APSN Banner

British company involved in Busang scandal

Tapol - April 14, 1997

London – The London newspaper, Sunday Business, yesterday (April 13th) broached the heretical possibility that US mining giant Freeport McMoran may be deliberately under-estimating the grade of the Busang gold deposit in Indonesian Kalimantan.

Last December Freeport secured an option to 15% of Bre-X, the Canadian junior mining company which "discovered" the Busang deposit three years ago. Current plans are for Freeport to manage development of any future mine. However, the deal was conditional on Freeport carrying out its own assays (tests for quality). On March 26th, the US company announced it had discovered nothing out of the ordinary - and nothing approaching the vast resource of 71 million ounces of gold, boasted by Bre-X last year.

Bre-X's shares immediately went into free-fall and panic swept the Toronto stock exchange on which the company is registered. Ten billion dollars was wiped off the value of Bre-X, while trading was suspended in the company's shares. Mining and investment analysts queued up to predict that gold mining would never be the same again, and that the focus for new mine investment - which has for some years centred on Toronto - would now shift back to London.

In fact, the panic was almost certainly premature. Trading in Bre-X has now resumed, and there's little evidence that prices of the bigger mining stock will suffer longterm knocks. As Charles Kernot, mining analyst with Banque Paribas, told the Financial Times from Jakarta on March 2nd: "I am shocked and amazed by the howls of anguish that appear to be coming from other analysts about recent developments at Busang." Kernot pointed out that other major gold deposits in the region - such as Lihir in Papua New Guinea - have taken several years to fully evaluate, and several more years after that to bring into production.

The scandals surrounding Bre-X over the past year are well known. They include the corrupt involvement of the Suharto clan in Bre-X itself, the alleged "suicide" of Bre-X geologist, Michael de Guzman, on March 19th, just as he was flying to a meeting with Freeport to discuss the drilling results, then a mysterious fire which consumed most of de Guzman's papers and samples. But what hasn't been adequately explained, claims Sunday Business, is "the manner in which the Indonesian government brought Freeport to the party".

"So far," says Sunday Business journalist, Tony Hunt, "the small print on the deal has not been made public and throughout the industry there is a feeling that Freeport had much to gain in relation to how it was to pay for its stake in Bre-X, depending on the assay results. Low findings, low payout".

In other words, it may have been in Freeport's interests to under-value the Bre-X assays, cause panic on the markets, and secure its management stake in the project at a bargain basement price.

Sunday Business is also one of the few media to point out British company RTZ-CRA's role in this messy affair. RTZ owns 12% of Freeport's stock and has two directors of its own on the US company's board. Perhaps most important, it operate Indonesia's biggest gold mine, on purloined Indigenous Dayak territory, along the Kelian river, in the same geophysical region which hosts te Busang deposit. "American analysts claim that the RTZ chairman Robert Wilson helped mining business Freeport clinch the deal to become Bre-X's partner," comments Sunday Business.

It is hard to accept that RTZ was not aware of the controversy surrounding Bre-X's drilling results, some time before Freeport made its offer to buy into Busang. It is also impossible to believe that the British mining company didn't have some of its own prospecting data for the region. The company's latest annual report boasts that RTZ "controls an extensive land position on the Kalimantan gold belt where there has been a substantial amount of activity following...the Busang discovery".

In the long run Wilson's advice to corporate partner Freeport will surely have been: "Stick with this one because, in the long run, it's bound to pay off". Even if the ore grade at Busang is considerably lower than Bre-X claimed, a working mine is likely at the end of the day. After all, RTZ is the world's leading exploiter of vast, low-grade deposits: its Brazilian mine at Morro do Ouru has the lowest grade of any gold mine in the world, and has defied early predictions that it couldn't be profitably exploited.

By calling into question the Busang project so dramatically and so soon, Freeport and RTZ must have known the chaos it would sow, not least among Indonesian investors themselves. With 10% of Busang controlled by the Suharto family, and another 30% in the hands of Suharto confidante, the tycoon "Bob" Hassan, the companies were clearly prepared to snap at the fingers of a regime which has uncritically fed their aspirations over many years.

One thing is certain: whoever now gets cold feet over further exploitation of Indonesia's vast mineral resources, it won't be Freeport. And it certainly won't be RTZ. Copyright: NOSTROMO Research, London (a project of Partizans). This article may be freely reproduced, with acknowledgment.