The Black Market of B.C. Coal Miners

As B.C. coal miners expand into places like Mongolia and Indonesia – where costs are lower and political climates more welcoming – questions are being raised about the associated environmental and social toll – and who, if anyone, will be picking up the tab.

As B.C. coal miners expand into places like Mongolia and Indonesia – where costs are lower and political climates more welcoming – questions are being raised about the associated environmental and social toll – and who, if anyone, will be picking up the tab.

Like many who live in densely populated Indonesia, Sujatiyo dreams of space and privacy. The 36-year-old coal mine employee sheepishly describes his ambition to own a home for his family of four, a simple wooden structure that would allow them to move out of his mother-in-law’s small house with its 15 occupants – an aspiration so improbable that he glances at his brother-in-law with embarrassment as he speaks. For seven days a week, Sujatiyo works a 10-hour shift at a coal mine a one-hour motorbike ride from Tering, his village on the bank of the Mahakam River on the resource-rich island of Borneo. Today, a Muslim holiday of thanks, is his first day off in six weeks. For his efforts, he takes home about $300 a month.


Despite his abysmal wage, Sujatiyo is fortunate – and he knows it. In recent years, jobs have dried up as nearby gold and coal deposits are exhausted, leaving many in Tering unemployed. But his luck is coming to an end; Sujatiyo’s company, Thai-owned Bampu Public Co. Ltd., is set to wrap up operations at the end of the year, and he will soon join the jobless, rendering his dream of home ownership even more unlikely. “It is always in my head,” he says. “It is a burden.”

Now Sujatiyo’s hopes for employment rest on Canada, on a B.C. company developing a promising new coal mine seven hours by boat upriver. According to Vancouver-based SouthGobi Energy Resources Ltd., the Mamahak project, named after a nearby village where indigenous Dayak people live, could break ground as early as the first quarter of 2009 – news well received by locals who have never known a job market not plagued with chronic unemployment.

The Mamahak site is slated to be SouthGobi’s second coal mine, following its flagship Ovoot Tolgoi mine in Mongolia, which produced its first million tonnes of coal in late November 2008. The two sites being developed by SouthGobi – a relatively new company controlled by majority shareholder Ivanhoe Mines Ltd., also based in Vancouver – have an obvious similarity: proximity to China, the market that’s leading Asia into a coal boom with its rapidly growing demand for energy and insatiable appetite for steel. Add to the mix countries such as India – where coal consumption has doubled since 1991 and where the Delhi government plans to increase electrical generation capacity by 50 per cent by 2012, mostly by burning coal – and you’ve got the ingredients for an Asian coal rush. Asian coal production has grown by an unprecedented 80 per cent in the past decade, a boom that has attracted prospectors from all over the world, including from B.C. In the meantime, European and North American coal production has flattened or even slightly declined as coal power, seen as being dirty, has fallen out of favour among Western politicians and the public.

While there is still an abundance of high-quality coal in the ground in B.C., companies such as SouthGobi are drawn to politically unpredictable developing countries such as Mongolia and Indonesia that offer substantially lower production and transportation costs. Some miners are also drawn, say critics such as MiningWatch Canada, to parts of the world where environmental and social standards are considerably more lax than they are in North America and Europe. While financial institutions and governments, including Canada’s, are considering ways to hold companies to the same standards expected at home, the recent collapse of commodity prices – and the ensuing financial pressure that’s put on mining companies – may see those initiatives shelved indefinitely. For Sujatiyo, the global economic crisis is far from his immediate concerns. He hasn’t heard about recent gyrations in coal prices and doesn’t know where the coal from his mine is sold or what it’s used for. He just needs a job. But he is aware that workers elsewhere are better off and asks eagerly whether Canada has a welfare system for the unemployed. “Ten years after this, Indonesia will be paying for the jobless person,” he proclaims optimistically as the conversation turns toward whom he will vote for in the approaching regional election (apparent from colourful political flags all over Tering). “The destiny of this country is in my hands.” Then the call to prayer rings out from loudspeakers in the small mosque nearby and the interview comes to an abrupt end; it’s time for Sujatiyo to go pray in thanks. [pagebreak]

An archipelago of some 17,500 islands stretched across the equator between the Malaysian peninsula and Australia makes up the Republic of Indonesia. It is the fourth-most-populous country in the world, with an estimated 240 million people, and is home to more Muslims than any other. With a chronically struggling economy, employing – and feeding – such a huge population spread over so many islands has not always been easy. The 32-year presidency of Suharto was credited with substantial economic growth but was also known for rampant corruption and well over 500,000 political killings. Since his ouster during the 1998 Asian economic crisis, governance has been democratized and decentralized, and the economy has been slowly recovering, but a culture of corruption persists as local officials take their share of the resources they watched Suharto loot for so long.

