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.