One more:
The Wall Street Journal Interactive Edition -- April 4, 1997
Small Prospectors Are Singing the Busang Blues
By PETER WALDMAN and JAY SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
JAKARTA, Indonesia -- The "Busang blues," they're calling it -- an ode to a gold rush cut down before its time.
That is the tune of this shell-shocked city this week, particularly among the hundreds of Australian and North American gold prospectors who raced here to piggyback on tiny Bre-X Minerals Ltd.'s apparent gold strike on the Indonesian part of Borneo island. Bre-X's estimates of huge gold deposits at Busang sent share prices soaring for even the most inexperienced exploration companies with mining claims anywhere near Bre-X's.
Now, in a process of reverse alchemy, last week's preliminary, revised estimate of an "insignificant" amount of gold at Busang has sent those same companies' shares falling 50% or more on stock exchanges, turning millionaires back into geologists and visions of swirling ribbons of gold back into dirt.
"There was too much hype here," concedes Neville Thomas, who runs one of the so-called junior exploration companies that, as word spread of Bre-X's find, combed the jungles of East Kalimantan province for claims near Bre-X's. "Every company thought they had a shot at a Busang. Now, at least people are becoming more realistic."
Waiting It Out
Nobody is going home yet. Though new exploration capital is quickly drying up in the wake of the Bre-X fiasco, too much money, and too many dreams, have already been sunk into Indonesia's gold fields to quit now. Many mining-company executives here say they will wait out the Indonesian government's independent audit of Busang's gold potential -- expected within four weeks -- before deciding whether to forge ahead with their own projects.
Bre-X's staunch defense of its record-setting gold estimates, issued Tuesday by Chairman David Walsh, lifted spirits a little. But much remains unexplained, mining people say, including why Bre-X failed to preserve portions of its original Busang rock samples for retesting, as is customary in the mining industry. A January fire that destroyed key Bre-X documents has also raised questions here, as has the fact that some small Busang samples given to several North American mining-industry analysts last summer were found to contain hardly any gold.
"I don't know what to believe," says Graeme Robertson, chairman and chief executive officer of Swabara Group, a Jakarta-based conglomerate with extensive mining interests in Indonesia.
Following the Crowd
The lemming-like behavior of small mining companies that cluster around a major strike with piggyback claims is a traditional feature of the industry. Exploring for gold is expensive and requires a tenacity, particularly in places like the rain forests of central Borneo, that few people or companies possess. But once a company hits pay dirt, others pour in, hoping the veins of mineralization might have luckily wandered their way.
Modern finance adds another dimension. With the long bull market on Wall Street, gold plays have become popular in recent years, attracting billions of dollars in capital to mineral claims in Africa, Latin America and Southeast Asia.
Busang, and of course Bre-X, was the granddaddy of them all. Promising the biggest gold deposit in this century, Bre-X saw its stock price rise from pennies in the early 1990s to nearly $200 a share at its height last year -- adjusting for a 10-for-one stock split -- giving the company a market value of about $4 billion at its peak. Mining-industry analysts wrote glowing "buy" recommendations for other small exploration-company stocks, just because the firms owned claims in the same general vicinity as Busang.
"Companies picked up 'moose pasture' -- land with no mineral value -- just to get in" near Busang, says a North American mining-industry executive who declined to be identified but whose company has just had to cancel a public offering of stock because of the Busang hangover. "In those days, your stock went up on news that company officials were just looking at acquisitions near Busang."
Claims Multiply
The computer at the Indonesian Ministry of Mines in Jakarta became the hottest box in town. Lines of people waiting for their chance to plot claims on the machine wound into the ministry's corridors. In 1995, as the Busang estimates exploded upward, it took days, sometimes weeks, to get on the computer. In mid-1994, the ministry had 16 gold-mining
claims pending; a year later, it had 200.
The pressure got so intense that Indonesia slapped a moratorium on new claims for several months in late 1995, while the Ministry of Mines devised a more lucrative system of allotment. Meanwhile, more good news flowed out of Bre-X, and although nobody could file any claims at the time, share prices soared at exploration companies whose only Indonesian presence was in a Jakarta hotel.
Now, Indonesians are worried the Bre-X affair has done long-term damage to the country's ability to attract mining investments.
"Even if Busang exists, this incident throws up the potential of this sort of thing happening again," says Swabara's Mr. Robertson, who was born in Australia but became a
naturalized Indonesian citizen. And if the gold find ends up a disappointment, "it has been done by foreigners invited in to mine our minerals. Our reputation suffers, yet we had nothing to do with it," he says.
The one bright side, some prospectors say, is that the price of mining rights is plummeting right along with the mining companies' dwindling market values.
"This will offer some opportunities for long-term players," says William Gowdy, exploration manager for Canada-based International Pursuit, a gold-exploration company. "Some companies will pull out, but those with the money in place will stick with it. It's a cyclical thing. There will always be another mining boom." |
