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Walsh clears the air

Broadcast Date: March 9, 1997

By March 9, 1997, Bre-X has just been through a shaky period – the Indonesian government's involvement has caused a few ripples in this otherwise "good news" story. In Indonesia, it's assumed that the government will take a chunk of any business dealings, according to this segment from CBC's Venture. But in the case of Bre-X, the government also demanded a say in choosing Bre-X's development partner.

Indonesia first pushed discussions with major Canadian mining company Barrick Gold, but then turned around and forced Bre-X into a partnership with American company Freeport-McMoRan Copper & Gold Inc.

Venture's Linda Sims has a rare one-on-one interview with Bre-X CEO David Walsh. She asks tough questions about the Indonesian government's involvement and all the recent confusion over ownership, but Walsh's answers all seem to point to a positive outcome for Bre-X.

Walsh clears the air

• Under Indonesian law, foreigners (non-Indonesians) could drill and develop mines, but the permit could only be held by an Indonesian citizen. So partnerships were typically formed between the Indonesian who obtained regulatory approvals and permits from the government, and the foreigner who put up the cash. The Indonesian "partner of convenience" would normally get 10 per cent of the earnings. The country's president, Suharto, had to approve and sign off on any permits or deals with foreigners.

• Bre-X's Indonesian partners were two men, Jusuf Merukh and Haji Syakerani. When Merukh — who had powerful government friends — found that he had been dealt out of the deal in early 1996 (leaving Bre-X with 90 per cent and Syakerani with 10 per cent), he complained to the government. Suharto's government then told Bre-X officials that if they failed to comply with Indonesian laws, they could lose the claim altogether.

• To get back on the Indonesian government's good side, Bre-X signed a cooperation agreement with Suharto's oldest son, Sigit Hardjojudanto, in late 1996. They offered him future contracts and part of the action.
• Toronto-based mining giant Barrick Gold Corp. then struck a deal with Suharto's daughter, businesswoman Siti Hardiyanti Tutut Rukmana. Barrick promised Rukmana that her companies would get all the construction contracts for the mine if she could help make Barrick Bre-X's development partner.

• Suharto's daughter had great influence with her father, and soon the Indonesian government told Bre-X it had to partner with Barrick — and Barrick was to get almost 75 per cent.
• Bre-X wasn't happy with this deal, nor was Suharto's son. Power struggles ensued. Bob Hasan, a powerful Indonesian businessman and friend of the president, was called in to clean up the mess.

• By Feb. 17, 1997, Freeport-McMoRan, an American mining company with strong ties to Indonesia and to Bob Hasan, was made the official partner of Bre-X. Freeport would get 15 per cent of the Busang project, Indonesia would retain 40 per cent — both directly (through the government) and indirectly (through Indonesian companies controlled by Hasan) — and Bre-X would keep the remaining 45 per cent. The government and Bre-X were both satisfied with this deal.

• Back in North America, news of the ownership struggles caused the stock price to dip and fluctuate. By February 1997, it was trading at around $21 per share, which was actually the equivalent of $210 "pre-split." As the stock grew there was a 10-for-one split in mid-1996.
• Often, when a stock's value increases significantly, a company will split it. A 10-for-one split means that every share purchased before the split is now worth 10. This process just allows for more shares to be sold.

• Once the deal was struck, Freeport geologists took off for Busang to begin their "due diligence survey." In other words, they would be checking out the gold supply to make sure everything was in proper order.

Walsh clears the air

Medium: Television

Program: Venture

Broadcast Date: March 9, 1997

Guest(s): David Walsh

Host: Robert Scully
Reporter: Linda Sims

Duration: 7:21

Last updated:
Feb. 19, 2004