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