April 24 (Bloomberg) -- An Indonesian court acquitted a local unit of Newmont Mining Corp., the world's second-largest gold miner, and a U.S. executive of charges they polluted a bay in the Southeast Asian nation with mercury and arsenic.

Richard Ness, president director of a now-closed gold mine, and PT Newmont Minahasa Raya were found not guilty as the prosecution failed to prove its case, Presiding Judge Ridwan Damanik told the district court in Manado, North Sulawesi.

The decision may reassure investors, and boost President Susilo Bambang Yudhoyono's drive to attract $22 billion in investment a year to a country rich in metals. Wayne Murdy, Newmont's chief executive, said before the verdict the company may reconsider future investment in Indonesia if found guilty.

``This is a milestone case,'' said Todung Mulya Lubis, a partner with Lubis, Santosa & Maulana. ``It will restore Indonesia's image as a safe place for investors as judges on this case were very firm.''

The prosecution, representing the environment ministry, had asked that the unit of Denver-based Newmont be fined 1 billion rupiah ($110,000) and Ness be sentenced to three years in jail for allegedly poisoning villagers. Only one of the water-sample tests examined during the trial found against Newmont's favor.

No Pollution

``Right now, I am happy to be exonerated,'' Ness, 57, said in an interview. ``It was good to hear what we knew always: that Buyat Bay wasn't polluted.'' The trial heard testimony from 63 witnesses over 21 months.

The prosecution has 14 days to appeal the decision to the High Court. Still, Hoetomo, deputy minister for compliance at the environment ministry, said while the ministry was disappointed, ``we do respect the verdict.''

Indonesia's government wants to attract more overseas investment to benefit from metals prices that have risen to records as miners feed surging global demand, led by China. The Asian nation's economy grew 11.1 percent in the first quarter, faster than the 10.4 percent rate in the previous three months.

``If it was guilty, then it would send a negative message to all investors, not only foreign investors,'' Arif Siregar, chairman of the Indonesian Mining Association, said.

Newmont Minahasa Raya's $135 million Mesel mine was closed in August 2004 after reserves were depleted. Charges were filed a year later, after villagers complained that they fell sick from eating fish from the bay. It was the first time that a Newmont unit had faced criminal charges in any country.

Copper Projects

Newmont's main Indonesian investment is the $3.6 billion copper-gold mine in Batu Hijau, West Sumbawa province, which will be mined until 2030. The company may also develop a copper deposit at Elang, 60 kilometers (38 miles) from Batu Hijau.

``We are looking at both going back to Elang and possibly expanding'' Batu Hijau, Robert Gallagher, Newmont Mining's vice president of operations for the Asia-Pacific, said. ``The court listened to the evidence. This demonstrates to investors and the people of Indonesia that the courts can function.''

Rio Tinto Group, BHP Billiton Ltd. and PT International Nickel Indonesia have proposed a combined $3.5 billion in nickel projects in Indonesia. The metal, used in stainless steel, has more than doubled in the past year, reaching a record $50,150 a ton this month.

The price of copper, used to make pipes and wires, rose to a record $8,800 a ton last May, and traded at $8,010 today. Tin, used for soldering, reached $15,100 a ton on April 18, the highest in at least 18 years, and settled at $13,750 yesterday.

`Crime Committed'

During the trial, the prosecution argued Buyat Bay was polluted, and that Newmont Minahasa and Ness were responsible after they deposited mine waste in local waters that contained levels of poisonous metals above safe limits. ``A crime has been committed,'' Purwanta, the chief prosecutor, who uses only one name, told the court last November.

Newmont and Ness told the court waste-management processes were set out in an environmental plan mandated under a contract of work signed with the government. There were test results on air quality, water and soil submitted quarterly over eight years.

Much of the testimony centered on tests on water samples taken from the bay. A dozen laboratories, including one at the World Health Organization, tested samples. Only the test by the local police was against Newmont's favor.

``Environmental needs should be heavily accounted in future developments, particularly in mining,'' said Hoetomo at the environment ministry, who uses only one name. ``We will conduct a review, whether our regulation is comprehensive enough.''

Newmont shares, which have declined 23 percent over the past year, fell 0.9 percent to $43.90 yesterday.

``I think that there will be great relief, and that this could encourage investors,'' said Eugene Galbraith, president commissioner of PT Bank Central Asia, Indonesia's second-largest financial services company by assets.

The case was the Ministry of Environment versus PT Newmont Minahasa Raya and Richard Ness, number 284/PID.B/2005/PN.MDO.

To contact the reporter on this story: Claire Leow in Manado at cleow@bloomberg.net

Last Updated: April 24, 2007 03:25 EDT