RI to get 40 percent of Busang

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.