Dairi Prima Mineral Zinc Mine

Dairi Regency, North Sumatra, Indonesia
Dairi Prima Mineral (DPM) is a joint venture between Chinese 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 company is constructing an underground mine in North Sumatra, which will focus on extraction of zinc. The project is controversial in large part due to potential for acid-mine drainage, and, most seriously, its location in an area with high earthquake risk, which makes the danger of tailings dam collapse high. Local communities have filed complaints with local authorities and with the World Bank’s accountability watchdog.

Basic Information

Chinese Name:  达瑞铅锌矿
Location: Dairi Regency, North Sumatra, Indonesia
Type of project: Extractive
Project Developers: PT Dairi Prima Mineral (DPM), a subsidiary of China Nonferrous Metal Industry’s Foreign Engineering and Construction Co., Ltd. (NFC), which is a subsidiary of China Nonferrous Metal Mining (Group) Co., Ltd., and Bumi Resources Minerals
Main Contractors: JCHX Mining Management Co., Ltd.
Known Financiers: n/a
Cost: Up to 453 million USD 
Project Status: Under construction

Credit (CC): Aul Rah.

Project Outline

The Dairi Prima Mineral (DPM) mine is located in a mountainous region of the Dairi Regency in North Sumatra, Indonesia. The company is in the construction stage of developing an underground mine for the extraction of zinc, lead, and silver ore—with a focus on zinc. The mine has been under consideration since 1998, when the Indonesian Government granted DPM permission to explore for metals over a 27,420-hectare area. As of 2019, the project was expected to cost 453 million USD. It is unclear whether the project has yet reached financial close or secured insurance, but the company has stated that mining will commence within 42 months after finance is secured. According to an addendum to its environmental impact assessment (EIA), the mine will have a life span of nine years.

The company plans to use underground mining techniques to extract the ore, which will be concentrated at a facility close to the mine. The company claims the majority of the tailings from the mine will be mixed with cement and injected back underground, and the remaining toxic waste will be stored in a tailings dam two kilometres from the mine. The concentrated ore will likely be shipped to China for refining and use in a range of consumer and industrial goods, including cars, aeroplanes, and construction materials.

DPM is a joint venture between Chinese 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. NFC became involved in the project in 2014, when it was selected as the contractor to design and build the mine. The company also signed an agreement later that year to buy and distribute most of the mine’s output. In October 2018, NFC became an owner in the mine when it bought a 51% stake in DPM. The Chinese company JCHX Mining Management has now been contracted to build the mine.

NFC is part of the China Nonferrous Metal Mining Group (CNMC), a central state-owned enterprise fully owned by the Chinese government. CNMC holds the largest stake in NFC (33.75%), and the remainder of its shares are publicly traded on the Shenzhen Stock Exchange. Shares in Bumi Resources Minerals are traded on the Jakarta and Frankfurt stock exchanges. The top shareholder of Bumi Resources Minerals is the China Investment Corporation (22.02%), China’s flagship sovereign wealth fund. NFC describes DPM as an important project in the company’s efforts to actively implement the Belt and Road Initiative (BRI), but it is unclear if it is covered by China’s bilateral agreement with Indonesia regarding BRI cooperation.

Bumi Resources has also received financing from Chinese banks and financial institutions. In 2017, after defaulting on loan repayments, Bumi Resources entered into a debt restructuring agreement with its lenders, including China Investment Corporation (CIC) and China Development Bank (CDB). The lenders could choose different ways of restructuring, including issuance of shares or issuance of new debt instruments. CIC chose to acquire equity shares while CDB chose to reschedule its debt under new terms. As part of this restructure, both CIC and CDB also took seats on Bumi Resource’s board of directors.

DPM has stated that 80% of the project cost would be raised via loans from Chinese banks and 20% from its own equity. Although it is unclear if financing has been secured, company documents show that the NFC has strong relationships with Bank of China and Industrial and Commercial Bank of China (ICBC), as well as Sinosure, all of which have provided finance/insurance to the company in the past, and have attended DPM events. Postal Savings Bank of China has provided several general corporate loans to NFC, which can be used for any of its business operations, potentially including DPM. The World Bank’s International Finance Corporation (IFC) holds an equity stake in Postal Savings Bank, which has opened the door to a community complaint to the IFC’s grievance mechanisms (see below).

NFC operates refineries in China, and after refining, sells metals on to manufacturers. The company sells zinc to Wanxiang Group, the world’s largest manufacturer of car parts. Globally, one in three cars contains parts manufactured by the Wanxiang Group. Its customers include Volkswagen, Ford, Citroen, Mazda, General Motors, Suzuki, Fiat, Toyota, and Daimler Chrysler. NFC also sells zinc on the London Metals Exchange, where the commodity is traded.

