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Indonesia formally endorses deal on Busang ownership

Wall Street Journal - February 19, 1997

Richard Borsuk, Jakarta – The government gave its formal blessing to the recently settled ownership battle for the giant Busang gold find, and an official used the occasion to deliver a message to all mining companies: Don't worry.

Kuntoro Mangkusubroto, director-general of mining in the Mines and Energy Department, assured miners – many worried by how the Busang squabble unfolded – that Indonesia has no plans to significantly change its rules for mining. He said "contracts of work" that 68 mining firms have been waiting to receive to start production work – while authorities grappled with the Busang case – will be signed "as soon as possible."

He added that the current "contract of work" system, under which companies that produce minerals pay the government royalties and taxes, will be continued. "Once a contract of work is signed, companies are assured that the rules applying to it won't change for 30 years," Mr. Kuntoro noted.

His comments will be welcomed by mining companies. Many foreign exploration firms have watched with great concern the unfolding of the Busang saga, which was settled in the past week after the intercession of powerful businessman Mohamad "Bob" Hasan.

Miners' Concerns

Mining companies were particularly worried at one stage that Bre-X Minerals Ltd., the Canadian exploration concern that found Busang and had preliminary approvals for a contract of work, might be denied the right to sign a final contract of work due to political maneuvering by groups which wanted to get a share of the mother lode, which is located on Borneo island.

Miners have also been uneasy about the roles played at times in Busang by the children of President Suharto, and companies have been unhappy over efforts by some government officials to dictate that Bre-X enter a joint venture with Barrick Gold Corp. of Canada.

There will be some changes in future policies, Mr. Kuntoro said, citing plans for a next generation of contract of the work. It will be the seventh generation of the basic document and will promote "community development" work by mining firms, he said. But he also stressed that Indonesia's basic system will remain intact. Mr. Kuntoro's comments came at a news conference he held after Mines and Energy Minister I.B. Sudjana, who had been expected to answer questions, quickly left the meeting room after reading an announcement confirming the government's endorsement of the Busang settlement.

Mining-industry executives, who give Mr. Kuntoro high marks, said the director-general is playing a major role in helping restore investor confidence, which has been dented by the Busang case.

Tuesday's government statement on Busang said it is "important that the shareholders who have taken the risks on the exploration efforts for Busang receive treatment in accordance with valid stipulations."

A Jakarta mining executive said this conveyed a key message that any company that takes the exploration risk and finds a good mineral deposit shouldn't worry that it will be forced to let another company take over the production work.

Indonesian Role

The government's announcement had one twist that appears to pay lip service to calls for a greater Indonesian role in mining. Bre-X's Monday statement about Busang said the joint venture being formed to develop the Busang find will be 45% owned by Bre-X, 40% by Indonesian government and private interests, and 15% by Freeport McMoRan Copper & Gold Inc. of the U.S. The government announcement said Busang would be 45%-owned by Bre-X, and 55%-owned by "national" interests.

However, government officials explained that the "national" interests have agreed to naming Freeport as an operator, and to allowing the U.S. company take a 15% stake in the overall venture.

Mr. Kuntoro, confirming statements Monday by Mr. Hasan, said that Indonesia's state-owned mining companies, PT Tambang Timah and PT Aneka Tambang won't be allowed to invest in Busang during the construction stage. He said the government wants them to come in only after production begins. Mr. Kuntoro also said the government's 10% stake in Busang will be held through the Finance Ministry.