CASE FILE |
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| Location: | Indonesia – North Sumatra |
| Project | Zinc Mine |
| Companies: | Dairi Prima Mineral, China Nonferrous Metal Industry’s Foreign Engineering and Construction Co. Ltd. and Bumi Resources Minerals |
| Key concerns:
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· High risk of a catastrophic tailings dam failure
· Human safety · Environmental damage · Population displacement · Lack of information, community consultation and consent |
| Community goals: | · Meaningful consultation on an independent and robust environmental and social impact assessment.
· Cancellation of the project unless it meets international environmental and safety standards |
| Key investors and financiers: | Postal Savings Bank of China, a financial intermediary of the International Finance Corporation, has provided working capital loans to the mine’s parent company, China Nonferrous Metal Mining Co Ltd. Dairi Prima Mineral is expected to raise 80% of the mine’s cost (approximately $366 million) through project loans. Bank of China, Industrial and Commercial Bank of China (ICBC) and Sinosure have previously expressed an interest in financing or insuring the project. |
| Our partners: | BAKUMSU Association, Mining Advocacy Network (JATAM) |
Residents of the 11 villages downstream from the Dairi Prima Mineral project have many questions and concerns about this planned zinc and lead mine in an area that seismic experts have described as one of the most earthquake-prone regions in the world.
The tailings dam that is proposed to store the mine’s toxic waste will sit above the complex of faults that produced the 9.1-magnitude earthquake that caused the 2004 tsunami. The area is also prone to torrential rainfall and landslides, making the ground particularly unstable.
Richard Meehan, a Stanford University engineer who has studied dams for more than 40 years, has examined the project and sees a disaster waiting to happen. Another strong earthquake, which he said is almost certain to occur, could unleash more than 1 million tons of mud and toxic waste on the nearby village of Sopokomil, according to computer modeling.
The risk of a catastrophic dam failure would continue to pose a threat to local communities in perpetuity, long after the mine is closed.
Frustrated at the lack of consultation and information coming from the company and the government and concerned about the impact the mine would have on their way of life and the environment they depend on, the Toba and Pak-pak communities reached out to Indonesian and international organizations for assistance.
In 2019, Inclusive Development International mapped the investment chain behind the project and helped the communities share their concerns with the various stakeholders. Our investment chain analysis identified that the International Finance Corporation (IFC) was indirectly backing Dairi Prima Mineral through its equity investment in Postal Savings Bank of China. This enabled the communities to file a complaint to the IFC’s Compliance Advisor Ombudsman, which led to a compliance appraisal completed in June 2022, which concluded that the mine and tailings dam pose an “extreme” risk to the environment and local communities. The Ombudsman report notes that a tailings dam failure “could result in significant and potentially irreversible impacts on the lives and livelihoods of several thousand villagers located downstream.”
The communities wanted the IFC to use its leverage to ensure transparency and adequate consultation about the mine, which is now in the early stages of development. Unfortunately, after the complaint was submitted, Dairi Prima Mineral ended its financial relationship with IFC’s intermediary, Postal Savings Bank of China. As a result, the Ombudsman decided not to continue its investigation.
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In 2019, the Indonesian NGOs asked Inclusive Development International to research the investors behind the Dairi Prima Mineral mine and help the communities communicate their concerns to these actors.
We have also helped the communities to engage independent technical experts, including world-renowned seismic risk expert Richard Meehan and expert on lead-zinc mine environmental issues Steve Emerman, to assess the project’s risks and the developer’s proposed mitigation measures. Sub-titled video presentations from community representatives, NGOs and technical experts discussing their findings are available here.
Our investment chain analysis found that the IFC was indirectly backing the mine through its equity investment in Postal Savings Bank of China, a key financier of the project’s parent company. The relationship with Postal Savings Bank opened the door for local communities to file a complaint in October 2019 with the IFC’s Compliance Advisor Ombudsman.
The complainants argued that the Indigenous communities downstream of the mine have not been adequately consulted about the project, much less provided their free, prior and informed consent, consistent with IFC Performance Standard 7. They also expressed their concerns about the environmental and social risks of the project, including the high risk of a catastrophic tailings dam failure.