Project Impacts

  • Health & Safety: The mine site and associated tailings dam are located in an area that is one of the most active earthquake zones in the world. The site is approximately 14 kilometres from the Great Sumatran Fault. Should the area experience a serious earthquake, there is a high risk of tailings dam failure, which would potentially result in serious harm to 11 nearby and downstream villages.
  • Pollution: Lead-zinc mines are among the most high-risk types of mine in terms of pollution, as the mining process produces sulfide ore, which can create sulfuric acid which takes heavy metals into solution and can leach into and pollute overland flows and groundwater. Transportation of the extracted ore is also expected to result in contamination of the road routes to export ports.
  • Indigenous Peoples: Indigenous and other local communities downstream of the mine have not provided their free, prior, and informed consent for the project to go forward. Independent information about the mine and its possible impacts has been extremely limited.
  • Governance: The whole process of developing plans for the mine and securing approvals has been characterised by a lack of transparency and inadequate consultation with local people. Local legal experts have analysed compliance with Indonesian laws and found a number of significant non-compliance issues.

The mine was first approved in 2005 but plans for the project were subsequently changed significantly. However, development of the project continued without updated assessments. In 2019, the Ministry of Environment and Forestry informed DPM that they needed to produce an addendum to their environmental impact assessment reflecting the changes in the plans for the project, including the already-constructed explosives storage facility. A 490-page addendum was completed in October 2019, which was shared with local NGOs on 30 June 2020. This came with an attached letter stating that the deadline for written comments was 29 June—the day before they received the document. This episode is emblematic of the lack of transparency and consultation in the planning and approval of the project as a whole. Repeated requests by NGOs for information about the process and timeline for review of the EIA Addendum have been ignored, as have requests for specific geological information that would allow full assessment of risk of earthquake-related failure of the proposed tailings dam (international best practice guidelines state that this information should be public and independent review of tailings dam stability must be undertaken). Approval of this EIA addendum by the government is a legal requirement in order for the mine to receive an environmental permit to operate.

One of the principal concerns regarding the project is around safety. The project and its tailings dam will be located in a high earthquake risk area. An expert report by Dr Richard Meehan, a Stanford University engineer specialising in dam design and safety, on the seismic risks associated with the project, found that the mine is located in ‘one of the highest risk areas in the world’, close to the Sumatra subduction megathrust, which produced earthquakes of magnitude 9 and 8+ in 2004 and 2005, respectively. The site is also 15 kilometres from the Great Sumatra fault which produces long duration or repeated earthquakes, which can destroy structures such as tailings dams. The area also experiences extremely heavy annual rainfall, and the topography of the area includes layers of volcanic ash known for their potential instability. These factors led the author of the study to conclude that an earthquake-induced sudden failure of the tailings dam would send ‘a wave of liquid mud downstream to the north.’ There are 11 villages nearby or downstream from the proposed mine. In an interview with Yale Environment 360 in 2021, Meehan, said tailings dam failure is a ‘virtual certainty’ in the proposed location.

In June 2019, the company built an explosives storage facility 50 metres away from Sipat sub-village. Local NGOs inspected the site, which they were informed has the capacity to hold 5,000 kilograms of dynamite and 100 tonnes of ammonium nitrate. They allege this was built without a valid environmental approval, which could be grounds for legal action. Indeed, the Addendum to the DPM environmental impact assessment currently under consideration requests approval for the new site—but the facility has been built already. This has raised concerns as NFC has in the past been involved in an explosives disaster, when a blast at an explosives factory run by a subsidiary in Zambia killed at least 50 workers in 2005.

From an environmental perspective, lead-zinc mines can be highly polluting. The mining process will extract sulfide ore, which, when exposed to water and oxygen, can form sulfuric acid. This can lead to acid mine drainage, a process through which heavy metals become dissolved in water and then spread throughout the water system. The mine is also likely to create impacts from dust and from an increase in heavy traffic passing through nearby residential and farming areas.

One study by scientists from Kyushu University, Japan, and Bandung Institute of Technology, Indonesia, found that the main ore body was particularly problematic with regard to potential for acid mine drainage. Dr Steven Emerman, a mining hydrologist formerly at Utah Valley University, reviewed the draft addendum to the project’s environmental impact assessment and found that DPM was basing waste containment plans on a 100-year flood event, which is much less than the Probable Maximum Flood required by international standards and Indonesian guidelines. Dr Emerman also reported that the Chinese government, in response to mine tailings disasters around the world, has adopted new laws prohibiting new mine tailings dams within 1,000 metres upstream of a settlement. Emerman states that if the DPM mine was in China, it would be illegal, as the proposed tailings dam is only 400 meters upstream from an established settlement.

