for the KEM relationship with

government and communities in recent years. All stakeholders understand that KEM must operate successfully as a business in order to have the capacity to deliver sustainable solutions.

Th is report reviews key aspects of the sustainable development direction at KEM which can be summarised as follows:

� KEM recognises the need to act responsibly in the management of resources and the environment. KEM seeks to minimise the use of land and resources and to address any environmental risks arising from the mining operation.

� KEM seeks to be sensitive to the changing perceptions of local communities and wider society.

� KEM requires transparency and high levels of governance in all activities.

Sustainable development is not about concepts, words and models — it is about actions which improve the stakeholders’ quality of life.


� KEM has developed eff ective working relationships with key stakeholders and pursues solutions which recognise the needs of all stakeholders both during the operating period and after mine closure.

� KEM is committed to working in partnership with communities to optimise benefi ts fl owing from the operation while also mitigating any negative impacts.

� KEM recognises the key role of employees in achieving a safe, responsible and successful working environment. KEM has implemented a comprehensive Health, Safety and Environmental System and has also committed signifi cant resources to the training and development of employees, the majority of whom are from local communities.

KEM�s Sustainable Development ActivitiesSustainable development is not about concepts, words and models – it is about actions which improve the quality of life for stakeholders in existing and future generations. Th is report provides information on KEM’s sustainable development activities which include, for example, the following:

� A food security programme to develop and increase the productivity of local farming groups.

� Self-help Group programmes which improve the organisational and productive skills of community groups engaged in agricultural, fi sh farming and small business activities.

� Mine Closure training for employees to develop skills which can be used in their lives and careers following KEM closure.

� Implementation of a range of community projects to provide infrastructure and facilities (such as roads, buildings and water supplies) to local communities.

� Contribution of up to Rp30 billion to Regional Government from 2002 to 2004 for specifi c regional development projects.

� Implementation of mine closure environmental standards which meet government, international and stakeholder standards.

� Development of plans to rehabilitate the mine site and to protect it from future threats from logging, alluvial mining or other destructive activities.

� Training programmes to continuously improve employee skills and the mine’s health, safety and environmental performance.

KEM looks forward to a continuing partnership with stakeholders to ensure sustainable solutions are implemented that benefi t existing and future generations.


The Local Community While KEM operates in a predominately Dayak region, the religious and ethnic diversity of the community is a living record of the social history of the Dayak groups and other populations that have made West Kutai their home. Today, local Dayak groups share their land

with a mix of cultures from elsewhere in Kalimantan and other parts of the archipelago. Th ese cultures have been brought together in trade, marriage alliances, colonial and state policies, resource utilisation and migration.

Th e region of West Kutai spans an area of approximately 32,000 km2 or 16% of

the province of East Kalimantan. Th e newly formed region consists of 15 sub-districts (kecamatan), 205 villages and approximately 154,000 people.

Diff erent Dayak groups within the region distinguish themselves from each other in distinctive language, customs and beliefs. Th e Mahakam River links Samarinda and the rest of Indonesia with this part of the West Kutai Regency

and has historically played a signifi cant part in development. Today the villages are linked to each other and to major centres by a developing road network that has accelerated migration, trade and commerce and the economic development of the region.

Land CompensationDuring 2000 there was signifi cant disturbance to the KEM operation as a result of community action over additional and outstanding claims for land compensation and related issues. During early 2001, negotiation with the Kelian Community through LKMTL (a non-government organisation registered to represent the local community)

assisted by Komnas HAM (Indonesian Human Rights Commission); Justice Marcus Einfeld of the Australian Federal Court; Rio Tinto Indonesia; government representatives; and the Indonesian environmental non-government organisation, WALHI; resulted in an agreement of a Rp60 billion (approximately US$6 Million)

negotiated settlement. Th e settlement package comprised Rp7 billion, which had already been paid prior to December 2000 and the remaining Rp53 billion, which was set aside for all outstanding compensation claims. Th is agreement was further discussed with community members and fully accepted by LKMTL on behalf of the communities on 12 September 2001.


Locality Map

During 2002, over Rp12 billion was paid out in land and housing compensation. Approximately 4100 land and housing claims of a total of 5243 were processed.

Processing of claims will continue in 2003 and it is envisaged that payments for the majority of outstanding valid

claims will be made by the middle of 2003.

Human Rights SettlementsDuring 2002, KEM continued to follow the process to address alleged human rights and sexual abuse claims associated with the early years of the project. A settlement was reached with the eight sexual abuse claimants identifi ed by Komnas HAM (Indonesian

Human Rights Commission). Th is settlement took the form of a sympathetic cash payment (santunan) and public recognition of the suff ering of the claimants caused by ex-KEM employees. A customary law (adat) ceremony was held on 23 July 2002 to conclude the reconciliation process between KEM, the sexual abuse

claimants and the community.

Other human rights claims have been put forward that have generally involved evictions of alluvial miners from the KEM area. Th ese claims are more complex as they involve actions by government security agencies as well as circumstances where compensation has already been provided and some claimants have acted illegally.

KEM will continue to seek resolution of these claims during 2003 and is committed to payment of reasonable compensation to those who have genuinely suff ered and not been fairly compensated previously.


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Regional Map

Community Development In preparing for the mine closure in 2004, KEM community development programmes in 2002 focused on completing all the committed infrastructure projects and on progressing the capacity-building projects in the 28 villages that will be impacted by the closure process.

Twenty-fi ve infrastructure projects (road asphalting, water supplies, buildings) were completed during 2002 and the remaining 28 are scheduled to be completed in early 2003. Once these infrastructure projects are fi nished, KEM’s community development programme will focus on capacity-building to support sustainable development.

Capacity-Building/Self-Help Groups KEM has a range of capacity-building programmes (self-help groups) in the areas of agriculture and business. Th e programmes entail staged training and ongoing support to build an understanding of both technical aspects and sound business principles.

Within the villages surrounding the minesite, 75 self-help groups have been established. Th ese groups are at varying stages of self-reliance. Th ese groups receive training in the courses listed below and establish enterprises which are aligned with local needs such as aquaculture and chicken farming.

� Institutional Strengthening: basic self-help group organisation, basic

administration, leadership, planning and evaluation.

� Micro-enterprise: home economics, management of micro-enterprise.

� Savings and Loans: seed money, revolving funds


W ithin the villages

surrounding the minesite, 75 self-help groups have been established.

T¯ wenty-fi ve infrastructure

projects (road asphalting, water supplies, buildings) were completed during 2002 and the remaining 28 are scheduled to be completed early 2003.

� Feasibility Study: micro-enterprise potential for local communities, market survey

� Technical: home-industry and agriculture.

Rio Tinto Foundation/Community FoundationWith closure approaching, KEM reviewed the way it delivered its community development programmes. It was clear from the review that the logical provider of these programmes was the Rio Tinto Foundation (RTF). KEM commenced the process of handing over

management of the Self-Help Group programme to the RTF during the second half of the year. Th e programme will be fully supported by the RTF by April 2003 and continues to be funded by KEM.

EducationKEM has provided educational assistance in the form of foster parent programmes (grants to families) for 500 students, each for a three year term. Th is programme was completed during 2002. KEM has also assisted local students by providing boat and bus transportation for 600 school students. Although this initiative improved accessibility to education, the programme was determined to be unsustainable after the mine closure. KEM surveyed students and families and an alternative solution was found through the Mine Closure Steering Committee. Th is sustainable alternative resulted in the construction of a 200 bed student dormitory (Asrama) which will allow students to continue to attend school when transportation is no

longer supplied by KEM. Th e Asrama is scheduled to open in early 2003.


