Busang loses its lustre

Andreas Harsono

The Nations, March 28, 1997

Stock prices in the Canadian mining firm that found a much publicized gold deposit in Indonesia slumped after the chief prospector killed himself and reports surfaced doubting the size of find.

The Hongkong-based Far Eastern Economic Review once called Filipino geologist Michael De Guzman a “golden boy” after his spectacular discovery of a "huge gold deposit" in Busang in the Kalimantan rain forest.

De Guzman’s boss David Walsh, the chief executive officer of Calgary based Bre-X Minerals Ltd, recalled him as having a near genius level IQ while colleague geologist John Felderhof praised him as brilliant and a true professional.

De Guzman had his own judgment and decided to end his life. And rather than taking sleeping pills or something less painful, he chose to jump from a helicopter which was flying to the Busang site, around 300 kilometers northwest of Samarinda, the capital of East Kalimantan, last Wednesday morning.

“It was a great shock,” uttered Felderhof, who immediately flew back to Indonesia from a visit to Canada, saying the he was deeply distraught over the loss of his colleague. He said he was unsure of the exact reasons for de Guzman’s death.

Two witnesses inside the helicopter said they just felt a gush of wind by their heads. They turned around and de Guzman was gone from the helicopter.

Police said the pilot and the engineer of the helicopter had seen de Guzman writing a letter and putting it in a bag along with his Rolex watch and a gold plated bracelet just before being plunged from the helicopter. 

The note also said how de Guzman’s wife, who lives in the Philippines, should divide his belongings between his two daughters and other relatives, adding that he had given up to life because of disease.

The tragic death is not the only bad news for Bre-X executives like Felderhof.

The following day an Indonesian newspaper, the Jakarta based Harian Ekonomi Neraca, broke the news that Freeport McMoran Copper and Gold Inc were beginning to doubt that Bre-X had found as much gold as it said did at Busang.

The Indonesian Government last month recruited New Orleans-based Freeport to develop the mine, giving it a 15-percent ownership stake and shrinking BreX’s holding 45 percent. The Indonesian government and an investment firm controlled by Indonesian President Suharto took the rest in a 30/10 split. 

The Neraca daily quoted a Freeport official as saying that the finding in less than 10 million ounces which sharp contrast to Bre X’s claim last year of at least 70.95 million ounces of gold.

The Bre-X claim means that the Busang deposit worth is around US$230 billion (Bt 5,750 billion) at today’s prices.

It is possible the deposit is not as large as had been reported. But it is also possible that the deposits are not worth mining at all, the anonymous official told the paper.

In this modern era of information technology, that statement needed just minutes before reaching the whole world and hundred of millions of dollars in market value disappeared as soon as stock exchanges throughout Canada opened on Friday.

A synopsis of the story was flashed to North America by Bridge News, and international financial wire service. The Jakarta bureau of the Agence France Presse as well as other news agencies also quoted the report and spread it worldwide.

In a market primed on the idea that Busang is one of the great gold discoveries of history, this was incendiary stuff. Mining analysts had earlier compared the Busang find to the legendary Klondike or Witwatersrand gold mines in south Africa a century ago.

The Busang deposits even pitted various powerful figures like former Canadian premier Brian Mulroney, former US president George Bush against each other and locked Indonesian President Suharto as well as his children in a high-profile business struggle to control the future structure of Busang.

Within five minutes of opening Bre-X was down 90 cents on the Toronto stock exchange trading and exchange officials called time out at the company request to ensure the investors would be able to trade on equal information, said a market manager. Despite a trading halt of more than 3.5 hours to let the market hear the company’s reassurances, Bre-X slid to $10-70 its lowest point since April 1996 and closed at $11.40, down $1.70, on the Toronto Stock Exchange.

At its lowest point, its value had fallen about $600 million since the world learned of de Guzman’s my serious fall. Also hammered were Bre-X’s parent companies, and Bresea Resources Ltd and Minorca Resources Ltd, which have small indirect stakes in the Kalimantan discovery.

“Absolute insanity. Just Insanity,” Toronto mining promoter Stan Hawkins, a Bre-X shareholder and former Bresea director, told the Globe and Mail newspaper. Hawkins said he had heard all sorts of different rumors that de Guzman was murdered and his assays were all wrong and that was why he jumped of the helicopter. “Certainly, there’s no question about the assay. They’re golden, no pun intended,” he said. 

While stockholders were still selling their shares, dozens of rescuers and colleagues combed the Kalimantan thick rain forest, trying to find de Guzman’s body. World’s apart, both Canadian and Indonesian newspapers, put the rescue effort and the stock hysteria on their front pages.

Rescuers finally found what they suspected to be de Guzman’s body on Sunday, face down in a swamp, 150 meters to be west of Menamang, a village north of Muara Kaman, dozens of kilometers from Busang.

Observers could not help but speculate that de Guzman had taken such a tragic step after finding out that the result of his exploration work, which had been begun in 1986, was falling apart.

“How could a geologist whose picture is printed on glossy magazines would wide stand such humiliation?” asked one observer, adding that de Guzman income has risen dramatically since the find. He was estimated to be worth up $4.8 million. 

BN Wahyu, head of Indonesian Mining Association, complained about the secrecy surrounding the Busang find, saying that he could not get a map of the site from Bre-x until March even though the association had lobbied the mining ministry in Jakarta for a fair deal for the company. 

Both Felderhof and Walsh angrily denied the report. Freeport Spokesman in Jakarta also denied the report, saying that the American company is still drilling and cross examining the deposit in Kalimantan. Without explicitly referring to the Neraca newspaper, Walsh said in a statement that he had considered taking legal action against certain parties and publications due to the erosion of share value which resulted from these reports.

In an apparent bid to calm down investors, Walsh said, “When the first ounce of gold is poured at Busang, I’m sure the naysayers will complain about the color.” 

Felderhof, who is the chief Bre-X geologist, also said that he is going to have a meeting with Freeport executives to discuss their continuing preliminary work on the deposit, adding that he is expecting to be present when Busang’s long delayed contract of work is issued by the Indonesian government within two weeks. 

Bre-X attributes its estimates to consultants from Kilborn SNC Lavalin Inc, a Toronto-based engineering firm, which was standing behind its figure.

Paul Semple, a vice president at Kilborn SNC Lavalin, said the firm had no reason to believe that there were any reasons to amend it. "If there is other information out there, we just haven’t seen it,” he said.

Norman Keevil, chief executive of Vancouver-based Teck Corp, which failed to negotiate its way into the Busang project, said Kilborn’s people are reputable engineers who would not likely be wrong about such a bonanza. 

If Freeport has begun drilling on the site, Keevil said, "It couldn’t have been much more than three weeks ago, so I don’t know how much data they could even have out of it yet.”

Mohamad Cholid, the deputy editor of Neraca, said that his newspaper got the leaked information from two different sources.

The fist was an official at the Ministry of Mines and Energy, “I was told that President Suharto himself has also been briefed about the Freeport finding.”

 

Cholid explained that his newspaper had headlined the report after carefully checking and rechecking the sensitive data in a usual and standard journalistic manner.

“In a modern time like this,” quipped Cholid, public companies are always vulnerable to reports like this. “The public doesn’t know for sure who is correct, our sources or Bre-X geologist? They want to play is safely. Now they will be just having to wait and see.”