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.