In March 2020, the Ombudsman accepted the complaint because Postal Savings Bank of China provided general corporate loans to the mine developer. This was the first complaint involving a Chinese financial intermediary accepted by the Ombudsman And led to a compliance appraisal that concluded in June 2022, finding that the mine and tailings dam pose “extreme” risks. Unfortunately, Dairi Prima Mineral had by this time ended its financial relationship with the IFC intermediary Postal Savings Bank of China. As a result, the Compliance Advisor Ombudsman decided not to continue its investigation.
Dairi Prima Minerals is an Indonesian joint venture between the Beijing-based mining conglomerate China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd. (NFC) and Bumi Resources Minerals, a subsidiary of the Indonesian coal-mining giant Bumi Resources.
The concession area contains approximately 5% of the world’s zinc reserves. The project dates from 1998, when Dairi Prima Mineral received permission from the Indonesian government to explore for metals in a 27,420-hectare area. The project is expected to cost $453 million. Mining is anticipated to begin 42 months after all of the finance and insurance is secured. According to a 2019 draft Environmental Impact Assessment Addendum, the mine life will be 10 years.
Dairi Prima Mineral proposes to use underground mining techniques to extract the ore and bring it to the surface. Ore would then be concentrated at a facility to be constructed adjacent to the mine. Concentrated ore would likely be shipped to China, where it would be refined and used in a variety of consumer and industrial goods, especially cars.
NFC currently sells zinc to a company called Wanxiang Group, the world’s largest manufacturer of auto parts. One in three cars on the road globally contains parts manufactured by the Wanxiang Group. Its customers include Volkswagen, Ford, Citroën, Mazda, General Motors, Suzuki, Fiat, Toyota, and Daimler Chrysler. If the Dairi Prima Mineral mine becomes operational, at least some of the zinc it mines is likely to end up in cars produced by these companies.
Dairi Prima Mineral claims that most of the waste from the mine will be mixed with cement and injected back underground; the remaining millions of cubic meters of toxic waste would be stored in a tailings dam that the company says will be located 2 kilometers from the mine, behind a 25 meter high dam wall. If not properly built and maintained, tailings ponds can fail, releasing toxic waste into the environment. Even those claiming to incorporate more modern safety measures have a high failure rate (2 to 5 per year globally).
A major issue with the proposed tailings dam is its location. An expert report that Inclusive Development International commissioned on the seismic risks posed by the Dairi Prima Mineral project concluded that the “Dairi Mine is located in one of the highest risk areas in the world,” lying near the Sumatra subduction megathrust, which in 2004 and 2005 produced earthquakes of magnitude 9 and 8+ respectively. The mine site is also only 15 kilometers from the Great Sumatra fault which produces long duration or repeated earthquakes, notorious for destroying civil structures like tailings dams (especially “wet tailings”, like those that would be produced in Dairi). This, combined with the area’s very heavy annual rainfall, led the study’s author to predict that “within a few decades after the ‘closure’ of the deposit” an earthquake-induced sudden failure of the tailings dam would send “a wave of liquid mud downstream to the north.”
The social and environmental impact of a collapse could be catastrophic. Dam collapses in other areas of the world – even without such high earthquake risk – have destroyed villages, killed hundreds of people and poisoned the environment for generations. There are approximately 11 villages around or downstream from the proposed Dairi Prima Mineral mine.
Lead-zinc mines like that of Dairi Prima Mineral are some of the most environmentally problematic mines in the world. The mine will extract sulfide ore, which can form sulfuric acid when reacting with water and oxygen. Acidic conditions can lead to acid mine drainage where heavy metals become dissolved in water and then spread throughout the water system.
In addition to the waste and water issues, the Dairi Prima Mineral mine is expected to have impacts from dust and from increased heavy traffic passing through villages and towns.
Responsible investors should contact Inclusive Development International to find out how they can help ensure Dairi Prima Mineral meets its obligations to the local communities.
