Anthony Depalma, Toronto – A century after the Klondike gold rush, a modern-day stampede marked by political intrigue and fast deals is about to result in an American mining company staking claim in Indonesia to part of one of the richest gold strikes in history.
The Indonesian government must still formally bless the deal, but a small Canadian exploration company, Bre-X Minerals of Calgary, Alberta, announced on Monday that it had formed a partnership to mine the gold with Freeport-McMoran Copper and Gold of New Orleans, which has a long history in Indonesia and a cozy relationship with its powerful political and business leaders.
Freeport beat out several corporate rivals to become sole operator of the Busang mine, situated in the Indonesian portion of Borneo. It is committed to putting as much as $1.6 billion into the project. In exchange it will receive a 15 percent stake in a joint-venture company that will be co-owned by Bre-X (with a 45 percent stake), two Indonesian companies and the Indonesian state.
The government is to formally announce the arrangement in Jakarta on Tuesday.
That will bring to a close several months of bidding among some of the world's leading mining companies. Analysts say there may be more gold deep in South African mines, but what makes the Indonesian find fabulous is that no strike has ever gone from bare dirt to an estimated 100 million ounces of gold reserves as quickly as Busang.
By comparison, South Africa, long the world's leading gold producer, mines about 18 million ounces of gold a year, and its biggest mine has produced about half what the Busang mine is expected to yield.
Bre-X struck the mother lode late in 1995, after several other exploration companies had walked away from the area.
The allure of so much gold, within such easy reach, impelled the competing companies to use whatever means they could to close a deal. This included tapping the Indonesian government's inclination to make deals based on personal alliances, and playing up to various members of the family of President Suharto, the nation's chief since 1965. In the end, success went to the company with the closest contacts with the president and his advisers, and the longest experience in playing by Indonesia's rules.
"It's no coincidence that Freeport got it," said Pierre Vaillancourt, a gold analyst with HSBC James Capel Canada, alluding to Freeport McMoran's links with the ruling family, and adding, "These are the relationships that get you the deal at the end of the day."
Like the miners of 1897 who frantically searched the Klondike River in Canada for gold, the companies that competed for Busang make up a diverse list of characters, united only by their single-minded quest.
Bre-X Minerals, the upstart exploration company, watched its shares skyrocket from 30 cents (Canadian) in 1993 to more than $23 (Canadian) on the NASDAQ market after the gold discovery and a 10-for-1 split. After making the big find, Bre-X failed to get immediate legal control. When others came around, it tried to protect its stake by allying with Suharto's son, Sigit Harjojudanto. In November, the government told Bre-X that it should have a partner.
Barrick Gold Corp. of Toronto, the world's second-largest gold producer, was selected by the Indonesian government as Bre-X's partner. Barrick's president, Peter Munk, counts former President George Bush and the former Canadian prime minister, Brian Mulroney, as friends and company directors. It built its Indonesian alliance with Suharto's oldest daughter, Siti Hardijanti Rukmana, or Tutut. In December, Barrick appeared to have closed a deal giving it 67.5 percent of the gold, while Bre-X got 22.5 percent and the Indonesian government, the remaining 10 percent.
Freeport-McMoran, a company with revenue last year of $1.9 billion, was no stranger to the international scene. It had once operated a nickel mine in Cuba, and started mining copper and gold in Indonesia 30 years ago. Now it is the largest American investor in Indonesia.
Environmental groups have accused it of releasing toxic waste from its mine, Grasberg in Irian Jaya, but the company denies that.
A key participant in the deal was Mohamad (Bob) Hasan, an insider, trusted friend and twice-a-week golfing partner of Suharto. Hasan manages the investments of Suharto's charitable foundations, and has business interests in timber, banking and automobile production. Recently he also acquired a piece of Freeport's existing Indonesian mine.
Early in December, according to published reports, Suharto called a few friends to his ranch outside Jakarta to discuss who would help exploit the Busang discovery. Those present included Hasan and James Moffett, known as Jim Bob, the chairman of Freeport-McMoran, who urged the president to consider opening the process to bidding.
Most of the serious contenders for a piece of Busang were Canadian companies with easiest access to the vast amounts of money required, said David Davidson, a gold analyst at CIBC Wood Gundy in Toronto. Freeport-McMoran, however, had financial backing as well as the right connections.
Several weeks later, Hasan confirmed that one of his companies – Nusantra Ampera Bakti, which is 80-percent-owned by three foundations headed by Suharto – had purchased half of Askatindo Karya Mineral, a company with a 10 percent stake in a part of Busang.
Last week, Barrick made what it said was its final offer to Bre-X.
On Monday, it was clear that Barrick had lost the race, and that Hasan had helped close the deal for Freeport.
"I want to congratulate Mr. Mohamad 'Bob' Hasan for his diligence and guidance during these lengthy negotiations," said David Walsh, the president of Bre-X, in a statement released on Monday. "There is no doubt that he was instrumental in bringing this project to fruition."
Although Bre-X did not identify the two Indonesian companies that would jointly control 30 percent of the venture announced on Monday, it is assumed that they include one headed by Hasan.
Bre-X may have managed to protect its stake in Busang's gold, but analysts still expect it to be taken over by a larger, better established mining company. Placer Dome Inc. of Vancouver, which had made a pitch for Bre-X last month, said on Monday that its merger offer still stood, but would have to be re-evaluated.