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Target for 2003

Total 2002

Self-Reliant

Pre-Self Reliant

Developed

Pre-Developed

Developing

Pre-Developing

Stage s of Self-Reliance in Self-Help Groups

Number of Groups

K EM has provided

educational assistance in the form of foster parent programmes

(grants to families) for 500 students, each for a

three year term.

Health

In the health sector, KEM has continued to provide health facilities and honoraria for doctors and paramedics who service the local communities. Local

communities were also permitted access to KEM’s medical facilities onsite including medical evacuation for emergency cases involving community members. During 2002, 221 patients from the community accessed the KEM medical clinic and KEM organised three medical evacuations by helicopter to Balikpapan for community members.

Food Security

KEM has continued to support a food security programme to help 28 villages to overcome potential food shortages associated with farm practices which are not fully productive. Th is programme is targeted to develop a total of 420 ha of

upland rice and uses a rotational system of secondary crops. Th is programme is being run in conjunction with the RTF. During 2002, 5 ha of land was developed for cropping, an additional 60 ha is scheduled for development in 2003.


D uring 2002, 221 patients from the

community accessed the KEM clinic.

D uring 2002, 5ha of land was developed for cropping and an additional 60ha is

scheduled for development in 2003.

KEM EmployeesTh e diversity of employees working at KEM refl ects the diversity in the community surrounding the operation.

During its operation, KEM has sought to employ as many local people as possible. Th is has both aided the local area by building lasting skills in the community and also provided great

benefi t to KEM. Almost 60% of employees are from the local area (the majority being local Dayak people) and close to 90% of employees are from East Kalimantan. Th e large proportion of local employees has also made it vitally important that employees are adequately prepared for life after mine closure.

Th e year has been one of great change for KEM and its employees, with an

ongoing reduction in employees as KEM moves towards closure. At the end of 2002, KEM employed over 800 direct employees and almost 1000 contractors.

KEM provides equal opportunity to men and women and selection is based on capability, skills, experience and aptitude for the job. KEM has a number of female heavy-equipment operators. KEM also has a number of people in trainee roles. Depending on the skills required, new positions are fi lled by recruiting from, in order of priority:

� within the company,

� the local area,

� East Kalimantan,

� the Republic of Indonesia.

Non-staff employees continue to work under the Collective Labour Agreement signed in July 2001. Th is Agreement will remain valid until 30 June 2004, though there is provision for review in June 2003. Staff employees are employed under individual contracts.

Employee TrainingAlthough there was logging and some small-scale mining in the area before KEM commenced commercial production in 1992, initially there were very few local people with the skills needed to operate the plant and equipment associated with a large mine. As a result, KEM has established intensive training programmes over the past ten years.


Almost 60% of employees are from

the local area and close to 90% of employees are from East Kalimantan.

Operational TrainingKEM has dedicated considerable resources for training and skills development. An employee participates in training programmes from the beginning of their employment with KEM. A heavy equipment operator, for example, attends a six week training programme and a basic safety training course during the fi rst months of employment.

Human Rights, cross-cultural understanding, leadership and supervisory training courses were carried out in 2002 in addition to safety, language and industrial relations

training courses. Apprenticeship training, self-education assistance and external training courses continued. During 2002, a total of 164 training, induction and professional development courses were undertaken which involved 3806 employee and contractor attendees.

Mine Closure TrainingIn addition to the wide variety of skills acquired during work at KEM, extensive training and support programmes were continued throughout the year to provide employees with additional skills to ready them for life after KEM closure. Sixteen courses designed for mine closure were delivered to employees. A total of 477 424 training hours were

delivered during 2002 and 510 072 training hours have been scheduled for 2003.

Training courses included Home Economics, Workshop Management, Sewing, Small Business Training, Computers, Welding, Auto-Mechanics and Job Search.

KEM has also continued its programme of agricultural training in association with the Rio Tinto Foundation for those employees who wish to return to, or commence, farming after KEM closure. Th is programme provides formal training as well as on-the-job support


During 2002, a total of 164

training, induction and professional development courses were undertaken which involved 3806 employee and contractor attendees.

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Animal husbandry

Aquaculture

Farming

Agrobusiness

Automechanics 2

Automechanics 1

Sewing

Management of Automotive Workshop

Small Business 2

Small Business 1

Basic Computer

Job Search Skills

Home Economics for Spouses

Home Economics for Employees

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for those living in the local area. Land assessment and other assistance such as ploughing and land preparation will be given to ensure the best chance for success. Similar programmes for animal husbandry and aquaculture have also been developed.

Employee Redundancy ProgrammeRedundancies associated with mine closure commenced in December 2001. A total of 150 employees were made redundant in 2002.

Although the redundancy programme is driven by KEM’s business needs, KEM has attempted to accommodate the wishes of employees. KEM requested

‘expressions of interest’ for redundancy from employees and in many cases has been able to restrict redundancies to voluntary redundancies.

KEM provides a generous redundancy package well in excess of the government requirements to its Indonesian

employees. As discussed above, a mine closure training programme has been implemented to assist employees. KEM organises all training and also contributes 56 hours of paid time (within working hours) to this training.

Occupational Health & SafetyEnsuring the health and safety of all employees and contractors involved

in KEM’s gold mining operation is a fundamental part of the commitment to sustainable solutions. Based on the health and safety guidelines issued by Rio Tinto, KEM is pro-active in applying corporate safety policies and encouraging practical employee inputs

to achieve the goal of zero injuries.

Health and safety begins with prevention and this entails empowering all employees and contractors with knowledge of the work environment through extensive training and workshops.

Occupational HealthKEM has in place mandatory medical check ups and occupational health monitoring programmes which have allowed us to design and implement occupational health controls from the outset.

Th ese include:

� Annual medical check-ups of all employees and identifi ed high-risk contractor groups at the on-site clinic including testing of hearing, eyes, lungs, blood and urine.

� Monitoring personal dust and noise in operational areas.

� Lighting surveys in work areas.


� Monitoring the presence of Mercury in urine and Lead in blood of Process Plant Gold room employees.

� Gap analysis of the Rio Tinto Occupational Health Standards.

Safety KEM’s training programmes ensure the constant review and upgrading of established standard operating procedures to keep employees and contractors up-to-date and conscious of all safety requirements.

Significant Health & Safety Initiatives in 2002Integration of KEM’s Health, Safety and Environmental (HSE) management system, a move towards risk-based management and the introduction of a planned job observation standard were the major initiatives of 2002. Th e

planned job observation standard supports the AWAS (Audit Workers’ Attitude to Safety) safe work observation process and is another control step to ensure compliance with HSE standards.

A recommendation from the 2002 safety perception survey was to review the

procedure for contractor inductions. As a result of this review KEM consolidated the health, safety and environmental induction programmes for contractors and has linked induction training to site access for contractor employees.

A standards review team was formed in 2002 to incorporate the Rio Tinto safety and occupational standards into the KEM Safety (KesKem) standards. KEM achieved an 18% reduction in all injury statistics compared with 2001 which is a measure of the success of the mine’s safety eff ort.

Health and Safety Plan for 2003Th e priority safety target for 2003 is to reduce the number of personal injury incidents. A 33% reduction in injuries is planned for 2003.

To achieve this target KEM will consolidate and improve the

participation rates and performance of core safety processes such as AKAR (safety at work, safety at home meetings), Audit Workers’ Attitude to Safety (AWAS) Safe Work Observation Process, Risk Assessments, Management of Change, Contractor Management and Work Place Inspections. Strengthening of the application of these processes in the fi eld will be a priority.

