Official says Busang causes investors concern

Official says Busang causes investors concern

TORONTO (Reuter): A top Indonesian mining official said on Tuesday that the recent battle over the huge Busang gold deposit in East Kalimantan has caused some uncertainty among foreign investors in Indonesia.

"We realize...that successes in the mineral sector were overshadowed by the Busang controversy which caused some uncertainty within the international mining community and questions (about) the integrity of Indonesia's mining policy, particularly with regard to the security of foreign investment," Rozik B. Soetjipto, head of mining industry development at Indonesia's Directorate General of Mines, told a mining conference in Toronto.

The Busang deposit was the subject of an intense bidding war with several mining companies trying to woo the Indonesian government to take control of possibly the biggest gold find of the century.

Busang contains at least 71 million ounces of gold, valued at about US$25 billion.

He said the Indonesian government was working to improve the contract of work (COW) system, but Soetjipto added foreign companies also have to do a better job of understanding the country's mining policy.

"If you are looking to invest or explore in Indonesia, then you have to be sure that you have a contract of work. As long as you have the contract, you are secure to do the exploration and investment," he told reporters after delivering a speech to the Prospectors & Developers Association of Canada annual convention.

Although finding a local partner is not necessary to do business in Indonesia, Soetjipto said: "In some cases it might be better to have a local partner to know how to do business in Indonesia because it's a different culture (and) that has created problems."

Toronto-based Barrick Gold Corp initially dominated the negotiations for control of Busang, which was discovered by Calgary-based prospector and Bre-X Minerals Ltd.

But Barrick's inside track ended when the government of President Soeharto brought in businessman Muhammad "Bob" Hasan in January.

Hasan subsequently brokered a deal that gave New Orleans-based Freeport McMoRan Copper & Gold Inc 15 percent of Busang and the right to mine the deposit.

The arrangement left Bre-X with 45 percent and the rest to the Indonesian government and to two Indonesian companies.

Bre-X's shares have been under pressure amid investor confusion over the company's stake in Busang. Bre-X has said the company did not originally own 90 percent of the discovery and investors were mistaken to believe otherwise.

Bre-X and its partners are waiting for the Indonesian government to issue a contract of work before mine construction can begin. Bre-X has said a contract of work is expected during March.

Bre-X's stock fell 0.25 to close at 17.75 on 716,000 shares on the Toronto Stock Exchange on Tuesday.