Govt approves Bre-X's proposal on Busang gold

JAKARTA (JP): The government accepted yesterday the proposal of Canada's Bre-X Minerals Ltd. and its Indonesian partners to develop the Busang II and III gold areas in East Kalimantan.

Minister of Mines and Energy I.B. Sudjana said the government "fully supported" PT Askatindo Karya Mineral's, PT Amsya Lyna's and Bre-X's proposal.

He said the government agreed on Bre-X having 45 percent of the mine and the Indonesian government and private firms 55 percent.

"It has been reported by the local partners that part of their shares would be transferred to Freeport-McMoRan Copper & Gold Inc., which is considered capable of supporting the mine's operations," he said.

Sudjana's statements confirmed earlier reports which said Bre-X and its local partners, Askatindo and Amsya Lyna, had agreed to establish a joint venture called Busang Indonesian Gold to develop the Busang mine.

Under a memorandum of understanding signed Sunday night the consortium agreed to give Bre-X 45 percent of the project, Askatindo, Amsya Lyna and other local partners 30 percent, Freeport 15 percent, and the government, through the Ministry of Finance, 10 percent.

Sudjana said the government would now process the contract of work applications Bre-X submitted with Askatindo for Busang II and with Amsya Lyna for Busang III.

Askatindo and Amsya Lyna are reported to have timber tycoon Mohamad "Bob" Hasan as their president commisioners.

Until Monday, Sudjana said he did not know about Freeport's entry into the project or about the joint venture.

Sudjana said he was formally informed of the agreement only yesterday morning.

Director General of General Mining Kuntoro Mangkusubroto said President Soeharto would sign the Contracts of work as soon as possible.

He said Bre-X, Askatindo and Amsya Lyna were now free to choose other partners if they wanted to because they had already had government approval for a contract of work.

He did not mention other firms or individual partners like President Soeharto's children, Sigit Hardjojudanto and Siti Hardijanti Rukmana, who had earlier teamed up with Bre-X and Rukmana respectively.

Last November the government asked Bre-X to establish a joint venture with Barrick.

Initially, it was proposed that Bre-X would own 22.5 percent, Barrick 67.5 percent and the Indonesian government 10 percent.

The two failed to reach an agreement.

Sudjana said the government accepted the proposal because it allowed national partners to be a major owner of the venture.

He said the development of mineral resources at Busang, which Bre-X estimated at almost 71 million ounces, would contribute to national development, particularly in eastern Indonesia.

He said the local people and regional governments would benefit from the project.

Sudjana said state firms that had expressed interest in the project might join after production started.

"They will be given a chance to participate at the production stage in order to reduce risks," he said.

He said the government wanted state enterprises to focus on exploring other regions within their jurisdiction.

Earlier this month state-owned mining firms PT Aneka Tambang and PT Tambang Timah expressed interest in joining the project.

Kuntoro said it was unlikely the government would change its mining policy because of the Busang case.

He said once the contract of work was signed, all rules would be nailed down for 30 years, plus an option to extend it twice by 10 years, if the companies wanted.

Minister of Finance Mar'ie Muhammad said in a meeting with legislators the government would honor all mining agreements to maintain a conducive investment climate.

Mar'ie said government revenue from mining operations came from land rent, royalties and taxes.

Mineral operations earn the government 1 percent to 2 percent of the product's price in royalties; 30 percent to 45 percent of a company's profit in income taxes; and 7.5 percent to 20 percent of dividends as tax on dividends.

He said unlike several other countries Indonesia collected royalties as levies and not as a percentage of a company's revenue.

"Thus a company suffering losses is still required to pay royalties," he said.

Legislator Tadjuddin Noer Said from the Golkar faction said it was important the government resolve the Busang case quickly so it could start collecting royalties and taxes.

"The government should figure out a way to get lots of money without having to take the risk, but also without driving away prospective investors," he said. (pwn/rid)

Editorial -- Page 4

Gold -- Page 10