Indonesia's "king of mining" eyes biggest bet yet

By Fitri Wulandari

JAKARTA (Reuters) - Yusuf Merukh, an Indonesian politician-turned-businessman, is nicknamed the king of mining after the 500 concessions in his portfolio, but his latest venture could dwarf the rest.

Despite the bursting of the commodity bubble, his unlisted Merukh Enterprises plans to push ahead with what has the potential to be one of the world's largest copper and gold mines, on Lembata, a dot of an island off Flores in eastern Indonesia.

But the project is controversial. Merukh says the site has preliminary reserves of 136.1 billion pounds of copper and 80.3 million ounces of gold but some media reports have questioned the actual size of the deposits.

At $17 billion, the cost of development is also being criticized, while environmental and community groups have raised concerns about the project's impact.

"I reject the project. Its mining potential is unclear," former Environment Minister and current member of the parliamentary mining committee Sonny Keraf said.

Reuters was unable to obtain records of the gold and copper resources in Lembata from the relevant departments in the Energy and Mines Ministry.

Merukh, 72, keeps a low profile and is rarely seen at the big mining industry gatherings, said one executive who didn't want to be identified by name.

He was born on the Indonesian island of Rote, in East Nusa Tenggara, and was a politician for many years during which he sat on a parliamentary mining committee and worked as a top government agrarian official.

In a rare interview with Reuters earlier this month, Merukh said that his group will start to invest in infrastructure for the Lembata project next year, but declined to say where he would get the funding.

Indonesia has some of the world's largest deposits of gold, tin, copper, and nickel, and leading global mining firms, such as Freeport-McMoran Copper & Gold (FCX.N) and Newmont Mining Corp. (NEM.N), operate in the country.

But its big mining projects don't always live up to the hype.

More than a decade ago, Merukh had an interest in the Bre-X gold mine project in Kalimantan. Bre-X was touted as one of the world's largest finds, but turned out to be a huge hoax.

Indonesia's mining projects have also often been the source of conflicts because of the impact on the environment and local populations, especially when it comes to the distribution of the proceeds.

"We are last to benefit from a project. Number one is the local people," said Merukh.

On the Lembata project, the predominantly Catholic population of roughly 100,000 will have to be relocated.
Many of the local people lack the skills to work on the mining project, so Merukh plans to bring in outside workers who will be housed on a nearby island in order to reduce the risk of conflict with the local population.

Merukh, who is worth $174 million according to the Indonesian business magazine Globe, initially studied agriculture and spent time in the United States at Texas A&M university.

He was a supporter of Megawati Sukarnoputri early on in her political career, according to Globe, long before she became Indonesia's president in 2001.

His early business ventures included chrome exploration, but he moved into gold concessions when the price was far below today's level of about $845 an ounce.

"He is the first Indonesian who has held so many mining concessions," Hartojo Wignjowijoto, an economist who has known Merukh for many years, told Reuters.

"At first, I thought he was just trading mining licenses, but he proved to be a good mining partner (for foreign investors). He's shrewd. But he's shrewd for the national interest, and patriotic."

Merukh said he was optimistic demand for copper from the car and electronics industries would hold up despite the slump in commodities. Copper prices have tumbled almost 70 percent since hitting a record high of $8,940 a tonne in July.

"As long as the industry is still there and still alive, they still need copper," he said.

