APSN Banner

Freeport beats out Canadians to develop Busang gold mine

Wall Street Journal - February 16, 1997

Richard Borsuk, Jakarta, Indonesia – A dramatic saga over who will develop the giant Busang gold deposit on the island of Borneo is set for a surprise ending.

The closing chapter, hammered out late last week, goes like this: Barrick Gold Corp. and Placer Dome Inc., the two big Canadian miners competing to team up with Bre-X Minerals Ltd., a Calgary-based exploration firm that found the Busang deposit, will both lose out to Freeport McMoRan Copper & Gold Inc. of the U.S., people close to the situation say. Freeport came to Indonesia 30 years ago and runs a huge mine in the rugged Irian Jaya province.

Another winner will be Bre-X itself, which late last year was in danger of losing any significant part in mining the gold it discovered. And the biggest winner may be President Suharto's trusted friend Mohamad "Bob" Hasan, who not only gets a sizable role for the Suharto-linked Nusamba Group, but also emerges as the author of the Busang settlement.

There are still many details to be worked out, including whether two of Mr. Suharto's children – who have been lined up in opposing sides in the Busang battle – will end up with any shares. But the people closely monitoring Busang say the alliance of Bre-X, Freeport and Mr. Hasan will be announced soon.

They say a broad informal agreement on the alliance – in effect a memorandum of understanding – that makes Freeport the operator of Busang was signed in Jakarta Friday by Bre-X, Mr. Hasan and Freeport. The agreement outlines a 45% stake for Bre-X and a 15% holding for Freeport. The other 40% would be held by both government and private Indonesian interests to be sorted out by Mr. Hasan, a Suharto confidant and golfing partner for decades.

A $400 Million Chunk

According to one businessman close to the accord, Freeport has promised to pay $400 million of the estimated $1.6 billion cost of getting Busang into initial production. Also, he says, the New Orleans-based company has won a commitment from Chase Manhattan Bank to line up $1.2 billion to develop the find in the Indonesian province of East Kalimantan. Confirmation of the U.S. bank's role couldn't be obtained over the weekend. Bre-X and Freeport declined to comment on the agreement or Freeport's emergence in Busang.

Late last year, Barrick appeared firmly in the driver's seat for Busang development as the Indonesian government directed Bre-X to enter a joint venture giving Barrick 67.5%, Bre-X 22.5% and the Indonesian government 10%.

Last month, Placer Dome announced a merger proposal with Bre-X, and it too has campaigned hard to be operator of the Busang find. On Friday, a Placer Dome spokesman told AP-Dow Jones: "We have no knowledge of the Freeport entry into the race at all," though he acknowledged that "it's always been a possibility."

Jakarta mining executives speculated that Placer Dome might eventually emerge with some share of Busang as part of Bre-X's stake, though they believe that Barrick's chance to get any role is gone. The executives speculate that Mr. Hasan sought to keep Barrick out of Busang because he doesn't get along with Barrick Chairman Peter Munk.

Barrick and Bre-X are due to report Monday to the Indonesian government whether they have reached agreement with their local partners and between themselves on entering a joint venture. The answer will be that they have failed, industry executives said, which opens the way for Bre-X to say it is entering an alliance with Mr. Hasan and Freeport.

'Find Another Way'

On Friday, Mines and Energy Minister I.B. Sudjana took a sharply different approach to Busang than last year, when he told Bre-X to team up with Barrick. The minister said that if Barrick and Bre-X did not meet Monday's deadline for resolving differences, the Indonesian government could call an open tender or "find another way" to develop Busang.

It's Mr. Hasan who has found the other way. Mining executives say Mr. Suharto told him to work things out, and that's what he did with Freeport Chairman James R. Moffett. Mr. Hasan and the Freeport chief, known as "Jim Bob," have been friends for years. And their business links have been growing.

In recent years, a company led by Mr. Hasan has handled catering for Freeport's huge Irian Jaya gold and copper mine. In late January, an affiliate of Mr. Hasan's flagship company PT Nusantara Ampera Bakti, known as Nusamba, which is 80%-owned by foundations headed up by Mr. Suharto, bought a 4.7% share in the Freeport mine from Indonesia's Bakrie Group.

In mid-January, Mr. Hasan garnered a key role in Busang for himself and Nusamba by acquiring 50% of PT Askatindo Karya Mineral, an Indonesian company that owns 10% of Busang II, the richest of Busang's three delineated exploration zones.

"Bob Hasan has been working overtime to work out the Busang case by putting Freeport together with Bre-X," one Jakarta mining executive said. "In Indonesia, only Bob has the authority and ability to do this kind of deal."

Hurting Indonesia's Image

The arrangement began to fall into place when Mr. Moffett a week ago made his annual Islamic holiday courtesy calls on Mr. Suharto and senior officials. Some businessmen believe that Messrs. Hasan and Moffett may have been working on the deal earlier because they met the president in early December to express concern about how confusion over Indonesia's handling of Busang was hurting the country's image and worrying the mining industry. (Many mining companies have been concerned that Bre-X, the company that had legal rights to sign a contract with the Indonesian government to work Busang, was instead being ordered by authorities to team up with Barrick, a company it didn't want as a partner.)

"I think Jim-Bob was hungering for a role in Busang," one Jakarta mining executive said. "But he couldn't be direct about it, and he didn't stand a chance until Bob Hasan was in effect handling Busang."

Assuming the arrangement with Freeport proceeds, Busang will catapult the U.S. company into the ranks of the biggest gold miners in the world. Bre-X last year estimated the find at 57 million ounces of gold, which miners speculate may eventually grow to 100 million ounces or more. Busang, they believe, could turn into the largest single gold find to date.

For shareholders in New York Stock Exchange-listed Freeport McMoRan Copper & Gold, involvement in Busang would greatly increase the size of the company – and the number of chips it has put on Indonesia, home to nearly all its assets. Freeport was one of the first foreign companies to invest in Indonesia after Mr. Suharto came to power in the mid-1960s, and that was clearly one reason Indonesia is turning to it for Busang, analysts said. Mohammad Sadli, a foreign mines minister, told AP-Dow Jones Friday that Freeport "has been close to the government for a long, long time."

Details to Take Time

While last week's developments appear to settle who will develop Busang, mining executives say it may take considerable time to work out details. One potential obstacle is a lawsuit filed in a Canadian court against Bre-X by Indonesian businessman Jusuf Merukh, who has a share of Busang I and asserts he also is entitled to a share of Busang II.

One big question left to resolve is which Indonesian individuals and companies get what Busang shares. Two state-owned mining companies, listed PT Tambang Timah and unlisted PT Aneka Tambang, are hoping to get roles. Bisnis Indonesia, a Jakarta daily, on Saturday quoted Mr. Hasan as saying state companies shouldn't be in a hurry to get stakes because of costs to develop Busang are "very big." (Mr. Hasan didn't comment specifically on the Freeport arrangement, except to say that Freeport was one of several companies that could be turned to if Bre-X and Barrick didn't work out their differences by Monday. Mr. Hasan couldn't be reached over the weekend.)

Nusamba is expected to get a significant portion of the Indonesian stake. In addition to the 80% owned by Suharto-chaired foundations, Nusamba is 10%-owned by Mr. Hasan, with another 10% stake owned by Sigit Harjojudanto, the president's eldest son.

Before its moves into mining, Nusamba in October bought 10% of auto-assembler PT Astra International. Mr. Hasan is expected to be named chairman of Astra at a shareholders meeting Wednesday.

[Jay Solomon of AP-Dow Jones contributed to this article.]