Indonesia Clamps Down On Bre-X

Indonesia, smarting from the Busang scandal, yesterday clamped down on Bre-X Minerals by freezing all activities of the Canadian exploration company and its subsidiaries operating in the archipelago.

Mines and energy minister Ida Bagus Sudjana said the government would also tighten mining regulations, adding that although the Busang affair had not caused any material loss to Indonesia it had affected the country's image.

"The activities of Bre-X and its subsidiaries operating in Indonesia will be temporarily frozen until investigations are completed," Sudjana told a news conference.

He said agreements in principle granted to Bre-X in 1995 to develop Busang had also been suspended until a probe into discrepancies in the amount of gold at the property estimated by Bre-X and by an independent audit are completed.

 

Much is at stake for Jakarta in keeping its mining industry free of taint. Latest government data shows Indonesia earned $2.74 billion in 1995 from the export of mining products -- excluding oil and gas -- such as copper ore to tin and coal, compared with $1.84 billion in 1994.

Export earnings for the products in the first nine months of 1996 amounted to $2.28 billion against $1.94 billion in the same 1995 period.

Bre-X's fate was sealed on Sunday when consultants Strathcona Mineral Services declared that geological samples from Busang had been falsified on a scale "without precedent in the history of mining anywhere in the world".

Strathcona said it had not found an economic gold deposit in the southeast zone of the Busang property, the area in East Kalimantan province said by Bre-X to contain about 71 million ounces of gold.

Bre-X has a 45-per cent stake in the Busang property, Freeport McMoRan Copper and Gold Inc of the US has 15 per cent and Indonesian interests the rest.

Freeport has since announced its withdrawal from the project, along with Indonesia's Nusamba Group which held a 30 per cent stake together with a local partner. Sudjana said yesterday the government, too, had pulled out of its 10 per cent stake in Busang.

The Nusamba Group, headed by business tycoon Muhammad "Bob" Hasan, is 80-per cent owned by three charitable foundations headed by President Suharto. Hasan and Suharto's eldest son, Sigit Harjojudanto, each own 10 per cent.

The Strathcona report ended a momentous chapter in Indonesia's mining history which came complete with intrigue and mystery and saw mining giants such as Barrick Gold Corp and Placer Dome of Canada battling for a slice of Busang.

Sudjana said he was not personally angry with Bre-X over the Busang scandal, but added that the affair had affected the country's respectability."We will be tightening mining regulations because there are holes (in existing rules) that are made use of by people," he said. "We will cover these areas in future contracts."

He said proposed changes might include compulsory independent audits of gold discoveries, preventing exploration companies from making capital gains by arbitrarily raising the size of their finds.