Th e occupational health plan for 2003 will be to continue the implementation of the Rio Tinto Occupational Health Standards. Th is will be achieved through ongoing reviews of the gap analysis that was conducted in 2001.


K EM achieved an 18% reduction

in all injury statistics compared with 2001 which is a measure of the success of the mine’s safety eff ort.

EnvironmentMinimisation of land and water impacts have always been high priorities at KEM particularly because the mine site is surrounded by the complex and fragile tropical rainforest environment of Borneo.

During 2002, the Environmental Management System (EMS) obtained certifi cation to ISO14001 as part of the process to ensure ongoing high performance throughout the remainder of the operation and in preparation for closure. Th roughout 2003, environmental performance will continue to be reviewed quarterly against performance targets, and management plans will be adjusted accordingly. Th e two-yearly independent audit is also scheduled for 2003.

LandPrior to the commencement of mining at KEM, the land was classifi ed as Limited Production Forest and had been previously disturbed by logging.

In addition to rehabilitating land disturbed by mining, KEM also has a Borrow-Use (Pinjam Pakai) Agreement with the Department of Forestry to ensure that mine lease areas which cannot be rehabilitated with native plant species (eg. pit, tailings dam, waste rock dump dam) are replaced by rehabilitation in other equivalent areas. Th ese equivalent areas are termed replacement areas and have been selected in previously logged areas inside the Contract of Work (CoW) where possible. Land outside the Contract of Work has also been selected and progressively


M inimisation of land and water

impacts have always been high priorities at KEM particularly because the mine site is surrounded by the complex and fragile tropical rainforest environment of Borneo.

D uring 2002, the Environmental

Management System (EMS) obtained certifi cation to ISO14001.

rehabilitated to satisfy the replacement area requirements.

A direction established by the Mine Closure Steering Committee will ensure that at closure the entire mine lease area

will be converted to a Protection Forest to enable ongoing protection of engineered structures (dams, waste dumps and rehabilitation) and the surrounding water catchments.

DisturbanceUp to 2002, a total of 1190 ha of land within the 6750 ha Pinjam Pakai area had been disturbed by mining activities and infrastructure. Th e tailings dam located in the Namuk Valley catchment comprised 38% of this disturbance, the Nakan Waste Dump Dam covered 20% of the area, the Pit 15% and camp infrastructure 5%.

RehabilitationDuring 2002, no new areas within the lease were rehabilitated, as the area was still being actively mined. A total 549 ha had been rehabilitated to the end of 2002 and the remainder will be progressively completed over the next four years. During 2002, fi eld audits of replacement areas revealed that not all areas reported as completed had been rehabilitated successfully. Consequently, an intensive rehabilitation eff ort during 2003 will ensure that the majority of replacement areas are fi nalised.

WaterWater is generally considered to be an abundant resource at KEM with an average annual rainfall of 4000 mm. However, there is usually a dry period between June and September when water levels and fl ows in the Kelian River are signifi cantly reduced.

Management of acid rock drainage (ARD) and sediment continue to be challenges at KEM due to the high rainfall and acid-producing ore body.

Th e ARD is produced when rock containing the mineral pyrite reacts with oxygen and water to produce acid. Th is acid then reacts with other minerals within the rock causing the release of


Area Remainingto be Rehabilitated641.82 ha

Mine Area179.03 ha

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metals such as Iron (Fe), Zinc (Zn) and Manganese (Mn).

Th e sediment is produced from disturbed areas such as the pit, stockpiles and waste dumps that are being actively mined.

Water Management SystemTh e run-off water and process water produced on the mine is contained and treated within a series of dams and ponds before being released back into the Kelian River in accordance with environmental compliance standards. Th ere are two key water sampling points, WS05 (mine discharge point) and PT24 (located in the Kelian River). Th ere are

diff erent compliance standards for each sampling point.

Th e tailings are discharged via a pipeline to the Namuk Tailings Dam where heat, ultraviolet-radiation and dilution

from rainfall breaks down the cyanide before the water is released through a siphon back to the polishing ponds and then the Kelian River. Th e mine run-off water is pumped and collected through a series of drains to a number of sediment and lime-dosing ponds before being released into the Kelian River.

During 2001/2002 the water management system was upgraded to enable dredging of sediments and pumping of mine run-off water back to

the Nakan Waste Dump Dam. Th is has allowed more eff ective treatment of mine run-off water prior to release back into the polishing ponds.

ARD continued to be treated by 24-hour lime-dosing at strategic locations. Th e amount of lime added during 2002 exceeded 12,000 tonnes. Th is amount is predicted to decrease as stockpiles are processed and a new lime dosing plant is commissioned during 2003.

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Water UseWater is extracted from the Kelian River for use in the processing of ore. Th e process plant used 6987 ML of fresh water and 2683 ML of recycled water in 2002. Th e recycled water is used within the process plant and comprises almost 30% of the total process water use in 2002. Total water extraction for processing varies from year to year but is generally lower than the annual target of less than 7000 ML.

Water for use by the camp operation is extracted from a pond within the lease area which is surrounded by rehabilitated rainforest. Th e amount used during 2002 was 568 ML which is 7.5% of the total fresh water used by the operation.

Water QualityTh e quality of water discharged from the site is strongly infl uenced by the production of tailings or waste from gold processing and the run-off water from the mine. Th e main contaminants in the tailings are Cyanide (CN) and elements from the ore. Th e main contaminants in the mine run-off are the sediment and ARD products.

Key parameters or indicators have been established to track the performance of the water management system. Th ese include the total amount of Cyanide (CNtotal) and concentration of Mercury (Hg) in the discharge associated with the tailings. Other performance indicators for the mine run-off are the pH and concentrations of sediment [total suspended solids (TSS)] and Manganese (Mn).

Th ese indicators are measured daily and the results incorporated into response procedures which determine lime-dosing and siphon levels. Other elements such as Lead (Pb), Zinc (Zn), Arsenic (As) and Iron (Fe) are also monitored regularly at strategic locations within the lease area.

Th e upgrades of the water management system have resulted in a gradual reduction

in the levels of Mn released from the mine. Th e compliance limit for Mn at the discharge point is 2.0 mg/L and this level was exceeded on 17 days during 2002. Likewise the compliance

limit for cyanide (0.05 mg/ L) and sediment (TSS– 200 mg/L) were exceeded on one and nine days respectively. Th ese exceedences are within the 95% annual compliance standard for daily monitoring.

Dredging, addition of a lime dosing plant and review of pumping strategies will continue through 2003 to further reduce any exceedance of compliance limits. Th e TSS in the Kelian River increased

during 2001 as a result of artisanal mining activities adjacent to KEM and upstream of the water discharge location. Th e removal of these miners by the local government in early 2002 has helped address this issue, but high TSS levels continue to be experienced from the un-rehabilitated artisanal mining areas.

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Aquatic MonitoringMonitoring of fi sh and prawns (nekton) within the Kelian and Namuk Rivers has been undertaken annually since pre-mining. Th is monitoring is considered a critical component of the environmental

management system as it indicates whether there are suffi cient numbers of edible fi sh for the surrounding communities.

Th e Kelian River consists of a diverse range of fi sh and prawns with over 100


species represented. About 12 – 15% of these species are routinely present, accounting for more than 80% of the total sample. High sediment levels over extended time periods have been found to cause a less diverse range of fi sh and prawns.

