Barrick poised to pounce on Busang

Its shotgun wedding with Barrick Gold (ABX-T) having been arranged by the Indonesian government, Bre-X Minerals (BXM-T) has until Dec. 4 to find a husband Jakarta might prefer.

The dowry in this case goes to dad, however, as the Indonesian government has asked for 10% of the fantastically rich Busang gold deposit in East Kalimantan province. The government has asked Bre-X to form a joint venture with Barrick, which would hold a majority stake in the deposit.

On Nov. 26, Bre-X released a statement outlining terms for dealing part of the Busang deposit to Barrick Gold.

Although Bre-X, as stated, has received offers from several major mining companies, the Indonesian government has “given guidance to Bre-X” to finalize a joint venture with Barrick Gold on the basis of 25% to Bre-X and 75% to Barrick.

Such a deal would make Barrick the world’s second-largest gold producer, behind Anglo American of South Africa.

Bre-X has written to the Indonesian Ministry of Mines and Energy to seek clarification as to whether “certain other forms of transactions” would be acceptable but had not yet received a response when it issued its statement.

According to the Bre-X statement, the Indonesian Ministry of Mines and Energy indicated that the negotiations between Bre-X and Barrick should be finalized by Dec. 4, and that, if the negotiations are not concluded by that date, “the Indonesian government will take the necessary steps to prevent a delay in the development of the Busang gold deposit.”

Barrick Gold spokesman Vincent Borg stressed that Barrick’s role in the future of the Busang project, if any, will not be known until the Indonesian government has accepted a deal between Bre-X and Barrick.

“We’re in discussions, and those discussions may, or may not, lead to an agreement. And that [agreement] would have to be presented to the Indonesian government, and they’d have to sign. It’s not a fait accompli at all that they would approve something that Barrick and Bre-X agreed to.” Borg said there is precedence in Indonesia for the government’s request for a 10% interest in Busang.

“It’s obviously something both companies will be discussing.” Bre-X reported that the Indonesian Ministry of Mines and Energy has also advised that “the Indonesian government would appreciate it if the parties could consider a 10% participation being given to the Indonesian government.” Borg said his company will be discussing this possible government involvement with Bre-X.

Bre-X officials declined comment on this or any other matters related to Busang.

Before the Indonesian government’s latest actions, Barrick was thought to stand the best chance of bidding successfully for a stake in the property because Barrick’s own high-priced stock, relative to the value of its assets, would look attractive to Bre-X shareholders.

The other companies thought to have the financial wherewithal to be potential Bre-X partners are Newmont Gold (NGC-N), Placer Dome (PDG-T), RTZ-CRA (RTZ-N) and Anglo American’s Luxembourg-based subsidiary, Minorco.

Barrick, which has already invested more than US$10 million on exploration of its large land position in Indonesia, has also become associated with a construction company run by the daughter of Indonesia’s President Suharto.

It is this last fact, in particular, that irks Tandem Resources President and CEO Stanley Hawkins about Barrick’s involvement with Bre-X and the Busang project.

Hawkins was, for several years, a director of Bresea Resources (BSR-M) (which owns 23% of Bre-X), and, in addition, was an early backer

of the Indonesian projects of Bre-X Chairman David Walsh.

“I think it’s a disgrace for Barrick to interfere and get in the ear of [Suharto’s] eldest daughter.”

He says it remains to be seen whether Barrick will make a fair offer to Bre-X shareholders, but adds, “In my view, they’d be almost compelled to” because Bre-X may be in a position to sue Barrick for having interfered with its affairs in Indonesia.

“It’s obvious that Barrick has interfered, and, in doing so, has placed a gun to Bre-X’s head. [Barrick Chairman Peter] Munk . . . wants this thing so bad he can taste it.”

“Smells to high heaven”

There is a possibility that Bre-X could whip up a better deal for itself with a different partner before the Dec. 4 deadline, Hawkins says, “but it seems from the release that they have been directed to deal with Barrick. The whole thing just smells to high heaven.”

Hawkins says Bre-X’s difficulties with the Indonesian government stem from the company’s deal to take over a contract of work (CoW), on Busang’s relatively small Central zone, that had been issued to another company.

In 1987, a CoW for the Central zone was issued to PT Westralian Atan Minerals (PT WAM), an Australian company which had a deal with PT Krueng Gasui giving the latter company a 10% interest. Bre-X acquired PT WAM in 1993, through an offshore transaction.

The company has been unable, however, to acquire a CoW for the ground covering its huge Southeast zone gold deposit.

Minorca Resources (MAR-T) Vice-president Joseph Del Campo says Bre-X officials themselves are responsible for their difficulties in Indonesia.

“[They] apparently did not do their homework very well, and I guess they’re suffering the consequences.”

Little risk

He says juniors working in Indonesia run little risk of having the Indonesian government step in and tell them what to do and who to do it with, “if you abide by the law and do everything properly — which a lot of companies like ours have done.”

Minorca holds a 7% indirect interest in the Southeast zone at Busang, through a deal with Askatindo Karya Mineral, Bre-X’s Indonesian partner on that project.

While noting that everything that happens to Bre-X affects his company indirectly, Indomin Resources (IRL-V) Vice-president Charles Forrest doesn’t think Indomin will have any trouble receiving its CoWs by the end of 1996.

“We respect the Indonesian government, and we think they’ll treat us fairly.” He says the Indonesian government’s actions regarding Bre-X serve to send a message to other juniors, to the effect that “you had better respect the mining act of the country, as well as the traditions and culture of the people.”

Hawkins dismisses such notions as “ridiculous,” noting that Bre-X followed all of the necessary rules and simply became a victim of its own exploration success.

“I don’t think they did anything wrong. So what if it was an offshore company that owned the CoW? [The Indonesian govermment] had no objections to it three years ago. Why now? Just because it’s a monstrous orebody, that’s why. If the Busang deposit had turned out to be just a few million ounces of gold in the Central zone,” he adds, “no one would have given [the method Bre-X used to acquire its interest] a second thought.”

Meanwhile, there is uncertainty surrounding the fate of the legal action against Bre-X that Krueng Gasui (an Indonesian partner of Bre-X, which holds a 10% interest in the Central zone) has threatened to file in an Alberta court.

Krueng Gasui (KG) alleges that it is entitled to a similar participation in the Southeast and Northeast zones (which contain the vast majority of Busang’s estimated 47 million oz. gold), based on the fact that those deposits are contiguous to the Central zone. KG has threatened to sue Bre-X and 19 other parties for US$1.9 billion unless a settlement is reached.

Hawkins says KG’s claim was a “smokescreen to cause some problems for Bre-X.” He expects all disputes regarding Busang are certain to disappear if the Barrick/Bre-X deal goes through.

Also in doubt is the status of an agreement recently reached between Bre-X and Indonesian firm Panutan, a private company controlled by Sigit Harjojudanto, the son of President Suharto. The deal calls for Panutan to be retained by Bre-X as a consultant at a cost of US$1 million per month for 40 months, in exchange for a 10% interest in both the Central and Southeast zones at Busang. The deal was designed to hinge on whether Panutan could facilitate the issuance of CoWs for Busang.

A respected Indonesian business publication says that if the Indonesian government insists on giving the Busang CoWs only to a Barrick-led joint venture, “it is possible that Indonesia will be the target of international protests again. The side effects will definitely not be minor.”