In the past decade or so, Indonesia has tried to improve its lot by attracting foreign companies with investment-friendly policies designed to build an economy on the back of vast oil, natural gas, copper, gold, tin and coal resources. This shift is apparent in the growth of coal mining: although only three million tonnes were mined in 1987, an impressive 175 million tonnes were mined in 2007, making Indonesia the world’s second-largest exporter after Australia. In the meantime, according to the World Bank, 42 per cent of Indonesians continue to live on less than US$2 per day. Easy access to Asian coastal markets is one advantage of Indonesia’s coal industry, and China’s growth will ensure its continued expansion. In 2007 China consumed a whopping 41 per cent of all coal used in the world, up from 30 per cent a decade earlier and a scant nine per cent in 1967. Although in the past China met its own demand for coal with equally rapidly growing production capacity, consumption surpassed production for the first time in 2006, and analysts anticipate that China will become a net importer in 2009, a prediction that has not gone unnoticed by SouthGobi.

Although most jurisdictions mine only as much coal as they use, B.C. – with abundant hydroelectric capacity and lack of steel production – is among the few significant exporters. Over the past couple of years, B.C.’s mining companies have watched their stock values soar along with coal prices. In 2004 coal prices started to spike from the relatively stable US$40-a-tonne range they had hovered around since the 1980s, and in July 2008 prices reached an all-time high, with some high-grade metallurgical coal contracts being signed for over $200 a tonne. The global economic crisis, however, has affected the value of coal as much as any other commodity price, and many B.C. mines have since been forced to scale back production. One such company, Western Canadian Coal Corp., slashed production by almost half at its Brule mine this January, reversing plans to double production in northeast B.C. by 2012.

SouthGobi, on the other hand, may be better positioned to weather the commodities storm thanks to its heavy reliance on Asian production, and hence its lower cost position. At a September 2008 mining conference in Denver, Robert Friedland, executive chairman of Ivanhoe Mines, boasted that SouthGobi should be able to mine coal in Mongolia for less than US$1 a tonne in the future. Regardless of whether this claim could ever be realized, SouthGobi’s stock price has outperformed other B.C. companies during the recent commodity collapse, declining in value by 47 per cent between May 2007 (when it first appeared on the TSX) and January 2009, compared with Teck Cominco’s 90 per cent decline over the same period. For many investors, SouthGobi’s foray into Asia represents the next big thing, and it might allow SouthGobi to keep its head above water during these tough times.

Taking in the sounds of night in the Danum Valley Conservation Area in the Malaysian part of Borneo, it’s easy to understand why this island holds a special place in the world’s imagination. From the dark jungle drifts a symphony of cicadas, crickets, birds and frogs. Scientists at the research station – located in one of the largest swaths of undisturbed lowland forest left on Borneo – might be woken by the hysterical whooping of gibbons or shrieking disputes between long-tailed macaques high in the branches of 80-metre-tall trees that recede into the dense mist, their trunks hosts to dozens of types of vines, ferns and other parasites. [pagebreak]

Sentimental attachment to jungles aside, protecting Borneo’s forests “may well be the most critical conservation issue on our planet,” according to National Geographic. With over 300 known species of birds and 15,000 species of plants, including the largest flower and moth in the world, Borneo is known for its biodiversity. Scientists have long travelled to these rich forests to solve nature’s mysteries; many plants with medical and agricultural purposes have been found here. Yet as Danum Valley scientists argue, the value of this knowledge – not to mention the forests’ role in carbon sequestration and preventing soil erosion and floods – very seldom enters commercial transactions.

You don’t have to travel far from Danum Valley to find evidence of the massive deforestation that has already taken place on Borneo. Visiting forest reserves is like island hopping through a vast ocean of palm oil plantations and land laid bare by logging or cleared for mining. In a 2002 paper prepared for the World Bank, scientist Derek Holmes reported that Indonesian Borneo had lost over 8.5 million hectares over the preceding 12-year period and predicted that its lowland forests would be totally destroyed by 2010.