Sedimentation of the Kelian River from construction activities in 1991 and 1996; and artisanal mining in 2001 all caused signifi cant reductions in the diversity of fi sh and prawns. However, when these activities stopped the diversity recovered to pre-mining levels within two years. Similar results are expected in the 2002 data analysis and 2003 monitoring, following the removal of the artisanal miners.

Trace element concentrations [Copper (Cu), Lead (Pb), Zinc (Zn), Cadmium (Cd), Mercury (Hg), Arsenic (As), Manganese (Mn), Antimony (Sb) and Selenium (Se)] have been regularly measured in edible muscle tissues of fi sh and prawns from the river and from the impoundments of the tailings dam and polishing ponds.

Concentrations of Cu, Zn and Cd have remained low [less than 8% of the recommended maximum residue limits (MRL)] over the life of the mine and there is no evidence of bioaccumulation of these elements even in fi sh in the tailings dam or polishing pond.

Concentrations of other elements, Pb, As, Sb, Se and Hg have varied over the life of mine primarily due to changes in ore types and also a contained tailings spill in 1992 into the polishing pond. Th e data analysis of 2001 samples indicated that current levels in the fi sh comply with public health standards.

Levels of Mn in fi sh tissues has also varied over the life of the mine in response to changes in water quality from ARD products. Improvements in water management have infl uenced Mn tissue levels; 2001 concentrations of Mn (<500 ug/kg) are similar to pre-mining levels and do not pose a threat to public heath.

EnergyEnergy is used for two main purposes – to produce electricity for processing and to operate mining equipment.

Fuel UseDiesel is the major fuel used to produce energy at KEM with nearly 33 000 tonnes used to produce electricity and almost 30 000 tonnes used to operate mining equipment.

Th e amount of fuel used in mining is related to haul distances, haul road grades and volumes of material moved. As the mine operation approaches closure in April 2003, the haul distances


and road grades from the base of the pit to the process plant will increase, leading to increased fuel consumption. Th is will, however, be off set by the reduction in waste material moved.

Electricity UseElectricity is produced by the KEM power station located next to the Process Plant. Th e total electricity use and effi ciency of the power station is strongly infl uenced by the nature of the ore mined. Harder ore types require substantially more power to process than softer ore.

Th e mine blends ore to maximise production of gold and optimise use of stockpiles. Total material mined ex-pit in 2002 was 25.4 Mt, marginally above the level in 2001. During 2002, the blending strategy increased the effi ciency of energy use in processing with a 6% reduction in fuel use in spite of a 4% increase in ore milled and 14% increase in gold produced, compared with 2001.

Greenhouse Gas EmissionsTh e greenhouse gas emissions at KEM have steadily increased in line with haul distances and the consequent reduction in fuel effi ciency per tonne. Th is trend is expected to reverse upon completion of mining in the pit (due to less mining equipment being used) and once the number of rehabilitated areas increase

and these convert greenhouse gases into biomass.

WasteA number of wastes are produced during the operation at KEM. Th ese are wastes associated with the mining and processing of the gold and wastes produced by camp operations. In accordance with Indonesian regulations, hazardous wastes are sent off -site to licensed facilities while other wastes are disposed of on-site into designated areas.

Operational WasteGold processing produced 7.3 Mt of tailings which was pumped to the Namuk Tailings Dam for storage below water. Th is waste is monitored annually to ensure that it meets Indonesian government standards for non-hazardous waste.

Waste oil and grease have been classifi ed as hazardous waste (B3) and are sent off -site regularly to government certifi ed companies for recycling. Other non-hazardous wastes which are recycled by the local community include used batteries, scrap steel and empty drums. Wastes that cannot be recycled and are non-hazardous, such as rubber and used oil fi lters, are dumped on-site within waste dumps and buried.


Camp WasteCamp wastes are classifi ed as either soft or hard wastes. Soft wastes are biodegradable products from the mess facilities that are collected and combined with shredded paper and vegetation to produce compost used in the rehabilitation programme. Cardboard, plastic and other miscellaneous materials are classifi ed as hard waste. Th ese wastes are collected daily and buried in the waste dumps.

Special Environmental Activities

Clean-up DayTh e annual KEM Clean-up Day was held in September 2002 to coincide with the Clean up the World Campaign. Th e event was hosted jointly by KEM and the local government environmental agency. Th e areas cleaned up included the mine site, mine access road and local

villages. 1500 employees and contractors from the mine and 3000 local residents and school children were among the clean-up team.

Birdwatching WeekTh e annual bird watching week which is normally held in October in co-operation with BirdLife International had to be cancelled in 2002 due to high levels of smoke haze from nearby forest fi res. Th e smoke haze lasted from July to October and was associated with a prolonged dry season period.

Biodiversity SurveyA biodiversity analysis was completed in 2002 following a series of surveys conducted during 2001 and 2002.

Th is survey concluded that the general forest type in, and surrounding, the lease area is lowland forest on rolling and steep hills, dominated by trees from

the Dipterocarpaceace family (Meranti hardwoods) in the upper canopy with species from the Euphorbiaceae and Myrtaceae families in the lower to upper canopy. Th e Kelian area lies in the southeast part of Borneo and is isolated from other regions by the Mahakam River in the north, the Barito River in the west and the Muller Mountains in the northwest. Th ese natural barriers have resulted in a lower species diversity of this area compared to other areas of Borneo. Th e area does not contain populations of elephants, rhinos or orangutans, however there are species of small mammals and frogs that are endemic to this area.

Th e results of the biodiversity survey indicated that the primary forests and the selectively logged forests have a species richness and diversity considered normal for lowland forests in Borneo. Th e secondary forests are generally less diverse, with a greater number of

generalist species.

Th e biodiversity survey, combined with information from the 1990 pre-mining Environmental Impact Assessment and animal sightings recorded over the past 10 years produced the following summary of species observations:

� Th ere were 334 plant species recorded from 60 families.

� Bird surveys recorded 255 species in 43 families, including four species endemic to Borneo, 49 species listed as endangered, 24 species subject to trade restrictions and 51 species protected by Indonesian law.

� Amphibian and reptile surveys recorded 48 species of frogs in 5 families with 19 species endemic to Borneo. Reptiles were recorded with 38 species in 11 families with 3 endemic species, 1 species listed as endangered and 3 species subject to trade restrictions.


� Mammal survey found 54 species from 17 families with 8 endemic species, 10 protected by Indonesian law, 17 species listed as vulnerable or endangered and 13 species protected. Among the mammals are 6 species of primates, 2 of which are endemic to Borneo

Th e results of this survey will support the application to change the forest status to Protection Forest.

EconomicsFinancial Performance

RevenueTh e total revenue earned by KEM during 2002 was US$170 M, primarily from the sale of gold and silver.

CostsTh e total cost involved in operating KEM during 2002 amounted to US$142.1 M. Th e majority of these costs were operating costs of US$99 M.

ProfitTh e profi t before tax earned by KEM was US$27.9 M. Tax of US$12.2 M was charged, resulting in a net profi t of US$15.7 M.

TaxationTh e Contract of Work outlines the taxes applicable to KEM. Th ese include Regional Government levies which have been approved by the Central Government in accordance with prevailing regulations at the time of the agreement. KEM is not aff ected by changes in taxation rates or new taxes which are introduced after the date of the Contract of Work.

Regional TaxesIn addition to taxes which are paid to Central and Regional Government taxation authorities for subsequent distribution to the regions, the following regional taxes and levies are paid by KEM:

� Motor vehicle transfer (BBN) and ownership (PKB) taxes. (Th ese taxes relate to vehicles which must be registered for use on public roads and do not extend to heavy mining equipment.)

