Busang's signal to investors

Busang's signal to investors

After months of uncertainty, the Busang gold project in
Indonesia's East Kalimantan has finally received official
blessing.

The project has had a racy recent history that is worth
recounting. Busang, which is estimated to contain a stunning 77
million ounces of gold, was originally supposed to have been
mined by Canadian mining junior Bre-X minerals which discovered
the Busang site. But Bre-X, which was a virtual unknown before
the Busang discovery, soon realized that undertaking the project
on its own would be a daunting task. Perhaps to secure its role
in the venture, Bre-X signed a stunning deal last October with
President Soeharto's eldest son Sigit Harjojudanto. Bre-X gave
Mr. Sigit's firm PT Panutan Duta a 10 precedent stake in its
mining deposit and also hired the company as a consultant for 40
months to "assist in administrative and technical matters".

But the Bre-X/Panutan alliance was soon upstaged by Barrick
Gold, a rival Canadian mining firm which joined forces with the
president's daughter, Siti Hardiyanti Rukmana. The Indonesian
government then urged Bre-X Minerals to sell the bulk of its 80
percent stake in Busang to Barrick Gold.

Under Indonesian laws, title to the resource remains with the
government. So the government had the authority to amend the
ownership of any project as it considered fit. Bre-X, like other
foreign mining firms, was initially given an exploration license
and was waiting for a "contract of work" (CoW) to start
production. Before the controversy surfaced, the granting of the
CoW to Bre-X was seen as a mere formality. But the truth seems to
be that the government withheld granting a CoW to Bre-X because
it seriously doubted the Canadian firm's ability to handle such a
large project on its own.

However, just when it seemed that Barrick and Bre-X had
resolved their differences, timber tycoon Mohamad 'Bob" Hasan
made a dramatic bid to claim the project. Mr. Hasan, who has
interests in timber, aviation and trading and who has close ties
with President Soeharto, has emerged in recent months as a key
adviser to Mr. Soeharto. He opened his bid on Busang by acquiring
a stake in a local company that has a share in two phases of the
Busang venture.

Significantly, Mr. Hasan bought these shares on behalf of PT
Nusamba, a company that is majority-owned by three foundations
controlled by President Soeharto. The new joint venture, Busang
Indonesian Gold, will be 45 percent owned by Bre-X Minerals, 30
percent by two mining firms owned by Nusamba, 10 percent by the
Indonesian government and 15 percent by American mining firm
Freeport McMoran Inc. Freeport, which owns a huge gold and copper
mine in the remote eastern Indonesian province of Irian Jaya,
will manage the Busang venture.

But foreign investors worry that the Busang project has set a
precedent for other mining ventures. At last count, the Mines &
Energy Ministry was holding out on issuing a final contract of
work to at least 69 other foreign-owned mining projects. Ministry
officials have clarified that while the government would welcome
increased Indonesian participation in mining ventures, foreign
companies would not be compelled to part with a stake to local
partners. The next round of approvals to foreign mining companies
will demonstrate whether such optimism is justified.

-- The Business Times, Singapore