Although increased regulation and enforcement have since slowed deforestation, Borneo’s lowland rainforests remain critically endangered. Lowland rainforest was once found along the shores of the Mahakam River leading to SouthGobi’s mining site, before the river was turned into a highway to transport the land’s riches of timber, gold and, of course, coal from the heart of Borneo to ports in Japan, China, Korea and beyond. These days the three-day, ­500-kilometre journey from the mouth of the river to the SouthGobi site is marked by a parade of barges carrying mountains of the glittering black stuff, past tall loading docks that are a stark contrast to the lush deep green of second-growth forest.

As you near the site, coal loading docks thin as forest thickens, broken now by vividly green rice fields, banana groves and clusters of wooden houses on stilts lining the riverbank. Young boys wearing only underwear paddle battered canoes while their sisters play in the water, seeking relief from the stiflingly hot, still air. Women wrapped in colourful sarongs wash clothes and collect water for cooking. A crouching man cleans his body and brushes his teeth with river water only a few metres downstream from his neighbour’s outhouse, a hut that provides privacy for the person squatting over a hole in the dock. The Dayak people’s reliance on the river – the Mahakam is their main source of water for cooking and drinking – is only one reason that Jaringan Advokasi Tambang, an Indonesian NGO dedicated to responsible mining, is calling for a moratorium on mining permits along the Mahakam.

National co-ordinator Siti Maemunah says that the staggering amount of deforestation from intense logging and mining has eroded topsoil, filled the river with sediment and polluted the water with tailings, leading to decreased fish stocks and threatened marine life as far away as the ocean. In the three administrative districts the Mahakam River runs through, according to Siti, over 400 mining permits have been granted. SouthGobi has been granted the permit to develop a 14,000-hectare open-pit coal mine that will produce huge amounts of waste some 30 kilometres from the river where the Dayak man brushes his teeth.

Building facilities to hold mine waste in these tropical climates is particularly difficult and expensive because heavy rainfall erodes man-made structures quickly, according to John Meech, a mining professor at UBC. “The only alternative is to dump it into the river,” he says, pointing out that Indonesia is one of the last countries where disposing waste into rivers is still practised. “Unfortunately, there are some parts of the world where there should never be mines.” In a written response prepared for this article, SouthGobi describes plans to implement “in-pit” waste disposal – backfilling mined-out areas with waste material. SouthGobi also says a reclamation plan will be developed and measured against Canadian standards. [pagebreak]

Nevertheless, the deforestation is inevitable. According to Pak Tarbe, chief of the Dayak village Mamahak Ulu, the area where the mine is to be dug is part secondary, part primary forest and is used for hunting wild boar and deer. But he says the villagers don’t mind giving up their hunting grounds; they just want the jobs. In their own ways, SouthGobi’s two coal mines are on frontiers of coal exploration: Ovoot Tolgoi because of Mongolia’s unpredictable regulatory environment and Mamahak for being further up the Mahakam River than most companies have yet ventured.

The drive to pioneer these unlikely sites is characteristic of Ivanhoe’s Robert Friedland, one of Canada’s richest businessmen. Ivanhoe’s slogan, New Horizons, reflects Friedland’s willingness to work in places such as Myanmar, Kazakhstan, troubled African countries such as the Democratic Republic of Congo and Sierra Leone – and now Mongolia. “We come from Canada, a big cold country that exports raw materials to a southern neighbor,” Friedland told the New York Times in 2003. “We are showing the Mongolians they don’t surrender their sovereignty by being a major supplier to China.” Since drilling the first discovery hole in 2001, Friedland seems to have coaxed Mongolia out of its shell.

In 2002 Ivanhoe convinced Mongolia to formally consider building a railway linking Oyu Tolgoi and the Chinese city of Bayan Obo. And finally in late December, after four years of negotiations with as many different administrations, the Mongolian government pledged to present an investment agreement for the massive copper-gold project now partly owned by Rio Tinto to Parliament by Feb. 1. Ivanhoe and SouthGobi’s dedication to working in what was once an economically isolated country hostile to outsiders demonstrates that players like SouthGobi are in a unique position to teach emerging economies how to mine. In this case, Friedland is “showing” Mongolia how to build trade links with China, but Canadian companies can also impart wisdom about the environment and relating to local communities, says UBC’s Meech. “The large-money companies like Rio [Tinto] have understood for the last 10 years or so that times have changed,” he says, adding that he believes most Canadian companies operate mines in developing countries at a Canadian standard of environmental protection.