� Ground and surface water utilisation tax.

� Regional development tax.

� Land & building tax.

Th ere are a number of additional regional taxes and levies which the Regional Authorities have raised with KEM. Th e status on these is outlined below:

� Road Lighting Tax - Regional Regulation 9/1993 of Kutai Regency imposes a road lighting tax for electricity supplied by PLN (National Electricity Authority). KEM generates its own electricity and does not receive or use any electricity from PLN. In addition, the tax was introduced after the Contract of Work and does not, therefore, apply to KEM.


� Hotel & Restaurant Tax – Th is tax applies for hotels and restaurants where meals and beverages are provided and are charged to guests. Advice from the Directorate General of Taxation has confi rmed that the catering service provided to KEM by its catering contractor, PBU, is not a restaurant service subject to the Hotel and Restaurant Tax, but is a catering service subject to value-added tax (VAT). KEM and PBU are complying with the VAT legislation.

� C Class Minerals Tax – Regional Regulation 13/1994 outlines the basis for utilization of C Class Minerals. KEM is not subject to this tax as it does not trade in C Class Minerals. In addition, the tax was

introduced after the Contract of Work and does not apply to KEM.

Value Added Tax (VAT)Although KEM has complied with Indonesian VAT law and has sought restitution of VAT input credits in accordance with the law, the Indonesian VAT authorities have withheld repayment of these credits. KEM sells gold granules and silver crystals; both of these items are vatable products under the VAT law. Th e VAT authorities have sought to arbitrarily establish a taxation point inside the KEM production process (at the point of production of ore), and to disallow VAT credits for costs incurred prior to this point. Th is is not in accordance with the law and is being challenged by KEM.

Support for Regional DevelopmentKEM and the Regional Government agreed in 2002 to a framework under which KEM would contribute up to Rp10 billion (approximately US$1 M) per year from 2002 to 2004 for development projects selected by the Regional Government. Th e Regional Government has nominated two projects - Road Asphalting of part of the Access Road between Melapeh Baru and Jelemuq, and an Aviation Services Project - for the period 2002 to 2003. Finalisation of the agreements for these projects is in process. KEM has paid the fi rst Rp10 billion in 2002 and will pay the second Rp10 billion in early 2003.

A summary of taxes and imposts payable to Government over the period 1995 to 2002 are presented in Table 1: Summary of Taxes and Imports Payable by KEM to Indonesian Government 1995-2002 (US$ thousand Historical Costs).

Community Expenditure

During 2002, a total of US$1,586,000 was spent on programmes for the community. Refer to Table 2: KEM Community Programmes 1992 - 2002 (US$ thousand Historical Costs) Th is expenditure was primarily on infrastructure programmes that will be transferred to the government and community for ongoing maintenance.



Summary of taxes and imports paid to government (1995 - 2002) [US$, thousand]

1995 1996 1997 1998 1999 2000 2001 2002US$ 000s US$ 000s US$ 000s US$ 000s US$ 000s US$ 000s US$ 000s US$ 000s

Central GovernmentRoyalty 1,400 1,776 967 1,963 1,413 839 1,312 1,736

Corporate Tax 1,362 1,766 804 1,845 3,028 2,301 413 3,657

Interest Tax 684 588 245 387 16 0 0 9

Land Rent 47 36 16 61 22 32 354 149

Subtotal 1 3,494 4,167 2,031 4,257 4,479 3,172 2,079 5,551

Provincial GovernmentEmployee Taxes 2,454 2,752 1,095 2,198 1,969 1,450 1,497 1,967

Withholding Taxes 2,356 3,080 1,623 1,911 3,110 4,762 1,617 4,924

VAT, VAT BM & Import Tax 6,845 9,210 3,876 6,486 4,929 3,544 5,102 6,793

Customs Duties 142 22 88 41 7 78 30 1,707

Land & Building Tax 109 107 45 36 41 26 23 9

Fiscal Tax 44 21 9 23 31 17 15 22

Expatriate Permits 0 0 92 95 91 83 98 83

Other Taxes 0 0 46 21 8 6 25 10

Subtotal 2 11,951 15,193 6,874 10,810 10,186 9,965 8,408 15,516

Regional GovernmentDisturbance Permit (HO) 0 0 0 0 0 0 10 12

BBN & BKB Taxes 52 49 17 11 13 20 16 22

Ground & Surface Water Use

27 28 12 6 16 9 0 0.03

Development Tax 0 0 0 0 0 0 0 1,125

Subtotal 3 79 77 29 17 29 30 27 1,159

TOTAL 15,524 19,437 8,934 15,084 14,693 13,167 10,513 22,226

Table 1:

As mine closure approaches, the community initiatives are focussing on sustainable health, education, agriculture and capacity-building (self-help) programmes through the Rio Tinto Foundation.

KEM Community Programmes Historical Costs (1992 - 2002) [US$, thousand]

Programmes 1995 1996 1997 1998 1999 2000 2001 2002

Government & Community Relations 0 0 0 0 0 0 0 0External Relations Survey 0 0 0 0 0 0 0 88Community Relations Management 762 425 351 482 100 72 215 285Water & Sanitation 0 176 111 76 68 345 128 97Health 0 30 2 0 84 0 0 0Education 0 39 46 89 84 95 61 266Community Facilities 0 0 0 34 215 101 134 285Income Generating Activities 0 0 0 0.6 4 0 0 0Tutung Electricity 0 0 0 0 249 63 46 63Access Road Asphalt 0 0 0 0 362 0 1,068 486Community Communication 0 0 0 0 0 168 30 4Self-help Groups 0 0 0 0 0 1 17 12

TOTAL 762 670 510 682 1,166 845 1,699 1,586

Table 2:

D uring 2002, a total of

US$1,586,000 was spent on programmes for the community.

Operational Performance Indicators & TargetsA range of social, safety, environmental and production performance indicators were established in 2002. Refer to Table 3: Operational Performance Indicators & Targets.

Mine Closure Th e mining operations at KEM will cease in 2004 following exhaustion of ore from the pit and completion of stockpile processing. A comprehensive stakeholder engagement process has been undertaken over the past two years to ensure that closure plans are sustainable beyond the life of the mine and that permanent benefi ts remain in the region.


Stakeholder Engagement

Mine Closure Steering Committee (MCSC) In the initial mine closure planning phase KEM approached key stakeholders to consult on critical post-closure issues which would impact the environment, the surrounding communities and the government authorities. Issues and options were discussed and solutions and

MCSCRepresentatives (decision-making)

MCSC SecretariatCo-ordination & Communication

GovernmentStakeholders• Local (Bupati)

• Regional•National

CommunityStakeholders

• NGO's (e.g. LKMTL)• Traditional Authorities

(e.g. Kepala Adat)

University/TechnicalStakeholders

• Local Universities• Regional/National

Universities andResearch Institutes

Company Stakeholders• PT KEM

• Rio Tinto Indonesia• Rio Tinto Grp

Working Group 1DAMS

• Representatives drawnfrom stakeholder groups

Working Group 2ENVIRONMENT

• Representatives drawn

from stakeholder groups

Working Group 3SITE & ASSETS

• Representatives drawnfrom stakeholder groups

Working Group 4Community Dev. &

Reg. Planning• Representatives drawnfrom stakeholder groups

Mine Closure Steering Committee

directions were determined through a consultative process. Th ese issues, such as post-closure land use, rehabilitation standards and water quality performance indicators would now be incorporated in the mine development planning, but this was not the practice at the time of the KEM development in the early 1990s. Th e need for extensive consultation was identifi ed during the development of the 1998 Closure Statement and


