APSN Banner

Behind the tussle for gold - How connections solved the spat for the world's no 1 gold mine

Bloomberg - February 21, 1997

Jakarta – In Indonesia, doing business is largely a matter of whom you know. And few executives know more people than Mohamad "Bob" Hasan.

Mr Hasan, 72, just helped settle a tussle for control of the world's largest gold deposit. The tale of how the dispute got settled is a good example of how business gets done in Indonesia these days.

The gold – an estimated 71 million ounces, worth US$25 billion (S$35.66 billion) at today's prices – was discovered in 1994 in Borneo by a small Canadian exploration company called Bre-X Minerals Ltd.

Bre-X didn't have the expertise to mine all that gold. No problem. Indonesian Mining Minister I B Sudjana had a candidate for a partnership in mind: he insisted Bre-X sell two-thirds of its stake to Canada's Barrick Gold Corp, a US$1.3 billion company that's exploring more acreage in Indonesia than any other mining company. Barrick was partner with a company controlled by Siti Hardiyanti Rukamana, President Suharto's eldest daughter.

The mining minister had threatened to take away Bre-X's rights to the mine if it didn't come to terms. That worried the other mining companies in Indonesia. And that would be bad for the mining business, one of Indonesia's biggest industries.

Enter Bob Hasan. An ethnic Chinese brought up on Java, Mr Hasan made his millions in the vast timber stands of Kalimantan on Borneo – akin, in Indonesia, to making your money in the Wild West. Mr Hasan keeps a gun in his desk and once said, after playing golf with Sylvestor Stallone, "I told Rambo I'm the King of the Jungle".

At the beginning of December, in the midst of this unusually public spat over the gold, Mr Hasan met Mr Suharto, mining executives said. Mr Hasan has been an adviser and golfing buddy of Mr Suharto's for decades. He took along a friend, Freeport McMoRan Copper & Gold Inc chairman James Moffett, known as "Jim Bob". They came up with a way to resolve the problem, and do themselves a good turn as well.

Freeport, based in New Orleans, has operated in Indonesia for three decades. It was one of the few companies to invest here after Mr Suharto suppressed a coup attempt in 1965 when some foreign investors shied away. Mr Suharto has never forgotten that Mr Moffett took a chance on Indonesia when few would. Freeport's major business is operating the massive Grasberg copper and gold mine in the mountain jungles of the Indonesian province of Irian Jaya.

It's the largest mine of its kind in the world, and staying friendly with local politicians has been essential as expansion plans were criticised by environmental groups and the US funding agency Overseas Private Investment Corp. Resentful guerillas of the Amungme tribe killed an employee a year ago.

The company has prospered – earnings were US$226 million last year. With sales of US$1.9 billion, Freeport is among the country's largest taxpayers.

A company led by Mr Hasan handles catering for the mine. After Messers Hasan, Suharto and Moffett met in December, a company owned by foundations headed by Mr Suharto and led by Mr Hasan – PT Nusantara Ampera Bakti, known as Nusamba – bought controlling interests in Bre-X's local partners.

Then on Monday Bre-X announced it had found a new partner – Freeport. Under the deal Mr Hasan brokered, Bre-X will get a 45 per cent stake compared to the 22.5 percent it would have got under the deal with Barrick. Freeport gets 15 per cent and has to kick in US$400 million towards the cost of the mine. Plus it has arranged a US$1.2 billion loan towards the rest of the costs.

That's compared to the 67.5 per cent share Barrick was to have received. The big difference from the earlier deal, though, is the 30 per cent Bre-X's local partners – the biggest being Mr Suharto's foundations and Mr Hasan – will get. There may be room for other investors, Mr Hasan said.

It looks at first glance like a better deal for Bre-X, which winds up with nearly half of the mine instead of a quarter. The problem is, it turns out Bre-X won't get any money for their 30 per cent stake, Mr Hasan told a press conference on Wednesday. Nor will the Indonesian government have to pay for the 10 per cent stake it's taking. While Bre-X would have got a smaller share of the mine in the Barrick deal, at least it would have been paid cash for the stake it gave up.

Eight-year-old Bre-X has practically no sales and is operating at a loss. The mine is its ticket to the big time. Bre-X executives say they're happy, since they might have been edged out of the deal entirely. Freeport stock, not surprisingly, is up US$2.62 to US$32.12 a share.

No wonder Mr Hasan, a short man with a moustache, looked pleased at Wednesday's press conference. "I've been friends with Suharto for 40 years," he told the reporters. Yet "I'm not under pressure, because I'm not a government employee."