Ong Hock Chuan and agencies, Jakarta – International bidding for the rights to operate one of the world's largest gold mines may have to start again if two of the main contenders do not settle a shareholding dispute by Monday.
Speculation and rumors have again begun to heat up as the deadline imposed by the Indonesian government nears for Canadian mining firms Bre-X Minerals and Barrick Gold to resolve their dispute over a gold mine in Busang, Kalimantan.
At stake is not only potentially the world's largest gold mine but foreign investors' perceptions of business practices in Indonesia. The only certainty is Monday's deadline, which has been pushed back once already because the parties involved could not reach an agreement.
The government is expected to make some sort of announcement on the matter on Monday.
"The situation at present is terribly complicated, with several reports on who would get what. At the same time the government hasn't said what the successful parties would have to pay in the investment to exploit Busang," said an observer.
On Friday Minister of Mines I B Sudjana met President Suharto and later said that the government might put the rights to the Busang site up for international tender if the two companies failed to arrive at an agreement with their local partners.
He said the international tender was only an option but did not say if there were other options. Observers said neither Canadian companies are expected to reach agreements with their local partners.
Rumors later spread that Bre-X, the company which originally discovered the gold deposit in Busang, had struck a deal with United States' mining giant Freeport McMoRan, which already operates a huge copper mine in Irian Jaya.
The Jakarta Post quoted reports as saying that under the deal Bre-X would own 45 percent of the venture while Indonesian shareholders and the government would hold 40 percent. The remaining stake would be held by Freeport. The paper also said the rumors could not be verified.
Analysts said Bre-X does not want to team up with Barrick and has been forced into talks by Jakarta. Industry sources said Freeport McMoRan would be a front runner in a new tender. "If there was an interest shown in Freeport's involvement we would probably respond to it," said Ed Pressman, public affairs manager for Freeport Indonesia. Pressman said there were "some things going on" but he would not comment on them until an expected government announcement on Monday.
"There are so many names thrown into the pot and there has been so much speculation over the last three months, we really need an announcement to clear up the mess," said James Bryson, an analyst at BZW. Insiders say negotiations have been "frantic and competitive" with high-level meetings in Jakarta hotel rooms and corporate boardrooms in Toronto.
Ron Stewart, country manager for Placer Emas, the local operating company of Placer Dome, said he believed Placer Dome, the second largest gold producer in North America, still had "a good chance" to join the deal. Placer Dome has offered a 40 percent share to the Indonesian partners, which beats Barrick's offer of 10 percent to local partners.
Monday's announcement could be complicated by legal action by Westralian Antan Minerals, an Indonesian company which had a contract to exploit the Busang area before Bre-X. A lawyer for Westralian, Petrus Selestinus, said he planned to file a lawsuit against Bre-X if his company was not announced as one of the winning companies on Monday.
A deal between Bre-X and Freeport would be a surprising outcome of a saga which has elements of intrigue and power plays involving multinationals and Indonesian political and business figures worthy of a racy novel.
The saga began last year after Bre-X found gold in Busang, a find analysts said could yield up to 57 million ounces, worth more than US$21 billion. Yet it then faced bureaucratic difficulties in securing a contract of work, and also faced aggressive moves by Canadian mining giant Barrick which wanted a piece of the action.
In October Bre-X signed up President Suharto's eldest son Sigit Harjojudanto for consulting work for a reported fee of US$40 million. Observers interpreted the move as Bre-X getting a heavyweight on board to secure the contract. Barrick, in the meantime, recruited the services of the Citra Lamtoro Gung group, which is controlled by Suharto's influential daughter Tutut Siti Hardiyati Rukmana.
What happened next was a surprise: The government advised it to agree to a deal in which Bre-X would control 25 percent of the concession. Barrick was to get 75 percent while the government indicated it would like 10 percent. It did not say where this 10 percent was to come from. In the meantime, a cooperative headed by Suharto's close associate, Bob Hassan, acquired a stake in Askatindo, a company which owns about 10 percent of the Busang concession. Hassan also owns a minority stake in Freeport Indonesia.