Operational Perfomance Indicators & Targets

Operational Performance Indicator

Performance 2001

Target 2002 Performance 2002

Target 2003

ENVIRONMENTAL

Operational Discharge Water (WS05)*Hg (mg/L) <0.00005 <0.002 <0.00005 <0.002

Mn (mg/L) 1.00 <2.00 0.87 <2.00

pH 8.00 6.00 � 9.00 8.13 6.00 � 9.00

Total CN (mg/L) 0.00 <0.05 0.01 <0.05

TSS (mg/L) 35 200 43 200

Operational Receving Water (PT24)*Hg (mg/L) <0.00005 <0.001 <0.00005 <0.001

Mn (mg/L) 0.00 <0.50 0.17 <0.50

pH 8.00 6.00 � 9.00 7.46 6.00 � 9.00

Total CN (mg/L) <0.01 <0.05 <0.01 <0.05

Landform Stability

Total area disturbed (ha) 1,109 <1200 1190.45 < 1200

Rehabilitation

Total Area of rehabilitation EOY 2003 (% of total disturbance)

79 85 46 83

Resource Conservation

Total extraction from Kelian River ML/year

6,836 <7000 6987 <7000

Extraction kL/t ore processed 1.00 < 0.90 0.92 < 0.90

Water recycled % of total use* 27 >=30 27.70 >=30

Energy consumed MWh/kt ore processed

17 >=20.50 19.69 >=20.50

SAFETY

Lost Time Frequency Rate 0.38 0.25 0.28 0.17

Lost Time Injury Severity Rate 1.96 2.51 7.32 4.74

NOSA Safety Effort Rating % 83.50 85.00 82.84 85

SOCIAL

Agricultural/Food Security Programme

No. hectares under cultivation 0.00 not yet determined

5.00 60

Self-Help Groups

No. self-help groups operating 70 75 75 75

Mine Closure Employee Training

No. hours mine closure training conducted

not recorded not yet determined

477,424 510,072

* average daily concentration

Table 3:

Th e MCSC confi rmed that it was essential that any options chosen for closure would be sustainable and would be supported by all members of the committee.

Th e function of the MCSC is to receive recommended options from the four Working Groups (Dams; Environment; Site and Assets; Community Development and Regional Planning). Th e MCSC then discuss and either endorse the options or request the Working Groups to undertake further research and analysis. Each endorsed option is then incorporated in the KEM closure planning process and implemented in accordance with

the MCSC recommendations. Refer to Table 4: MCSC endorsed options.

Public Disclosure ProgrammeA Public Disclosure Programme has commenced to inform the communities about the closure issues which may directly impact on their lives. In a 2000 village survey, communities in the vicinity of the mine site indicated that, with timely and accurate information, they can plan and adjust to the uncertainties of mine closure. Accordingly, in July 2002, KEM commissioned an independent survey of 28 villages around the mine site to identify community concerns

about mine closure and to propose a community-preferred strategy for better informing these villages.

Th e survey revealed that most village concerns focused on:

� post-closure employment opportunities,

� a post-closure economic downturn,

� concerns about the maintenance of village infrastructure,

� the future of benefi cial programmes from KEM and the Rio Tinto Foundation,

consequently this requirement was implemented through the Mine Closure Steering Committee (MCSC) process. Th e model of Business Partners for Development (BPD) supported by the World Bank and CARE International representatives was used to establish the Kelian MCSC.

Initial meetings of the MCSC were held during 1999 and early 2000 and involved Indonesian government and KEM representatives. Despite KEM eff orts, the committee did not include representatives from the community until late 2000 when key community representatives from local non-government organisations and traditional law (Adat) organisations joined the process.

Initial meetings focused on the development of procedures and principles for the MCSC. Th e results of these discussions were documented in a Charter which is available on website www.kelianmineclosure.org

In addition to the role and responsibilities of the members, the Charter determined the criteria that would apply for selection of approved closure options including risk levels, legality,acceptability to stakeholders, fi nancial prudence, transparency, governance, robustness and social and environmental responsibility.

Continued on page 32


T he MCSC confi rmed that

it was essential that any options chosen for closure would be sustainable and would be supported by all members of the committee.


Table 4: MCSC Endorsed OptionsIssue Category Decision Date Communique No. Working GroupProcess The Contract of Work is the basis for all agreements and will be respected 30/05/01 2 All

Standards, completion criteria and performance indicators can be agreed at local government level with input from MCSC

30/05/01 2 Environment; Dams

Community A boarding school (asrama) with a capacity of 2 x 100 (male & female) students and garden run by students will be built from besser blocks to replace the existing school bus system

1/03/02 5 Community

A communications programme to provide information on closure issues will be implemented by KEM with assistance from appropriate government and community representatives

10/09/02 7 Community

KEM will evaluate continuation of the current large electrical genset in Tutung under PLN management with a KEM subsidy for the 444 group until mine closure in December 2004.


A survey of 25% of local employees (West Kutai) will be conducted over 10 years to determine how people have used: the skills they have acquired during their employment and from the closure training programmes; and the earnings from KEM including their redundancy package.


Dams & Permanent Structures

The standards that apply to the Dams will be in accordance with ICOLD and DSU certification

30/05/01 2 Dams

Aquaculture was considered to be feasible for the dams and further research will be pursued

30/11/01 4 Dams; Environment

Capacity and cost estimates of minihydro study were determined. PLN indicated that they were not interested in pursuing the option any further at this stage.

1/03/02 5 Dams

Closure programmes must include opportunity for community to test for gold bearing materials in Namuk and Nakan Dams

31/10/02 8 Dams

Dams & Permanent Structures

The following option was recommended by an Independent Review Team, the independent Dam Experts and endorsed by the community reprsentatives and MCSC for the Namuk Tailings Dam: - 80 Mt to stay in-situ; 10 Mt will be directed into the pit; the dam wall structure will be upgraded to ICOLD standard; an emergency spillway will be constructed; long term monitoring, maintenance, security and funding; socialisation and community programmes targeted to alluvial miners and communities as identified in the community study presented on 31 October 2002.

12/12/02 9 Dams

Protection Forest

The entire Pinjam Pakai area will be converted to Protection Forest after mine closure

30/11/01 4 Environment; Site & Assets


Protection Forest

A multi-stakeholder board will be established to manage the Protection Forest 30/11/01 4 Environment; Site & Assets

A regulation from the West Kutai Regional Government (PERDA) is required to support the establishment of the Protection Forest Management Board


A post-closure Forest Management Plan will be developed and will involve agreed community members.

28/11/02 Namuk Tailings Dam Independent Workshop

Dams; Environment; Site & Assets

Closure Standards

Rehabilitation closure standards and performance indicators for stabilization, topsoil and revegetation of mined out and replacement areas

30/11/01 4 Environment

Post-closure Kelian River water will be in accordance with Level 1, PP82/2001 1/03/02 5 Environment

Post-closure Lake water will be in accordance with Level 11, PP82/2001 1/03/02 5 Environment

Mn in post-closure Kelian River water will be 0.5 mg/L 10/09/02 7 Environment

Mn in post-closure Lake water will be 2.0 mg/L 10/09/02 7 Environment

Post-closure Discharge water will be in accordance with Governor�s Decree 26/2002 for effluent standards; with Mn at 2.0 mg/L


Post-closure Groundwater will be five times the Kelian River standards (PP82/2001, Class 1); with Mn at 0.5 mg/L


Alluvial Gold/Wetlands

Alluvial gold will be mined with appropriate technology to target 100% recovery; a wetland to be established in mined-out area with the remaining area to be rehabilitated; all buildings to be demolished; ex-buildings to be utilised for education, cultural and research centre as well as other public facilities in the Kecamatan Linggang Bigung.


