Gold mining to suffer if Busang find fails

Gold mining to suffer if Busang find fails

ZURICH (Reuter): The gold mining and mining equities businesses could suffer if the "find of the century" gold discovery at Busang, Indonesia turns out to be below expectations, executives said on Tuesday.

But delegates attending the ABN-AMRO Hoare Govett World Gold Conference saw some bright patches if the 71-million ounces of gold super deposit failed to deliver.

Brought to light by a Canadian "junior" or exploration company Bre-X Minerals Ltd in the Indonesian jungle over the past few years, development rights for the mine started a huge-scale bidding war which U.S. mining major Freeport McMoRan Copper and Gold finally won.

Then the trouble started. First Bre-x's geologist in charge of exploration died falling out of a helicopter.

Due diligence drilling by Freeport revealed drill samples vastly lower than the results announced by Bre-X which had sent its stock market price soaring as it sucked in investors large and small.

Its price crashed losing millions for many investors especially in Bre-X's homeland Canada before trading was halted on March 26.

The Bre-X crash brought down the price of many other small exploration companies whose prospects of success had been inflated by Bre-X's apparent El Dorado.

Due diligence drilling continues but a Freeport executive due to speak at the ABN-AMRO gold conference pulled out last week.

His company has stated that it will make no statement until its due diligence drilling program is complete.

The key U.S. gold mining share index has slumped as well arguably reflecting investor concerns about the industry as a whole.

Executives at the Zurich conference were unwilling to be quoted and in some cases even speak on the record. "This story isn't finished yet. Any comment now could be potentially dangerous," one miner said.

However from the podium one speaker U.S. exploration consultant Michael Chender described the situation as "Busang- gate" in reference to the Watergate scandal which lead to the fall of U.S. President Richard Nixon in the 1970s.

Conference delegates contacted by Reuters were clear that the impact would be most keenly felt in two areas -- the Canadian stock exchanges, especially Vancouver and Toronto where shares were still struggling as the ripples fanned out. The other losers would be the exploration companies.

"It's an entirely different world over there," said one London-based mining share analyst referring to the Canadian markets.

"Here there are maybe 20 good clients interested in mining and that includes institutions and private clients. In Canada there are so many private clients, if one gets trashed another just turns up," he claimed.

But that might change now. "People will be very careful now about dealing in mining shares in Canada. London and the European markets could benefit by business coming here," he said.

The other thing, another executive said, which Bre-X had changed was the relationship between the major and junior mining companies with the majors with proven records and established principles for announcing reserves the beneficiaries.

"It is going to make it very difficult at least for a while for a junior company to raise equity because people just will not believe what it says. That means a big company can by it and its prospects for a song," another analyst said.

One thing delegates were anxious to talk about was how this could not happen to them or at least in their countries of operation.

"A Busang is not likely in Australia," David Walker, director of research at ABN-AMRO Hoare Govett Australia assured his audience.

He explained that Australian stock exchange regulations were very rigorous regarding mining companies' reporting of resources, reserves and results and independent examinations were required before large stock placements could take place.

"The Australian industry is much more robust to prevent a repeat of the Busang situation," he said.