Busang - a River of Gold
950 words 4 pagesChallenges for Bre-X Minerals in Indonesia Bre-X Minerals Ltd. faced numerous challenges in 1996, largest among them being the potential loss of the majority stake in property that could yield upwards of 100 million ounces of gold. The Indonesian government was threatening to redistribute ownership of Busang, the mining region in which Bre-X had property rights, due to its fear that Bre-X was a short-term player not serious about extracting the gold or a long term commitment in Indonesia. These fears were justified given Bre-X’s small size (it had a net loss of $Cdn. 366,677 in 1995 compared to a net income of $Cdn. 218 million from Barrick Gold Corp., a potential government-corporate partner) and limited connections within the …show more content…
Rejecting the Barrick deal proposed by Sudjana would expose Bre-X to future challenges that may prevent them from ever capitalizing on its Busang II claim. However in accepting the Barrick deal, Bre-X stands to lose a large portion of their claim to the future profits from Busang. Bre-X has made large investments to purchase and explore the properties in Borneo and needs to make sufficient earnings to recoup its costs and satisfy its investors. Therefore, Bre-X should use the eight days that they have to reach an agreement with Barrick in which they receive a greater than 22.5% stake in Busang.
Beyond Barrick: Other Roads to Busang
One alternative Bre-X could pursue is a different joint venture with either Placer Dome or Tech Corps, which would align Bre-X with a large enough company to develop and operate in Busang. At the same time, Bre-X needs to cultivate their existing relationship with Suharto’s son to give the company an inside track in navigating the corrupt regime. This alternative is attractive for all parties involved because it increases investor confidence and Bre-X’s stake in Busang, allows Placer Dome or Tech Corps to get involved in the project, and increases the government’s claim through Suharto’s inner circle.
Another alternative for Bre-X would be a total buy-out by Barrick. This option would result in a