Based on Contract of Work, KEM has the right to mine the alluvial gold deposit, however mining of the deposit requires an ANDAL. Approval for the ANDAL must be obtained from the West Kutai local government


A communications strategy involving KEM, Government and communities wil be implemented as a critical component of the project.


The benefits from the alluvials/wetland project will be protection of the environment and community health; taxes and royalties; local contracts; employment; transfer of good practice and economic flow-on effects.


Asset Disposal

The donation of the following assets will be for Kecamatan Linggang Bigung or for other areas as determined by the West Kutai Regional Government in accordance with MCSC criteria : site and Jelemuq accommodation and messes; site offices, sports facility, music room and bar; clinic and equipment

1/03/02 5 Site & Assets

97 buildings are available for demolition or relocation. 60 buildings will have materials suitable for reuse after demolition, 18 buildings are suitable for relocation and the remaining 19 will be scrapped



Asset Disposal

During 2004 an inventory list and process for sale and/or donation of other assets and materials scrapped by KEM will be developed in accordance with the Contract of Work


West Kutai Regional Government will have the responsibility of determining the allocation of agreed buildings in accordance with Communique No. 4 and No. 5


Trust Funds Three Trust Funds were endorsed: Closure Remediation Fund, Permanent Structure (Monitoring & Maintenance) Fund and Transition (Community) Fund

1/03/02 5 All

An off-shore KEM Closure Foundation will be established in 2004 to manage the funding of the Monitoring and Maintenance; and Community Transition Funds. The Board of the KEM Closure Foundation will initially have the following members: Director General Geology and Mineral Resources; Bupati West Kutai, President Director KEM; Rio Tinto Representative; and NGO/Academic Representative

10/09/02 7 All

Trust Funds A Forest/Site Management Board will be established to manage the implementation of the Monitoring and Maintenance Fund. The Board members will consist of: Head of Forest Service West Kutai; Co-ordinator of Site Protection Team; Director General Forest Protection and Nature Conservation; Head of Environmental Agency West Kutai; Executive Director LKMTL; Environmental NGO/Partner Representative; and Community Representative

10/09/02 7 All

A Community Foundation (currently the Rio Tinto Foundation) will manage the implementation of the Community Transition Fund. Rio Tinto and KEM support for programmes will be phased out by 2006. The Foundation will be expected to become financially self-sustaining by attracting funding from external donors and income generating projects. The Board members will consist of: President Director KEM; President Director Rio Tinto Indonesia; Bupati West Kutai; International Development Agency; Local NGO; and Community Representative

10/09/02 7 All

� the prospects of making a living from alluvial mining and farming in the Contract of Work area

� the transfer of responsibilities from KEM to other bodies and authorities.

Th e survey also revealed that villagers preferred face-to-face interaction with informed specialists to better understand the sequence of events leading up to closure and to enable an on-the-spot exchange about matters of importance. People indicated that a series of meetings to discuss closure should be accompanied by audiovisual presentations to help explain more complex issues and plans.

To these ends, KEM, supported by the MCSC, designed a village-level disclosure programme to inform village communities about MCSC decisions. Th e programme would answer a range of questions arising from the village concerns referred to above. Villagers noted that information provided by KEM should be specifi c and should address community anxieties about closure.

Th e Public Disclosure Programme began in the fi rst week of October 2002, well in advance of mine closure, and will continue throughout 2003. KEM has formed a dedicated Community Communication Team for this purpose.

Th e team focussed on the mine closure concerns raised by villagers during the July 2002 survey and developed simple presentations for community discussions in the 28 villages surrounding the mine site. Th e 30-minute presentations which were followed by question and answer sessions have improved community understanding of mine closure plans and programmes.

Closure ImplementationTh e implementation phase of closure will involve ongoing consultation with key stakeholders including community members and the transitional authorities. Th is engagement will continue to involve KEM and Rio Tinto until the agreed closure works are completed, closure standards have been achieved and transitional authorities can demonstrate sustainability.

Closure CommitmentsA number of commitments for closure have been agreed through the MCSC. Implementation of these commitments commenced in 2002 and will continue until closure standards have been achieved. Th e commitments include:

Closure Commitments 2002-2007

� Namuk Tailings Dam storage facility upgrade to international

and Indonesian standards.

� Nakan Waste Rock Dam fl ooding and Nakan Wetland construction.

� In-pit disposal of tailings following pit exit in 2003.

� Dredging and removal of Polishing Ponds.

� Demolition of Camp and Process Plant.

� Disposal of Assets in accordance with agreed procedures.

� Removal of alluvial gold and Wetland construction.

� Community involvement in sterilisation of alluvials and assessment of economic potential of the tailings dam.

� Recontouring and revegetation of waste dumps.

� Aquaculture in Namuk and Nakan Lakes.

� Conversion to Protection Forest.

Post Closure Commitments � Provision of Ongoing Monitoring

– surface water quality, ground water quality, rehabilitation success, fauna succession, geotechnical stability,

employee and community well-being

� Provision of Ongoing Maintenance – permanent structures, wetlands, rehabilitation

� Provision of Ongoing Security – permanent structures, forest protection

� Consideration of Benefi cial Uses – in accordance with Forest Management Plan

Th e map on the right presents an impression of what the land will look like after the closure commitments have been completed.

Closure CostsTh e cost of closure has been estimated based on the scope of the closure works fl owing from the directions endorsed by the MCSC. Funding for the closure activities is being provided from cash generated by the KEM operation. A mine closure deposit has been established to cover the cost of mine closure works following cessation of operations. US$15 million had been deposited into this account by the end of 2002.

From page 28


Closure Performance Indicators & TargetsA number of performance indicators and targets have been determined through the MCSC. Th e key indicators have been listed in Table 5. Th ese include standards and targets for permanent engineered structures, rehabilitation, water quality and aquatic biology. KEM has committed to the achievement of these stringent performance indicators prior to relinquishment of the Contract of Work.

Final Landforms at 2008


Table 5: Closure Performance Indicators & TargetsClosure Performance Indicator TargetENVIRONMENTAL

Discharge Water (WS05)*

Mn (mg/L) 2

Total CN (mg/L) 0.05

Free CN (mg/L) <0.01

Hg (mg/L) 0.002

pH 6.0 - 9.0

TSS (mg/L) 200

Zn (mg/L) 5

Pb (mg/L) 0.1

TDS (mg/L) 2000

Fe (mg/L) 5

As (mg/L) 0.1

Sulphide as H2S (mg/L) 0.1

DO (mg/L) > 6.0

Temp (0C) Normal +/- 30

Lake Water (Namuk, Nakan & Pit)*

Mn (mg/L) 2



Hg (mg/L) 0.002

pH 6.0 - 9.0

TSS (mg/L) 50

Zn (mg/L) 0.05

Pb (mg/L) 0.03

TDS (mg/L) 1000

Fe (mg/L) 1

As (mg/L) 1


DO (mg/L) > 4.0


Kelian River Water (PT24)*

Mn (mg/L) 0.5



Hg (mg/L) 0.001

pH 6.0 - 9.0

TSS (mg/L) 50

Zn (mg/L) 0.05

Pb (mg/L) 0.03

TDS (mg/L) 1000

Fe (mg/L) 0.3

As (mg/L) 0.05


DO (mg/L) > 6.0


Groundwater (All groundwater sites)**

Mn (mg/L) 0.5



Hg (mg/L) 0.005

pH 6.0 - 9.0

TSS (mg/L) 50

Zn (mg/L) 0.25

Pb (mg/L) 0.15

TDS (mg/L) 1000

Fe (mg/L) 1.5

As (mg/L) 0.25


DO (mg/L) > 6.0

Temp (degrees A32C) Normal +/- 30

Landform Stability

Area reprofiled (% total area to be reprofiled)

