Australian gold explorers socked by Busang fraud
Australian gold explorers socked by Busang fraud
MELBOURNE (Agencies): The Australian mining industry reacted with shock and disbelief yesterday to news that Indonesia's fabled Busang gold deposit was a hoax.
The Association of Mining and Exploration Companies, which represents many of Australia's listed gold companies, said the Busang saga would shake confidence in the entire gold industry.
"The whole industry is in a state of shock at what happened," said association chief executive George Savell.
"It will rock confidence for a while, but this is a very, very big industry and this is a very isolated incident."
Miners hoped that the market had absorbed most of the Bre-X impact but some analysts said its effects would continue for some time yet. All agreed Australian miners ought not to be tarnished by the scandal.
"Mind-boggling," said C, A & L Bell Commodities gold analyst Keith Goode of the scandal.
"Startling," said Ian Burston, managing director and chief executive of Aurora Gold Ltd, which has operations in Indonesia.
"Shocking," added John Quinn, chief of Newcrest Mining Ltd , another Australian miner operating in Indonesia.
Some feared that ordinary investors would never trust mineral stocks again.
"I think the effects will last for some time," Bell's Goode told Reuters. "The damage it has caused is that the investor in the street will not trust resources anymore."
Goode saw evidence of this having already emerged in Australia's latest set of gold sector quarterly reports, where the focus by most firms was on production, not exploration.
Strong exploration results had had little effect on the market, he said, adding: "I think it (Bre-X) has spooked quite a few investors."
Goode said Busang would not hit gold company shares as much as it would make life difficult for smaller explorers, particularly those working in Indonesia.
Indonesian government demands for participation in gold mining projects established by foreign companies would be underlined by the Bre-X case as part of the "worry", Goode said.
Other Australian observers and industry players were not as worried -- or at least said they were not.
John Israel, an analyst with Macquarie Bank Ltd, said the market effects of Bre-X had already been felt and were unlikely to affect gold companies.
Industry figures were virtually unanimous that Canada would be under great pressure to tighten its regulations to guard more stringently against further Bre-X-type scams.
Leading Australian mineral reporting standards official Norman Miskelly said that Bre-X had given Canada such a "kick to the guts" that it was likely the country would work hard to produce a tightened reporting code.
Opinions in the Australian mining industry varied on where the fault lay in the Bre-X scam. Regulators blamed Canada's lax reporting standards. Analysts blamed both Canadian codes and Indonesian systems but companies with operations in Indonesia saw no fault in Australia's Asian neighbor.
Analysts
In Hong Kong , analysts said yesterday they were astonished by news that the world's biggest gold deposit in Indonesia is a hoax.
But the analysts said the news would have the healthy effect of creating greater skepticism among mineral-hungry potential investors about future discoveries.
Cliff Harding, managing director of Australia's Perth-based General Gold Resources, said: "At the time observers here were stunned with how quickly the resource was generated and the news today is breathtaking."
"People will be stunned and negative sentiment will be around for a while, " said Harding "but the world needs quality projects for gold and base metals and this experience will make people more discerning."
Harding said the news would reflect badly on the industry but he did not expect it to unduly influence Australian investors one way or the other.
In Malaysia, Imran Lim, investment analyst at the Institute of Strategic and International Studies, said the hoax would undermine investors' confidence in investing in Indonesia's mining industries.
"People will be wary of any future joint-ventures in Indonesia particularly in the mining, forestry and extractive sectors such as gold and copper mining," Lim said.
Devesh Kumar, analyst with the foreign brokerage Daewoo Securities in India, agreed that foreign investors would be more cautious about sending their money to Indonesia.
"Because of this scandal, the key issues now will be quality of governance as well as the level of transparency and disclosures. Investors will prefer to put money into professionally managed companies which have a high level of business ethics," he said.
Indian stock broker Ajit Ambani said the scandal had delivered a "severe beating" to Indonesia's image in the eyes of foreign investors.
"Usually in any country, mining, especially gold mining, has an element of state control. This scandal brings into question the level and quality of official supervision there, over such a sensitive subject," he said.
Hong Kong independent investment advisor Marc Faber said even if the Indonesian government had no part to play in the manipulation of gold tests that triggered the scandal, "it is certainly not good publicity for the country, it is certainly negative for its mining sector."
"More generally, the Bre-X affair is likely to affect investor sentiment with regard to the mining sector in emerging or developing countries," he said.