Newmont stands firmly

Newmont stands firmly

Thank God, the tussle over the Indonesian government's request
for 10 percent equity in the Batu Hijau gold property on Sumbawa
Island, West Nusa Tenggara, ended only after a few days of hotly
debated controversy. Newmont Gold Co of the United States, the
controlling partner of the mining concession, should be commended
for its firm decision to hold strongly to the terms of the 1986
contract by flatly turning down the government's bid.

The Indonesian government, though, should also be hailed for
its decision to back down from its request and continue honoring
Newmont's contract of work. Newmont announced in Denver on
Thursday that the government had issued a construction permit,
which the U.S. company applied for six months ago, and had
approved the new shareholding composition in the Batu Hijau gold
and copper property. Our great respect also went to former mining
officials, notably Mohammad Sadli, and such outspoken analysts as
Hartojo Wignjowijoto, who had immediately spoken their minds by
warning the government of the great repercussions of its move on
Newmont as soon as the story hit front-page headlines.

Had the government stubbornly exerted political pressures on
Newmont, the future development of the huge mineral resources in
the country would be in jeopardy.

We were painfully surprised to learn late last week about the
government's request for 10 percent equity in the Batu Hijau
concession, on the back of a nationalistic line. As if this
embarrassing "capriciousness" had not been enough, Minister of
Mines and Energy I.B. Sudjana also disclosed that two politically
well-connected business groups -- Barito Pacific controlled by
Prajogo Pangestu and Citra Lamtorogung by Mrs. Siti Hardijanti
Rukmana, President Soeharto's eldest daughter -- had also tried
to get a piece of the gold mine. This case reminded us of the
manners in which the government dealt with Bre-X Minerals Ltd
during contract negotiations late last year.

Sadli and other analysts had not exaggerated in cautioning the
government that the impact of the Busang gold debacle was
negligible compared to the fallout of a forced divestment by
Newmont. At stake is the credibility of the concept of
Indonesia's contract of work (COW) and the future development of
the country's huge potential mineral deposits for the benefit and
welfare of the people. Newmont's COW signed in 1986 requires the
contractor to start divesting part of its shares only after the
sixth year of commercial production, while the U.S. firm has yet
to start constructing a mining plant.

The government not only has the legitimate right, but also has
the obligation to strive for the greatest national interest in
any deal it works out with private investors interested in the
country's natural resources. In fact, the government has been
vigorously implementing this principle in mining contracts for
hydrocarbon development through a production-sharing scheme and
for other kinds of minerals through the COW concept. The COW
concept has so far been revised six times, resulting in six
generations of COWs, and the seventh generation COW concept is
now being negotiated with more than 170 new foreign investors.

However, when the government tries to unilaterally change the
terms of a valid contract it risks breaching the legally binding
agreement. This obviously reflects capricious attitude no matter
what reason the government may use to justify itself. National
interests do not entitle the government to ask for contractual
changes midway, especially if what the government meant by
national interests was modeled on the joint venture forced into
the throat of Bre-X Minerals Ltd. Moreover, since the policy
issues were related to proven gold reserves, one cannot help but
see greed as one of the most influencing factors.

We wonder why the government had not learned from previous
controversial manners in which it had tried to "pressure" Bre-X
late last year in accepting Barrick Gold and its Indonesian
partner Mrs. Siti Hardijanti Rukmana's Citra Lamtorogung group as
the majority owner of the Busang gold property, when it was still
assessed as the single largest gold deposit in the world (but now
it is the hoax of the century). The manners in which politically
well-connected businessman Muhammad "Bob" Hasan finally
negotiated a deal for the Busang property last February also
raised the eyebrows of many businessmen and analysts. The
national interests in the Busang deal were not represented by a
state company but largely by a politically powerful private
business group owned partly by Bob himself.