Laws of Partnership in Islam

If two persons make an agreement that they would trade with the goods jointly owned by them, and would divide the profit between themselves, and if they pronounce a formula declaring partnership, in Arabic or in any other language, or express their intention of becoming each other's partner by conduct, the partnership will be valid. If some persons enter into a partnership to share the wages from their labour, like, if a few barbers or labourers agree mutually that they would divide between themselves whatever wages they earn, that partnership is not in order. But if they enter into a mutual compromise that, say, half of what one earns will be given to the other, for a fixed period, in exchange of half of what the other earns, this transaction will be valid, and thus each will be a partner in the wages of the other. If two persons enter into a partnership, on the terms that each of them would purchase the commodity on his own responsibility, and each would be responsible for the payment of its price, but would share the profit which they earn from that commodity, that partnership is not valid. However, if each of them makes the other his agent, authorising that whatever one purchases on credit, the other will be a partner in it, which means that he and his partner are responsible for the debt, then they will be considered partners in that commodity.
The persons who become partners under the rules of partnership, must be adult and sane, and should have intention and free volition for becoming partners. They should also be able to exercise discretion over their properties. Hence, if a feeble-minded person who spends his wealth impudently, enters into partnership, it is not in order, because such a person has no right of disposal over his property. If a condition is laid down in an agreement of partnership, that the partner who manages, or does more work than the other partner, or does more important work than the other, will get larger share of the profit, it is necessary that he should be given his share as agreed upon. Similarly, if it is agreed that the person who does not manage, or does not do more work, or does not do more important work, will get larger share of the profit, that condition is also valid and it must be fulfilled. If it is agreed that the entire profit will be appropriated by one person, or the entire loss will be borne by one of them, that sort of partnership is a matter of Ishkal. If it is not agreed that one of the partners will receive more profit, and if the investment of each of them is equal, they must share profit and loss equally. And if their investment is not equal, they should divide the profit and loss in proportion to their capital. For example, if two persons become partners, and the capital of one of them is double the capital of the other, his share in the profit and loss will also be double of the other, irrespective of whether both of them do equal work, or one of them does less work, or does not work at all. If it is laid down in the agreement of partnership, that both the partners will buy and sell together, or each of them will conclude transactions individually, or only one of them will conclude transactions, or a third party will be hired to conclude the transaction, they should act as agreed upon. If it is not specified as to which of the partners will buy and sell with the capital, neither of them can conclude any transactions with that capital without the permission of the other.
The partner who has been given the right of discretion over the capital, should act according to the agreement of partnership. For example, if it is agreed that he will purchase on credit, or will sell against cash payment, or will purchase the property from a particular place, he should act according to the agreement. However, if no such agreement is made with him, he should conclude transactions in the usual manner, and carry on in such a way that no loss is suffered in the partnership. He should not carry any property belonging to the partnership, with him while he is travelling, if that is unusual. If a partner who transacts business with the capital of the partnership, sells and purchases things contrary to the agreement made with him, or concludes transactions in a manner which is not normal, because of the absence of any agreement, the transaction made by him in both the cases will be correct and valid; but if such a transaction results in a loss, or a part of wealth is squandered, then the partner who has acted against the agreement, or the usual norm, will be responsible for the loss. If a partner who trades with the capital of the partnership, does not go beyond the bounds of his authority, nor is he negligent in looking after the capital, yet unexpectedly the entire capital or a part of it perishes, he is not responsible. If a partner who trades with the capital of the partnership, declares that the capital has perished, and if other partners trust him, they should accept his word. But if they do not trust him, they can complain against him before the Mujtahid, who will decide the case according to Islamic laws.
If all the partners withdraw the permission, given by them to one another, for the right of discretion over their respective shares held in partnership, none of them will be allowed the right of discretion over them. And if one of them withdraws the permission accorded by him, the other partners do not have the right of discretion; but one who has withdrawn his permission can exercise his right of discretion over the property of the partnership. If one of the partners demands that the capital invested in the partnership should be divided, others should accept his demand even if the period fixed for the partnership may not have expired yet, except when the division of the capital entails considerable loss to the partners. If one of the partners dies, or becomes insane, or unconscious, other partners cannot continue to exercise right of discretion over investment held in the partnership. And the same rule applies when one of them becomes feeble-minded that is, spends his property without any consideration.
If a partner purchases a thing on credit for himself, its profit and loss belongs to him. However, if he purchases it for partnership, and if the agreement allows credit dealings, its profit and loss belongs to both of them. If the partners conclude a transaction with a joint capital investment, and it transpires later that the partnership was invalid, if the validity of the transaction was not dependent on mutual consent, meaning that, if they had known that the partnership was not valid, they would have still been agreeable to having the right of discretion over the property or stock of each other, the transaction will be considered valid, and whatever is gained or lost from the transaction will be shared by them. But if the partners would not have been disposed to agree to exercise discretion over each others' stock or property had they known that the partnership was not valid, yet they approve the particular transaction, it will be valid - and if they do not, it will be invalid. And in either case, if any partner has worked for the partnership without the previous intention to work gratis, he can collect the wages for his services at the usual rate, considering the percentage of other partners. But if the usual wage is more than his share of dividend, after having agreed to the validity of the transaction, he should take the dividend only.

Sale of Gold and Silver Against Gold and Silver

If gold is sold against gold, and silver is sold against silver, whether it is in the form of coins or otherwise, if the weight of one of them is more than that of the other, the transaction is haraam and void. If gold is sold against silver, or silver is sold against gold, the transaction is valid, and it is not necessary that their weight be equal, but if it is sold on credit or stipulated time, the transaction will be void.
If gold or silver is sold against gold or silver, it is necessary for the seller and the buyer that before they separated from each other, they should deliver the commodity, and its exchange to each other. And if even a part of the thing about which agreement has been made, is not delivered to the person concerned, the transaction becomes void.
If either the seller or the buyer delivers the stock in full as agreed, but the other person delivers only a part of his stock, and they separate from each other, the transaction with regard to the part exchanged will be valid, but the person who has not received the entire stock can cancel the transaction.
If silver dust from a mine is sold against pure silver, and gold dust from a mine is sold against pure gold, the transaction is void, unless one is sure that the quality of silver dust is equal to the quantity of pure silver. However, there is no harm in selling silver dust against gold, or gold dust against silver, as mentioned earlier.