Bre-X's operations in Indonesia frozen

Wed, 07 May 1997, 00:00 WIB | Source: JP

JAKARTA (JP): The Indonesian government froze yesterday the
Bre-X Minerals Ltd and its subsidiaries' activities in Indonesia
and is set to tighten rules on gold prospectors.

Minister of Mines and Energy I.B. Sudjana announced the
measures after a report by independent consultant Strathcona
Mineral Services Ltd on Sunday that said what Bre-X's had claimed
was the century's largest gold find at Busang in East Kalimantan
was a hoax.

"The government has frozen all activities of Bre-X and its
subsidiaries, and the provisional approval granted to it in 1995
to develop the Busang mine, until investigations are completed,"
Sudjana said.

He said the national police have been ordered to investigate
the disparity between Bre-X's test results and those by
Strathcona.

When asked if police would be allowed to interrogate ministry
officials, Sudjana said they could question anyone at the
ministry linked to the scandal.

The freeze also hit Bresea Resources Ltd and Bre-X Minerals
which last month were awarded contracts of work to explore for
and develop minerals in Indonesia.

Sudjana said the Indonesian government was surprised at the
different test results.

"Surprise here means feeling angry, deeply disappointed," he
said.

Bre-X's partners in the Busang gold venture -- Indonesia's
Nusamba group which is controlled by President Soeharto-chaired
foundations and Freeport-McMoRan Copper and Gold Ltd -- announced
Monday their withdrawal from the project.

They announced it a few hours after Strathcona reported to
Bre-X in Canada that it did not find gold of commercial value at
Busang and that it had found evidence that test samples from the
Busang property were falsified.

"The government has also pulled out of its 10 percent in
Busang," Sudjana said.

A memorandum of understanding to form a consortium to develop
the Busang mine was signed last February. It was 45 percent owned
by Bre-X, 30 percent by Nusamba and its Indonesian partners, 15
percent by Freeport and 10 percent by the Indonesian government.

He said the Busang scandal had affected Indonesia's reputation
in the eyes of mining investors.

"Therefore, I have ordered the director general of mines to
tighten the rules on new contracts of work to close any loopholes
that may be exploited," he said.

But Sudjana said he hoped the Busang scandal would not
discourage mining contractors from applying to work in Indonesia.

"We have received more than 200 applications for the seventh
generation contracts of work since January," he said.

But he stressed the need for improving future contracts to
prevent contractors from making capital gains by arbitrarily
increasing their finds.

"In issuing future contracts, we should consider loopholes in
existing contracts," Sudjana said.

Bre-X had made use of information it possessed to make capital
gains in other countries, he said.

The government may require companies to have finds audited by
an independent company and to report their finds to the
government before making them public, he said.

Sudjana also confirmed the government had asked for a 10
percent stake in the Batu Hijau gold mine in West Nusa Tenggara
which U.S. firm Newmont Mining Corp and its Indonesian and
Japanese partners are developing.

He said the government would pay for the 10 percent stake. The
mine is estimated to contain 14.7 million ounces of gold and 5.3
million tons of copper.

"But that is only a request that they can turn down and we
will still have to honor their contract. But we do feel we should
get at least 10 percent of the mine," Sudjana said.

Newmont complained last week that it had been waiting for
almost six months for a permit to start building its mining
facilities.

The fourth generation contract of work for the Batu Hijau
mine, which is owned jointly by Newmont, Sumitomo and Indonesian
businessman Jusuf Merukh, requires the contractor to sell part of
the shares to Indonesian companies after the sixth year of
commercial production. (jsk/vin)