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Busang: Fighting over the pot of gold

Down To Earth 32 - February 1997

When Bre-X Gold, a small Canadian exploration company discovered a huge gold deposit at Busang in East Kalimantan last year, big companies and powerful business players lined up to grab a piece of the action. Since then, Suharto's children, international tycoons and company executives have been fighting over the rights to profit from what may become the biggest gold mine in the world.

No attention has been paid to the impact of this mine on local communities, whether royalties will be paid to traditional landowners, for example. Once again the bulldozers look set to start tearing up the land, as company executives trust that local communities' capacity to object will be too weak to make a difference.

The Busang saga started early last year when Bre-X announced that it had struck gold in a big way, upping estimates from 15 million to 40 million ounces of gold reserves. (Current figures given by the company are at least 57 million ounces of gold, with some estimates as high as 100 million.)

Scores of other Canadian companies signed up for contracts in Kalimantan's 'gold belt' hoping to make similar finds, as Bre-X shares skyrocketed on the Toronto stock exchange.

Among those expressing a strong interest in developing the deposit was Vancouver-based Placer Dome, second biggest gold producer in North America.

But the real soap opera began in October. First, Bre-X shares plummeted amid rumours that the Indonesian government was going to disqualify the company from involvement in the mine's development. Bre-X fought back and strengthened its bargaining position against take-over attempts by bigger companies by making an alliance with Suharto's eldest son Sigit Harjojudanto. Sigit's influence is reported to have cost Bre-X dearly: a 10% stake in the mine and a consultation fee of US$1 million a month for 40 months. Some analysts were later to say Bre-X chose the wrong Suharto child, when another Suharto offspring entered the story.

Tutut (Siti Hardianti Rukmana), the President's eldest daughter who some consider more influential, allied herself with Barrick Gold, North America's biggest gold producer. The government, predictably, then instructed Bre-X and Barrick Gold to forge a partnership and to settle all outstanding ownership disputes with local partners. It also demanded a ten percent stake in the mine. An agreement in which Barrick gains 67.5% stake, Bre-X 22.5 % and 10% as requested for the government, was finally hammered out and submitted in December last year.

In early January it looked as though the Barrick deal would finally be accepted by the government when, at the last minute, an other strategic alliance was formed, this time by timber tycoon Bob Hasan and Placer Dome, who had never given up on exploiting Busang and had protested when Barrick was selected by Jakarta with no tendering process. First Bob Hasan gained himself a stake in the mine by buying up most of PT Askatindo Karya Minerals, one of Bre-X's local partners which holds a ten percent stake in Busang. Then it was revealed that he had entered into discussions with Placer. (It is not known what fee he will charge for his services.)

Bob Hasan used an investment company he heads, PT Nusantara Ampera Bakti (Nusamba), to enter Askatindo. Interestingly, this company is 10% owned by Hasan, 10% by Sigit and 80% by foundations chaired by the President.

Placer Dome has tried to make its bid more attractive than Barrick's by offering up to 40% of the mine to Indonesian partners.

When DtE 32 went to press, the question of who will exploit Busang remained undecided, with a deadline of February.

The whole episode has thrown Indonesia's reputation for doing mining business into disrepute, since it means that companies coming to Indonesia find anything but a level playing field, especially when a huge pot of gold is up for grabs. There is bureaucratic nuisance too, as all other mining business with foreign companies, including the renewal of some 100 contracts of work has been delayed pending the Busang deal – providing another gripe for international investors.

For those whose lives will be most affected by such massive-scale ecological destruction, it will probably make little difference who wins the contract. The environmental standards of most major international mining companies tend to deteriorate once they are off their home territory and the record for social and environmental responsibility of local tycoons such as Bob Hasan and Tutut leave much, if not everything, to be desired.

The Busang deposit lies in Kutai district of East Kalimantan province, about 200 km north-east of the provincial capital, Samarinda. It is not certain whether the site is located in pristine rainforest or logged over timber concessions. According to the head of a mining company operating nearby, "Busang is... hilly, in dense jungle without any infrastructure.." As far as local population goes, the location is described as "thinly populated". This does not necessarily mean that the area does not fall under the traditional rights of local communities, of course, although these rights would be denied under Indonesian law, where 'development' takes precedence over local rights.

There is a 33 km logging road to Bre-X's base camp but, according to one report, most of the terrain is only accessible by helicopter.

Infrastructure development is estimated at Rp 3 trillion (US$1.27 billion). According to Kutai district head, HM Sulaiman, this amount will cover environmental management near the mine. The mine development is also expected to help speed up the construction of a road connecting East Kalimantan with Central Kalimantan.

Sources: Financial Times 13/1/97, Jakarta Post 13/1/97, The Globe and Mail 30/11/96, Vancouver Sun 5/10/96, Tempo 21/1/97, Straits Times 18/1/97, Asia Wall Street Journal 15/1/97, Drillbits and Tailings 7/1/97, 22/11/96

(NB: it has now emerged that Freeport, not Barrick or Placer Dome will operate the Busang mine)