Friedland’s mere presence in countries such as Mongolia and Indonesia is enough to make environmental activists shudder. After Friedland’s part in a 1993 discovery of a massive nickel-copper-cobalt deposit at Voisey’s Bay in Labrador, his second claim to fame is his connection to Galactic Resources and its Summitville gold mine in southern Colorado, where cyanide and heavy metals from a number of mines leaked into the Alamosa River, killing all marine life for 27 kilometres. Although he stepped down as CEO and chairman of Galactic months before the U.S. Environmental Protection Agency began taking samples in 1990 and has long denied responsibility, Friedland agreed to pay a $27.8-million settlement for cleanup in 2000. (He received $1.25 million from the U.S. government for reimbursement of legal fees and claims he recovered $17 million from other parties.)

Friedland has also been criticized for his involvement in the Monywa copper mine in Burma in the late 1990s. In a report published by the Canada Asia Pacific Resource Network in 1999, author Roger Moody reported, “Despite the extreme difficulty, and dangers to ‘whistle blowers,’ of gaining direct evidence of conditions at Burma’s mines, disturbing accounts of pollution, the use of forced labour and violations of human rights have emerged.” Ivanhoe called the report “contradictory, bizarre and defamatory,” but in February 2007 relinquished ownership of its Monywa Subsidiary, which had a 50 per cent stake in the mine. [pagebreak]

Despite the reputation that places such as Indonesia and Mongolia have developed as a kind of mining Wild West, there’s hope that foreign companies can operate to a higher standard. Marcello Veiga, now a professor at UBC, spent three years working with an NGO founded by Vancouver-based Kalimantan Gold Corp. Ltd. educating gold miners in Indonesian Borneo about the dangers of mercury. “There are some really responsible companies in Canada that have a humanitarian vision,” Veiga says.

“More and more companies are learning, and the new generation of miners are going to see different things in the industry. We are at a turning point and it’s very exciting.” Veiga points to an initiative implemented by international banks as evidence of this shift. The Equator Principles, first launched in 2003, are a set of standards based on World Bank policies designed to help banks ensure the projects they finance are developed in a socially and environmentally responsible manner.

Over 60 banks – including a number of Canadian banks, such as the Royal Bank and CIBC – have adopted the principles. Catherine Coumans, research co-ordinator of MiningWatch Canada, experienced this turning point first-hand when serving on a federal advisory committee seeking recommendations on how Canadian extraction companies operating in developing countries could be held accountable for breaches of human, indigenous and environmental rights. Although it was composed of a disparate group of activists, academics and industry leaders who were required to come to consensus, the committee was able to agree on some recommendations and urged the government to create an ombudsperson and complaints mechanism among other initiatives.

When, after a lengthy process, the committee presented their final report in March 2007, they were expecting a reply within weeks. But two years later, the government still hasn’t responded. Now that the financial meltdown is putting pressure on government to assist struggling industries such as mining, Coumans says, it’s becoming hard to believe the recommendations will ever be implemented. “This was going on when companies were flush. We knew they couldn’t say they couldn’t afford it,” she says. “We missed a golden moment.” Viewing the jungle as a source of commodities to sell on world markets is not a new idea imported by foreign corporations; Indonesian companies and individuals are among the biggest exploiters of all. Even in isolated Mamahak, members of the Dayak tribe pillage the forest for sweet-smelling wood called gaharu that is made into French perfume, and search caves for birds’ nests that the Chinese make into soup. Mamahak residents made approximately $150 to $250 monthly in the logging industry, until most companies left the area when the government began requiring replanting.

They then began illegally logging mahogany in protected forests, but crackdowns landed several in jail. The chainsaw in chief Pak Tarbe’s living room suggests that their illegal logging days may not be entirely over. Now, like Sujatiyo, people in Mamahak have their dreams for the future tied to SouthGobi. “I will take any job. Anything!” says Tarbe’s son Kamran. “God willing, this mine will open soon.” Is he worried about possible pollution in the river? “We trust the company knows more about mine pollution than us.” It’s not only jobs they are hoping for. Tarbe expects that once the mine is operating, the community will receive money it can use to build a new mosque. For its part, SouthGobi says it expects the associated economic activity will bring the village improved communications, river transportation and emergency services.

Walking through the narrow lanes of Mamahak – dodging chickens and children – it is hard to imagine all the changes SouthGobi’s money could bring. Perhaps the simple houses would get glass windows or screens to protect sleeping children from malarial mosquitoes. Perhaps those children would be able to go to high school. Perhaps the villagers would get a water treatment system so they wouldn’t have to drink from the same river that acts as their sewer. But in the end, it might not be SouthGobi or Friedland or their bank or a government that determines whether Kamran gets his job and his father gets his mosque. With plunging coal prices causing Ivanhoe to announce job cuts at its Mongolia mine, world markets might have the final say.