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Canadian, U.S. firms team up to mine huge Indonesian gold deposit

Deposit

February 17, 1997
Web posted at: 2:30 p.m. EST (1930 GMT)

JAKARTA, Indonesia (CNN) -- The tiny Canadian mining company Bre-X Minerals announced Monday a joint venture with U.S. giant Freeport McMoran Copper and Gold to develop and operate what may become the world's largest gold mine.

The Busang gold deposit in Eastern Kalimantan had been the center of an ownership battle that included North America's two largest minding companies and members of Indonesian President Suharto's family.

Bre-X CEO David Walsh released a statement saying the new agreement gives his company a 45 percent stake in the mine, Indonesian interests 40 percent and Freeport 15 percent.

Bre-X discovered the Busang deposit, which it says contains at least 71 million ounces of gold, worth over $26 billion at today's prices.

Freeport, one of Indonesia's largest international investors, will develop and operate the Busang deposit. Freeport operates the Grasberg mine, with the world's largest proven gold reserves, in Irian Jaya province.

Development of the new mine is expected to cost up to $1.6 billion.

Surprising end to Cinderella story

Suharto's daughter

The battle over Busang, which began when Bre-X announced its discovery nearly two years ago, shook investor confidence in Indonesia.

After the discovery, Bre-X's stock shot from 36 cents to over $200, but that dramatic rise was cut short last November when the Indonesian government ordered Bre-X to form a partnership with Barrick, North America's largest mining firm.

The order stopped any open bidding process.

Insiders say Barrick used influential connections -- including President Suharto's daughter -- to push the deal. Barrick also has a high-powered advisory board that includes former Canadian Prime Minister Brian Mulroney and former U.S. President George Bush.

But sources close to the Indonesian government say Indonesia decided to step in because the government had waited too long for Bre-X to begin developing the find with a partner of its choice. During that time, the sources say, officials saw little action except for announcements of more gold found in the deposit.

The announcements, they said, drove Bre-X's share prices higher, but did little for Indonesia.

Board

Since that time, a behind-the-scenes bidding process apparently took place. North America's second largest mining company, Placer Dome, was also involved, offering to Merge with Bre-X for $5 billion.

The Indonesian government had given Bre-X until Monday to settle with Barrick. Instead, Barrick bowed out and Walsh announced the Freeport deal.

The man largely credited with putting the Freeport deal together is timber tycoon Bob Hasan. He entered the picture with the Nusamba group, closely tied to President Suharto and his eldest son.

The Freeport deal has been submitted to the Indonesian government for approval, but it would appear to satisfy the interests of both Bre-X and the Indonesian officials, while eliminating the stigma of a shotgun marriage with Barrick.

And Freeport's years of experience in Indonesia place it in position for the next step -- to see if the Busang deposit can live up to its promise.

Jakarta Bureau Chief Maria Ressa and Reuters contributed to this report.

 
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