Busang gold deal<\/p>\n
We should join Bre-X Minerals Ltd. Chairman David G. Walsh in
\ncongratulating businessman Mohamad "Bob" Hasan for his
\ninstrumental role in bringing the prolonged negotiations for the
\nBusang gold development to a conclusion that is satisfactory to
\nall parties involved. To be frank, we had been apprehensive of a
\nmore controversial outcome at the expense of Indonesia's
\ninternational credibility when the politically powerful
\nbusinessman "bulldozed" his way into the negotiations.<\/p>\n
The outcome, however, has turned out to be good for all
\nparties concerned. The government, Bre-X's Indonesian partners,
\nFreeport and officials and analysts, had earlier criticized the
\nmanner in which the small Canadian company had been treated. But
\nthey would agree the agreement reached Sunday is perhaps the
\nsweetest deal for investors and owners of the natural resource --
\nthe Indonesian people.<\/p>\n
The happiest party is certainly the management and
\nshareholders of Bre-X which include major U.S. and Canadian
\ninstitutional investors. Bre-X apparently felt burnt when it was
\nrequired by the government to negotiate a "marriage" with the
\ngiant Barrick Gold Corp. also of Canada, although it never said
\nso bluntly due to political circumstances. The requirement, which
\nhad been criticized by analysts and officials as a departure from
\nIndonesia's normal policy stance, put Bre-X in a difficult
\nposition because it was forced to deal with a single potential
\nbuyer and a giant one for that matter.<\/p>\n
Barrick, apparently too confident about its political backing
\nfrom Siti Hardijanti Rukmana, President Soeharto's eldest
\ndaughter, official support from the Ministry of Mines and Energy
\nand its position as the world's second largest producer of gold,
\nwas too strong in dictating its terms to Bre-X. One could not
\navoid the impression that their preliminary agreement in early
\nDecember on a 75:25 share ratio in favor of Barrick had been
\nforced by the official deadline pressures imposed on Bre-X.<\/p>\n
Those who are able to comprehend the risks of a mining venture
\ncould not understand why Barrick, which had not invested a single
\ncent in the explorations that led to the discovery of huge gold
\ndeposits, ended up with such a big equity ownership. That was not
\nfair at all to Bre-X shareholders. Walsh was not exaggerating
\nwhen he said the conclusion of the deal with Indonesian interests
\nand Freeport "was a great day for both Bre-X and the people of
\nIndonesia". Bre-X has been saved from a forced marriage with a
\ngold digger.<\/p>\n
Compared to Barrick, Freeport does have many advantages as far
\nas the development of the Busang gold mine is concerned.
\nFreeport, which has operated a huge copper and gold mine in Irian
\nJaya since 1973, has built up a good track record as a long-term
\noriented foreign investor. It also has the infrastructure,
\ntechnology and management to understand the exploration,
\nengineering and social challenges of working in Indonesia's
\nremote jungle areas. Freeport has also mastered the knack of
\ntreading through the local political scheme of things, which is
\nimportant as far as business in Indonesia is concerned.<\/p>\n
Freeport's high international credit standing will facilitate
\nthe closing of the huge financing package needed for gold deposit
\ndevelopment.<\/p>\n
Indonesia, which secured a 40 percent equity in the gold mine,
\nand Bre-X shareholders can rest assured that Freeport is highly
\nqualified to become the sole operator and manager of the gold
\nmine. Developing the mine means accelerated regional development
\nand additional revenues through taxes, land rents, royalties and
\ndividends.<\/p>\n
Nonetheless, all parties involved should realize that what
\nhas so far been achieved is only a small step in the long, risky
\nprocess of developing the deposits into real gold. The technical
\ndetails have still to be worked out and a feasibility study is
\nyet to be conducted on the gold mine. This will be followed by
\nthe construction of basic infrastructures. The financing package
\nis also yet to be closed. One important thing Freeport should
\nrealize is that the social and political environment it will
\nencounter in developing the Busang mine is strikingly different
\nfrom the one it faced in Irian Jaya in the late 1960s when it
\nstarted building its copper and gold mine.<\/p>",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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