RI to get 40 percent of Busang

By Prapti Widinugraheni

JAKARTA (JP): The battle for the right to develop East Kalimantan's huge Busang gold mine ended Sunday night with Indonesia owning 40 percent of the joint venture, the United States' Freeport McMoran Copper and Gold 15 percent and Canada's Bre-X Minerals Ltd. 45 percent.

The shareholding structure was agreed on in a memorandum of understanding signed by the three parties just a few hours before yesterday's government deadline and before President Soeharto started his week-long visit to Cambodia, Laos and Myanmar.

Politically well-connected businessman Mohamad "Bob" Hasan represented the Indonesia government and Indonesian companies in the negotiations.

Bob said the agreement was still subject to government approval.

Under the agreement the Indonesian government gets 10 percent and Bre-X's Indonesian partners -- PT Askatindo Karya Mineral and PT Amsya Lyna, and their partners -- 30 percent.

"This arrangement enables Bre-X to retain the largest direct share of Busang," Bre-X chairman David G.Walsh said.

Bob, through PT Nusamba, which is controlled by three foundations chaired by President Soeharto, has a 51-percent stake in Askatindo. The latter was Bre-X's local partner in the Busang II gold area, while Amsya Lyna owns 10 percent of the Busang III gold area.

Bob said the composition of the gold mine's shareholders was the most beneficial to Indonesia.

"I personally asked for Freeport to be included in the deal as they have had a lot of experience in Indonesia and the means to cut back on costs," Bob said.

The government is scheduled to make an announcement on the issue today.

No government official was available for comment and Minister of Mines and Energy I.B. Sudjana and his top officials were in Bandung yesterday.

Bre-X said Freeport would be the mine's sole operator and provide about US$400 million, or 25 percent of the estimated cost of building the mining complex.

An American analyst here said the $400 million could be what Freeport's 15 percent stake in the joint venture was worth.

"I think Bre-X shareholders would be quite happy with this deal," added the analyst who insisted on anonymity.

Freeport will also provide up to $1.2 billion in extra funding through syndicated loans to be arranged by major financial institutions.

"This financial strength will allow for the joint venture to proceed without any further dilution to shareholders," Walsh said.

Walsh noted that with Freeport's mining management team in Indonesia, the joint venture could be operated as cheaply as possible.

"Freeport has the infrastructure and a management in place which understands the exploration, engineering and social challenges of operating in these remote islands," he said.

Freeport, which is based in New Orleans, has had copper and gold mining operations in Irian Jaya since 1973. It was the first foreign investor in Indonesia under President Soeharto's administration.

Bob said that with Freeport in the project, the group would have easier access to funding sources, particularly bank syndication loans which would be needed to develop the mine.

He said the syndications would probably include Merrill Lynch and Chase Manhattan banks.

Bob said the participation of state enterprises, which have expressed interest in the project, would depend on the government's decision.

"But I think the government should concentrate on operations that will bring in lots of royalties and corporate taxes -- things that carry no risk," he said.

"State firms can join once the mine has begun production. In the meantime, I think it's better that private companies bear the risk," Bob said.

State-owned mining firms PT Aneka Tambang and PT Tambang Timah claimed earlier this month they had government approval to have a stake in the project.

Bre-X, which revised yesterday the amount of the gold deposits it found in Busang last year to almost 71 million ounces, was asked by the government last November to establish a joint venture with Barrick.

Each was backed by politically powerful local partners-- Bre-X by the President's son Sigit Hardjojudanto and Barrick by Sigit's sister, Siti Hardijanti Rukmana.

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

Barrick announced yesterday its discussions with Bre-X and its Indonesian partners did not result in an agreement.

Barrick chairman Peter Munk said his company offered a very good economic deal for all parties but he admitted it is the right of the government to decide what is the best interests of the Indonesian people.

Freeport's entry into the project surprised some analysts but others said it was not unexpected.

Last month Bob Hasan bought majority shares in Freeport's local partner -- PT Indocopper Investama -- from PT Bakrie & Brother. So through PT Nusamba Bob owns 9.6 percent of Freeport Indonesia.