By Fitri Wulandari
JAKARTA (Reuters) - An Indonesian court is due to give a verdict on Tuesday in a pollution trial involving Newmont Mining Corp (NEM.N). that is seen as a test of attitudes toward foreign firms and environmental protection.
The U.S. miner and the chief of its local unit, Richard Ness, are charged with dumping toxic substances into a bay near a now defunct gold mine on Sulawsi island, making villagers sick.
Newmont and Ness deny the charges, pointing to studies that have found no evidence of pollution. If convicted, Ness could be jailed for three years and Newmont heavily fined.
A guilty verdict could deter foreign investors from investing in Indonesia's already struggling mining sector, some analysts say, while environmentalists want the country to send a message showing it is serious about enforcing laws to protect the country's rapidly degrading environment.
A Manado court in North Sulawesi province, where the case against PT Newmont Minahasa Raya has been tried since 2005, is expected to deliver its verdict on Tuesday.
"The case has caused uncertainty among investors, thinking they could be next. If Newmont is found guilty it will cause distrust in the mining sector," said Priyo Pribadi Soemarno, executive director of the Indonesia Mining Association.
STRUGGLING
Indonesia has some of the world's largest deposits of gold, tin, copper and nickel, and some of the world's top mining firms such as Freeport-McMoran Copper&Gold (FCX.N) and PT International Nickel Indonesia (INCO.JK) have operations in the country.
But the sector has been struggling to attract foreign money as legal uncertainty, rampant graft and red-tape have steered foreign investors away from Indonesia.
The mining industry grew by just 2.2 percent in 2006, Indonesian government data shows, much slower than overall economic growth of 5.5 percent due to the absence of major investment in the past years.
Mining firms are also concerned over a draft mining bill which includes plans to replace the use of work contracts with mining licenses, which can be altered at any time and are valid for a shorter time.
Newmont said last month it might reconsider its investments in Indonesia if its executive was found guilty.
Last year, Newmont, which is based in Denver, settled a civil case without admitting wrongdoing and agreed to pay $30 million to an environmental foundation in North Sulawesi.
The company, which has been mining in Indonesia for over a decade, also has plans to spend $400 million to $500 million to expand its operating mine at Batu Hijau in Sumbawa island.
Mining investors are also worried the case will fuel more opposition to mining projects in regions over pollution concerns.
Soemarno of the Indonesian Mining Association cited opposition from North Sulawesi province in January to a gold project operated by PT Meares Soputan Mining, an Indonesia unit of British-based Archipelago Resources Plc (AR.L)., for fear of pollution.
Torry Kuswardono, mining campaign officer at Indonesia Environmental Forum, said mining brought few long-term benefits.
"The government should not rely on mining as we have faced many natural disasters due to environmental damage," he said.
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