JAKARTA: When Hong Kong-listed G-Resources Ltd opened its $1 billion Indonesian gold mine in July, six months behind schedule, it had high hopes it would be hitting its annual output target of 250,000 ounces by next year.
Less than three months later the company halted operations after hundreds of protesters blocked the entrances to the Martabe mine, in the north of Sumatra island, in a dispute over the installation of a water discharge pipe.
It began laying off the 2,000-strong workforce at the mine, the company's sole asset, this week.
"There is misinformation being spread, relating to poisoning of waters and other issues relating to the river," Peter Albert, chief executive at G-Resources told Reuters.
With the world's fifth-largest gold reserves, estimated at 3,000 tonnes, Indonesia is eager to ramp up exploration and production as it pursues its ambitious target of becoming a top 10 global economy by 2025.
But illegal mining, politicking between central and regional government and a spate of demonstrations and violent attacks against junior gold miners are hampering development of the sector and could deprive it of crucial foreign investment.
"It is the first major mining investment of this size in Indonesia for more than 10 years," said G-Resource's Albert, whose company is backed by investment firms Mount Kellett Capital and BlackRock Inc. "Inevitably this will put gold miners off. Investors are going to look at this and ask if this is the right environment, that's a fact."
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The push to open up new deposits is bringing miners into conflict with local communities, who complain of environmental damage and loss of livelihoods and say they are not sharing in the mineral wealth being extracted from the land in their areas.
"They feel that they did not get anything beneficial from it and thus they reject the plan from the company," Energy and Mineral Resources Minister Jero Wacik told reporters, according to a report on the Martabe dispute in the Jakarta Post. "Therefore, the company must improve its approach to the community."
G-Resources is not alone. At least six gold miners have had similar problems over the past 18 months.
Two people died when villagers and students in the town of Bima on Sumbawa island rioted earlier this year - forcing the government to revoke an exploration permit for a joint venture of Arc Exploration Limited, a small Australian-listed firm.
Back in north Sumatra, security guards could only stand and watch as hundreds of protesters burned buildings at a project run by Sihayo Gold, another Australian company.
"No specific demands - rather that 'we want you to leave the area'," said Sihayo Chief Executive Paul Willis, adding that illegal miners had stirred up the trouble.
"It wasn't anything out of the horror movies. It's a challenge that you just have to deal with. It's best described as: that's Indonesia."
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