Busang gold deal

Busang gold deal

We should join Bre-X Minerals Ltd. Chairman David G. Walsh in
congratulating businessman Mohamad "Bob" Hasan for his
instrumental role in bringing the prolonged negotiations for the
Busang gold development to a conclusion that is satisfactory to
all parties involved. To be frank, we had been apprehensive of a
more controversial outcome at the expense of Indonesia's
international credibility when the politically powerful
businessman "bulldozed" his way into the negotiations.

The outcome, however, has turned out to be good for all
parties concerned. The government, Bre-X's Indonesian partners,
Freeport and officials and analysts, had earlier criticized the
manner in which the small Canadian company had been treated. But
they would agree the agreement reached Sunday is perhaps the
sweetest deal for investors and owners of the natural resource --
the Indonesian people.

The happiest party is certainly the management and
shareholders of Bre-X which include major U.S. and Canadian
institutional investors. Bre-X apparently felt burnt when it was
required by the government to negotiate a "marriage" with the
giant Barrick Gold Corp. also of Canada, although it never said
so bluntly due to political circumstances. The requirement, which
had been criticized by analysts and officials as a departure from
Indonesia's normal policy stance, put Bre-X in a difficult
position because it was forced to deal with a single potential
buyer and a giant one for that matter.

Barrick, apparently too confident about its political backing
from Siti Hardijanti Rukmana, President Soeharto's eldest
daughter, official support from the Ministry of Mines and Energy
and its position as the world's second largest producer of gold,
was too strong in dictating its terms to Bre-X. One could not
avoid the impression that their preliminary agreement in early
December on a 75:25 share ratio in favor of Barrick had been
forced by the official deadline pressures imposed on Bre-X.

Those who are able to comprehend the risks of a mining venture
could not understand why Barrick, which had not invested a single
cent in the explorations that led to the discovery of huge gold
deposits, ended up with such a big equity ownership. That was not
fair at all to Bre-X shareholders. Walsh was not exaggerating
when he said the conclusion of the deal with Indonesian interests
and Freeport "was a great day for both Bre-X and the people of
Indonesia". Bre-X has been saved from a forced marriage with a
gold digger.

Compared to Barrick, Freeport does have many advantages as far
as the development of the Busang gold mine is concerned.
Freeport, which has operated a huge copper and gold mine in Irian
Jaya since 1973, has built up a good track record as a long-term
oriented foreign investor. It also has the infrastructure,
technology and management to understand the exploration,
engineering and social challenges of working in Indonesia's
remote jungle areas. Freeport has also mastered the knack of
treading through the local political scheme of things, which is
important as far as business in Indonesia is concerned.

Freeport's high international credit standing will facilitate
the closing of the huge financing package needed for gold deposit
development.

Indonesia, which secured a 40 percent equity in the gold mine,
and Bre-X shareholders can rest assured that Freeport is highly
qualified to become the sole operator and manager of the gold
mine. Developing the mine means accelerated regional development
and additional revenues through taxes, land rents, royalties and
dividends.

Nonetheless, all parties involved should realize that what
has so far been achieved is only a small step in the long, risky
process of developing the deposits into real gold. The technical
details have still to be worked out and a feasibility study is
yet to be conducted on the gold mine. This will be followed by
the construction of basic infrastructures. The financing package
is also yet to be closed. One important thing Freeport should
realize is that the social and political environment it will
encounter in developing the Busang mine is strikingly different
from the one it faced in Irian Jaya in the late 1960s when it
started building its copper and gold mine.