Busang scandal may drop mine financing

Busang scandal may drop mine financing

SINGAPORE (Reuter): The Busang gold mine debacle in Indonesia will probably lead to a sharp reduction in finance for mining projects, the chief financial official of Canada's Placer Dome Inc said yesterday.

"In the near-term, people are going to be very cautious," Ian Austin told Reuters in an interview on the sidelines of a mining finance conference in Singapore.

"Clearly, it's going to have an effect on the ability of junior companies to raise financing for exploration," he said. "What we are seeing is a number of junior companies coming to talk again to us for (a possible) partnership."

He said mining companies spent an estimated US$3.5 billion in 1996 on mineral exploration, up 40 percent from about $2.5 billion in 1995.

"What's interesting to watch is what will happen to that post- Busang," Austin said, adding funding for mine exploration may slow down significantly.

The Busang gold find, which had been touted by Canadian exploration firm Bre-X Minerals Ltd as the biggest discovery of the century, collapsed two weeks ago after an independent audit said it contained no viable gold deposits.

Bre-X said earlier this year the deposit could contain up to 71 million ounces of gold.

Consultant Strathcona Mineral Services Ltd said data on Busang, in the jungle of Kalimantan in Indonesia, had been falsified on an unprecedented scale.

Bre-X, the darling of investors early in 1997, has been delisted from the Toronto Stock Exchange and has sought court protection from its creditors.

Canadian and Indonesian police have opened an investigation into the debacle, which some analysts have called the biggest mining fraud in history.

But Austin said he was optimistic things would return to normal because demand for copper and gold would grow at a steady pace. Gold would also continue to prosper despite sales by central banks, he added.

"My cautious expectation is for a continuation of healthy gold prices during the next 10 years," Austin said, adding much of the growth in consumption would come from countries like China, India and Southeast Asia.

In copper, market worries that supply will outstrip demand should easily be offset by the fact most long-term economic forecasts project global economic growth to average two-three percent over the next 10 years.

"A common projection of copper demand growth is up to three percent a year, which would mean that today's consumption of about 10.6 million tons will rise to about 14 million tons by 2007," Austin said.

"It is well worth remembering that it requires three, 100,000 ton capacity new mines each year to offset a three percent per year trend growth in demand, assuming that no existing mines close," he explained.

Meanwhile, DPA reported from Manila yesterday that the Geological Society of the Philipppines has launched an investigation into the involvement of some Filipino scientists in the Busang gold fraud in Indonesia.

The geological society said the independent probe would determine the extent of Filipino participation in the hoax involving Canada's Bre-X Minerals Ltd. that has been labelled one of the biggest frauds in global mining history.

Society President Rolando Pena said reports linking Filipino geologists working for Bre-X to the scam have "demoralized and affected" other colleagues.

"The problem of salting of samples is something we have to look into," Pena said. "But we believe our geologists are not capable of pulling off a scam."