Indonesian lawyers conducted a legal analysis of the project and found numerous legal compliance issues, including: inadequate community consultation, improper extension of the mining license period, failure to obtain new environmental approvals after adjusting the project plans, inadequate information disclosure, lack of approval for the explosives storage facility, proximity of the facility to residential areas, and lack of disaster risk analysis, among other issues.

Due to the various concerns about the potential impacts of the project, local community members have sent numerous complaints to local authorities, with limited results. After discovering in 2019 that the International Finance Corporation (IFC), the arm of the World Bank Group focussed on private sector investment, was exposed to the project, affected communities filed a complaint with the IFC’s Compliance Advisor Ombudsman (CAO). The complaint stated that the Indigenous communities downstream from the mine have not been adequately consulted about the project, and have not provided their free, prior, and informed consent, as required under IFC Performance Standards. The complaint also voiced concerns about the environmental and social risks of the project, including the high risk of a tailings dam failure. In March 2020, the CAO accepted the complaint, which is now being investigated. This is the first complaint involving a Chinese financial intermediary accepted by the CAO.

Source: South China Morning Post (2020)

In-depth Sources

  • Inclusive Development International. 2020. ‘Following the Money Behind the Dairi Prima Mineral Zinc and Lead Mine in North Sumatra, Indonesia.’ Inclusive Development International website, 10 July. Link to English version / Link to Bahasa Indonesian version.
  • Inclusive Development International. 2020. ‘World Bank Watchdog Accepts Complaint Regarding High-risk Indonesian Zinc Mine in Earthquake Zone.’ Inclusive Development International website, 21 July. Link. 
  • Inclusive Development International. Undated. ‘Indonesia: Dairi Prima Mineral Zinc Mine.’ Inclusive Development International website. Link. 
  • Jaringan Advokasi Tambang (JATAM), Perhimpunan Bantuan Hukum dan Advokasi Rakyat Sumatera Utara (Bakumsu), and Yayasan Diakonia Pelangi Kasih (YDPK). 2020. ‘Kepatuhan Hukum PT Dairi Prima Mineral [PT Dairi Prima Mineral Legal Compliance].’ Link. 
  • Jaringan Advokasi Tambang (JATAM) and Perhimpunan Bantuan Hukum dan Advokasi Rakyat Sumatera Utara (Bakumsu). 2020. ‘Analisis Hukum: Pengembangan Proyek Pertambangan PT. Dairi Prima Mineral di Kecamatan Silima Pungga-Pungga, Kabupaten Dairi, Provinsi Sumatera Utara [Legal Analysis: Mining Project Development PT. Dairi Prima Mineral in Silima Pungga-Pungga Sub-district, Dairi Regency, North Sumatra Province].’ Link to English version / Link to Bahasa Indonesian version.
  • Meehan, Richard L. 2020. ‘Memo: Dairi Prima Minerals (DPM) Mine Site Risks and Tailings Disposal Safety.’ Inclusive Development International website, 17 April. Link to English version / Link to Bahasa Indonesian version / Link to Chinese version.
  • Nguyen, Sen. 2020. ‘IFC Watchdog Investigates Postal Savings Bank of China over Loan for Indonesian Mine.’ South China Morning Post, 27 July. Link.
  • Panggabean, Tongam and Dustin Roasa. 2021. ‘Disaster Shadows Chinese Mining Ventures in Southeast Asia.’ The Diplomat, 28 January. Link.
  • Pearce, Fred. 2021. ‘Why a Big Mining Project Could Wipe Out Rural Villages in Indonesia.’ Yale Environment 360, 25 March. Link.
  • Perhimpunan Bantuan Hukum dan Advokasi Rakyat Sumatera Utara (Bakumsu). 2021. ‘Indonesia: Mencegah Resiko Bencana Tambang Dairi Prima Mineral / Indonesia: Preventing the Looming Dairi Prima Mineral Mine Disaster’. Link to English version / Link to Bahasa Indonesian version.
  • Simangunsong, Tonggo. 2021. ‘Indonesian Community Seeks World Bank’s Mediation Against Chinese-owned Zinc Mine.’ China Dialogue, 22 March. Link.

Updates & Corrections

15 April 2021: The pin was in the wrong spot on the map. This now has been fixed.

Updated on 15 April 2021.

Inclusive Development International (IDI) is an independent, not-for-profit organisation dedicated to supporting communities to defend their rights and resources in the face of harmful corporate activities and creating a more just and inclusive global economy.