Challenges 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 country (established only in 1993 by exploring in the East Kalimantan rainforest).
Another critical challenge faced by Bre-X was the public outcry over a foreign firm taking advantage of Indonesia’s wealth of natural resources. This mineral exploitation resulted in cries for public action to seize the land and deny Bre-X any compensation. Prominent public figures Dr. Amin Rais and Mr. Hartojo Wignjowinoto were most vocal in these demands. This is a classic example of the risk an unprepared company takes on when operating in a country that is transitioning both politically and economically.
Over the first half of 1996, analysts predicted increasing success at Busang and as a result, Bre-X’s stock value rose. Indonesia, however, is a mixed economy where the government uses public action to manipulate and influence the private sector with ease. Bre-X’s failure to collaborate with an influential local company from the beginning of its venture led it to the current crisis. The company’s developmental and operational stagnation resulted in increased pressure from the world’s largest mining firms, Barrick included, and the Indonesian government. The Sudjana Proposal: Bre-X Minerals & Barrick Gold
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