100

Land contamination remediation

Area remediated (% of total contaminated area)

100

Rehabilitation

Total Area of rehabilitation (% of total disturbance)

100

Geotechnical Stability

Nakan Dam certified to ICOLD FoS of >=1.5

2003

Namuk Dam certified to ICOLD FoS of >=1.5

2004

SOCIAL

Agricultural/Food Security Programme

No. hectares under cultivation

420

Self-Help Groups

No. self-reliant self-help groups

75

*average daily concentration; **average monthly concentration


Closing WordsKEM is committed to working together with stakeholders to secure sustainable solutions both during the operation and following mine closure. KEM believes that this goal can only be achieved through an eff ective partnership in which all parties share an understanding of the challenges ahead and work together to address these. 2002 has demonstrated that KEM and the stakeholders can work together to address the challenges.

Balancing mineral extraction operations with legitimate community and environmental concerns is challenging, but is necessary if we are to secure sustainable solutions. KEM is committed to achieving this balance and this report seeks to outline the current status of the various community initiatives and relationships.

We respect and appreciate feedback on this report. Any input will be used to improve future reports and will assist us in managing and meeting stakeholder expectations in the years to come.

Th ank you.


B alancing mineral extraction

operations with legitimate community and environmental concerns is challenging, but is necessary if we are to secure sustainable solutions.

GlossaryAcid Rock Drainage

(ARD) A phenomenon that occurs at a number of mine sites where rocks exposed to air produce acid in water that drains from it. Not all rocks are liable to acid rock drainage.

Adat

Bahasa Indonesia for existing customary law.

Alluvial/artisanal miners

A group of largely transient people who have used both manual and mechanical means to recover gold from the river bed of the Kelian River close to and downstream of the Kelian mine.

ARD

Acid Rock Drainage (see above).

Asrama

Bahasa Indonesia for boarding school

AWAS

Audit Workers’ Attitude to Safety

Contract of Work

Legally binding document between KEM and the Indonesian Government specifying the terms and condition of the mining operation from exploration through to relinquishment.

CoW

Contract of Work between KEM and the Indonesian Government.

Dayaks

Th e dominant and original ethnic group in the area around the mine site.

ICOLD

International Committee on Large Dams.

KEM

P.T. Kelian Equatorial Mining.

Komnas HAM

Indonesian Human Rights Commission.

Limited Production Forest

Forest in which trees of selected species and size

restriction is permitted.

LKMTL

A local environmental and community non-government organisation.

MCSC

Mine Closure Steering Committee.

Nakan Waste Dump Dam

Nakan Waste Dump Dam. Large dam constructed across the Upper Nakan valley in order to place NAP waste under water to prevent ARD. Since

1995 KEM has stored all waste with the ability to produce acid rock drainage in this purpose built dam. Th e rock that is being stored in the dam is being progressively submerged by water to seal off from exposure to air and resultant acid production.

Namuk Tailings Dam

A purpose built dam used to store all tailings produced by the process plant.

NGO

Non-government organisation.

NTD

Namuk Tailings Dam (see above).

NWDD

Nakan Waste Dump Dam (see above).

Pinjam Pakai

Bahasa Indonesia for Borrow and Use. Th e Pinjam Pakai agreement is an offi cial document from between KEM and the Indonesia Department of Forestry, which permits KEM to operate a mine in a forestry area.

Pit

Th e actual working area where ore is recovered from the mine.

Polishing Ponds

Water-holding structures designed to retain sediment and reduce the level of contaminants prior to release from the mine site.

Process Plant

Th e equipment used to extract the gold from the ore recovered from the mine. It consists of equipment to crush and grind the rock, mix and add water and chemicals to release the gold from the ore, and then to recover and process the gold into gold bars.

Protection Forest

Legal status that preserves the hydrological functions of the watershed by maintaining the forest cover.


RTF

Rio Tinto Foundation.

Tailings

Th e main waste stream from the process plant. Tailings is a slurry of sand and silt-sized particles from which the gold has been extracted.

TSS

Total Suspended Solids.

VAT

Value-Added Tax.

WALHI

Indonesian umbrella association for environmental non-government organisations.

AbbreviationsMeasurementscentimetre cmcubic metre m3

Degree Celsius (centigrade) °Cgram ghectare hakilogram kgkilolitre KLkilometre kmlitre Lmetre mmicrogram µgmilligram mgmillilitre mLmillimetre mmmillion litre MLmillion tonne Mttonne t

Currencymillion Mbillion bnUnited States dollars US$Indonesian Rupiah Rp.

ElementsAntimony (Sb)Arsenic (As)Cadmium (Cd)Calcium (Ca)Chronium (Cr) Copper (Cu)Cyanide (Cn)Iron (Fe)Lead (Pb)Manganese (Mn)Magnesium (Mg)Mercury (Hg)Nickel (Ni)Potassium (K)Selenium (Se)Sodium (Na)Zinc (Zn)

External AssuranceTo the President Director of PT Kelian Equatorial Mining

Yayasan Dana Mitra Lingkungan (DML) was requested by PT Kelian Equatorial Mining (PT KEM) to provide constructive feedback, opinion and criticism on KEM’s Social, Environmental and Sustainable Development Report 2002.

Th e purpose of the review is to advise management of PT KEM whether the report has reasonably presented the company’s social and environmental past performance and future directions, and to review the company’s strategies and programmes in managing its social and environmental aspects.

Th e review was conducted following a visit to Kelian. Th e following activities were undertaken:

a) Discussion with PT KEM’s relevant personnel in areas of health, safety, environment, mine closure, support services, community relations, employee relations and mine operation, and

b) Visits to almost all areas of PT KEM’s site especially areas related to environmental management and community development.

Th e review examined the information

presented in the draft Social, Environmental and Sustainable Development Report 2002 and compared this with our fi ndings from our investigations, especially in regards to PT KEM’s plans for mine closure scheduled in 2004.

Based on our study and fi eld observation, our opinion is that PT KEM’s Social, Environmental and Sustainable Development Report 2002 fairly presents the performance, strategies and programmes of KEM in respect of its social and environmental, especially in regards to mine closure in 2004.

Jakarta, 20 March 2003

Tomridjo

Programme Director

Dana Mitra Lingkungan


Contributors

Kelian Equatorial Mining Provision of information, data and photographs.

Sustainable Solutions ConsultingLiaison with KEM personnel. Preparation and editing of text. Reviewing and editing of design.

Heather Robertson CommunicationsProject management and professional editing.

Kaisa BreedenGraphic design.

Hermanus Prihatna & Maha Eka SwastaPhotographers.

Th is report is printed on 50% recylced paper and 50% oxygen bleached pulp. It is chlorine free.

FeedbackComments or clarifi cation is welcome feedback in KEM’s continuing eff orts towards sustainable development.

Please contact KEM at:

Kelian Site

Tutung, Linggang Bigung

Kutai Barat

Kalimantan Timur

Indonesia

Mailing AddressPO Box 269

Balikpapan 76114

Indonesia

Email: [email protected]

Web site: <www.keliangold.com>


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Kem Se Report 2002

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