Busang saga threatens juniors
Fiasco over Bre-X find could crush dreams
of Canadian miners with claims in Indonesia
Monday, April 21, 1997
By John Stackhouse
Development Issues Reporter
The Busang saga threatens to crush the latest Indonesian gold rush, and in the process could break the dreams of nearly
100 junior mining companies--most of them Canadian--that had staked claims in the area.
Not long ago, a stake in an Indonesian property just down the way from Busang promised to make Vancouver brothers
Ron and Brian Buchanan very rich. Shares of their company, Spire Ventures Ltd., had hit a high of $4.80 on the
Vancouver Stock Exchange.
Then came the fiasco involving Bre-X Minerals Ltd. Spire's stock fell to 65 cents, and left the Buchanan brothers
scrambling. Brian travelled to North America last week to raise $1.5-million (U.S.) to keep exploration work going. Ron
stayed in Indonesia to buy a used boat and make plans for a jungle camp.
"Thank goodness for contrarians," Ron laughed, saying that with them Spire can likely be kept afloat.
Even contrarians may not be enough, however, for scores of Canadian mining and exploration firms in Indonesia, where
1997 seems to be the year of living nervously. The Busang saga has turned off investors and hammered mining stocks.
Turmoil in Indonesia's mining department and growing resentment toward foreign mining companies have made prospects
less certain still.
"We'll all be tarred with the same brush, unfortunately," said Jim McGregor-Dawson, general manager of Yamana
Resources Inc., based in Spokane, Wash., which has a giant exploration property next to Busang. "It will be difficult to
raise equity for the next six to 12 months."
Yamana is among the fortunate ones, with about $20-million in the bank to fund exploration work. Mr.
McGregor-Dawson said Yamana's bigger challenge will be to reduce expectations. "We're not looking for
70-million-ounce orebodies, which nobody really expected anyway," he said, referring to Bre-X's controversial forecast
for the Busang deposit. "It means we may be looking for three, four, five million ounces, which would be very good."
Many Canadian mining executives in Jakarta believe their hopes will be revived if an independent audit of Bre-X's
estimates, to be released as early as next week, shows positive results. If the report by the Toronto-based consulting firm
Strathcona Mineral Services Ltd. is negative, however, its impact on the industry, according to one veteran geologist, will
be "devastating."
Following Bre-X's initial discoveries, Busang led to a Klondike-style gold rush in Kalimantan, Indonesia's share of
Borneo island. Nearly 100 junior companies, most of them Canadian, staked claims in East Kalimantan province, where
Busang is located.
With very little scrutiny by Indonesian authorities, exploration firms were allowed to stake concessions as large as
250,000 hectares, a little less than half the area of Prince Edward Island, and to carry out basic exploration before a
government work contract was to be approved. Even though there was no credible data base or solid mapping of the
region, share prices soared for most companies that staked properties near Busang, based solely on preliminary results
and geography.
"There's a lot of moose pasture out there," said Paul McCarthy, chief geologist of Vancouver-based Pacific Amber
Resources Ltd., which has four properties in Kalimantan. "It was a bit like selling swamp land in Florida."
Regardless of Busang's prospects, most exploration and mining companies in Indonesia remain convinced of the
archipelago nation's rich geology.
But now they face a new struggle with the Indonesian government, which saw a previous gold rush, led by Australian
firms, vanish in 1987 during the worldwide stock market crash.
Many authorities are embarrassed by the controversy that arose when the validity of Bre-X's drilling results was
questioned, and it has yet to be resolved. Among Indonesian nationalists, there also is growing irritation with opportunistic
mining companies trying to get rich from Indonesian rocks.
Bre-X's promise of a motherlode worth billions of dollars "woke up every politician in the country, from A to Z," Pacific
Amber's general manager Peter Wessels said.
As Indonesia prepares for parliamentary elections next month, many of them would like to place restrictions on foreign
companies. "Maybe they will not allow just anyone to come in," secretary-general of the Indonesian Mining Association,
B. N. Wahju, said in an interview. "Maybe there will be more scrutiny. They [the government] are of course very
disappointed with the way this has gone."
Before last year, exploration companies looking for a temporary permit needed to produce a clearance letter from an
Indonesian embassy or consulate in their home country, a technical assessment of their staff and financial statements.
Then the mines department introduced a computerized system that allowed almost anyone who could deposit a
"seriousness bond," priced at $5 a hectare for an exploration property, to go to work.
If the government places more restrictions on foreign mining companies, especially on the mostly Canadian junior
exploration outfits, it will slow down a system already troubled by political interference and scandal.
Problems in the mining department erupted last year when its little-respected minister, Ida Bagus Sudjana, a retired army
general, stripped his department of signing authority for items such as temporary exploration permits. Suddenly, the
technocrats were powerless and the military-backed minister was buried in paper, to which he appeared to pay scant
regard.
One Canadian executive complained that his company's refundable "earnest bond" has been in the minister's office for six
months.
The Canadian industry was so concerned that it invited Mr. Sudjana in February to speak at a special luncheon for
Canadian companies in Indonesia. The minister spoke--for 120 seconds, by one count. "And he said nothing about
mining," a disgruntled Canadian executive added.
The minister then begged the audience's leave, and handed the microphone to two aides, who apologetically said they
would take questions in writing and reply in due course.
A few weeks later, Mr. Sudjana surprised the industry again by sacking the widely respected director-general of mines,
Kuntoro Mangkusubroto, who appeared to many to be the fall guy for Busang.
Most industry executives expect Mr. Sudjana--who siphoned 40 billion rupiahs ($17.4-million) from a state-owned coal
company in 1994--also to get the axe, but not until after the pro forma presidential election next year. (President Suharto
does not like to humiliate his ministers.)
Another year of Mr. Sudjana leaves plenty of time for him to create more problems--or at least not solve outstanding
ones. "We are very, very worried," Mr. Wahju said.
For most mining companies, the biggest concern now is the approval of contracts of work, which the government handles
in batches called "generations." Such contracts allow companies on temporary permits to carry out full exploration and
drilling programs.
However, "sixth-generation" contracts, which were prepared in 1995 and to be signed last summer, remain on the table.
Suharto was due to sign 68 of them this Thursday, but the signing ceremony for these contracts has been delayed a week
to April 30 because the paperwork is not complete. Bre-X's will be excluded.
Many of the junior companies that followed Bre-X will face a long wait. More than 170 contracts of work belonging to
the "seventh generation" are not likely to be signed until the middle of 1998, nearly a year behind schedule.
Before then, a new parliament could impose tougher controls on the work contracts, or the whole procedure could be
revised. Because of doubts over Bre-X's exploration work, almost every small company also will have to conduct more
costly drilling and assaying work to satisfy investors.
"To raise money you're going to have to have better data," Pacific Amber's Mr. Wessels said. "Frankly, I think it's a great
thing. It keeps us honest."
While Pacific Amber's properties in Kalimantan await seventh-generation contracts of work, its temporary permits are
due to expire in November, which could leave the company in limbo for six months or more next year.
With new risks emerging in Indonesia, many small exploration companies have tried to diversify. Spire has started to
shop for properties in the Philippines. So has Vancouver-based Golden Panther Resources Ltd., which also is looking
at Africa and South America.
"We decided not to put our eggs in one basket," said Golden Panther's senior vice-president Alex van Hoeken. "It's
something we already planned to do. This Busang thing has accelerated it a little bit, that's all." |
