Busang, the gold mine in a remote area of Indonesia, has never been short on superlatives since its discovery in 1984. It has been described as the biggest gold discovery ever made, while Bre-X, the Canadian exploration company that discovered it, touted it as the worlds biggest gold mine.
One would have to go back to the Klondike or the discovery of the Witwaterstrand in South Africa a century ago to find anything that compares to the apparent size of Busang, a typical stockbrokers report gushed late last year.
But on last Wednesday, superlatives of a different variety surrounded the Busang venture when Bre-X admitted the find might have been overstated. The revelation that there might be an insignificant amount of gold at the site sent shock waves through the industry.
The companys shares were suspended by the Toronto stock exchange before the announcement, but when trading resumed on Thursday, their price plummeted from Canadian $15.50 to $2.50. Bre-X, valued at more than Canadian $6bn (US$4.4bn) in 1996, was worth practically nothing, according to the more pessimistic analysts.
Shares in other small exploration companies in Australia as well as Canada were also hit, falling between 20 and 40 per cent.
This is likely to undermine confidence in the gold sector in general and junior exploration stocks in particular, says Nick Hatch, analyst at the Flemings Global Mining Group in New York.
Rumours that all was not well at Busang had plagued Bre-X for more than a week after Michael de Guzman, its chief geologist, was reported to have jumped from a helicopter. It was suggested he was very ill and had committed suicide.
Then a Jakarta newspaper hinted that independent checking of Bre-Xs drilling at Busang was not confirming the excellent results reported by the company.
Bre-X previously reckoned it had more than 70 million ounces of gold, or 2,100 tonnes, at Busang in Kalimantan, the Indonesian side of Borneo. John Felderholf, senior vice-president for exploration, told analysts last month he was comfortable with an estimate of 200m ounces.
On Tuesday Bre-X was still insisting it had discovered the worlds biggest gold mine. But the next day David Walsh, Bre-Xs president, issued a statement saying consultants called in by the company to audit its work had found there appears to be a strong possibility that the potential gold resources on the Busang project have been overstated because of invalid samples and assaying of those samples.
It will be hard for investors to understand how a gold mine said to contain 70m ounces could prove on further checking to have an insignificant amount. Could Bre-X really have made a mistake and been the victim of an unhappy accident?
Geologists say that, technically, this is possible. To gain some indication of the gold present in the deposit, companies drill holes, analyse the rock pulled out by the hollow diamond drill bits and calculate how much precious metal might be present over a relatively wide area.
A false impression could be given if the drilling followed the path of thin veins of gold in the rock, rather than cutting across them. High levels of ore would then show up.
It is also possible that laboratory analysis of the rock could be deficient. Nevertheless, analysts say Bre-X has spent about $20m at Busang and taken samples from some 250 holes. They find it difficult to believe the company did not realise there was a problem with the optimistic test results until this week.
And the team that launched Bre-X in 1993, was far from inexperienced. Felderhof, who is based in Indonesia, is credited with several significant gold discoveries in that region and played a part in the discovery of OK Tedi, one of the worlds biggest copper mines. Walsh is well-known in Canada as a mining promoter and prospector.
Bre-X bought an 80 per cent share in Busang in 1993 and within months Felderhofs exploration team was recording positive drilling results. This not only sent the Bre-X share price rocketing but also attracted the attention of Barrick Gold, the biggest gold producer outside South Africa. An attempt to form a joint venture between Barrick and Bre-X failed, but the prospects at Busang continued to fascinate Peter Munk, chairman and founder of Barrick who is determined to make it the worlds biggest gold-mining group.
Last year, Bre-X reported more promising drilling results and said it was looking for a big mining company to be its partner at Busang. Several big North American companies showed an interest and there was a scramble for a share of what was by then being widely described as the gold discovery of the century.
But things did not go smoothly. In October Bre-X became embroiled in an ownership dispute and the Indonesian government held back from granting licences until this was settled.
Behind the scenes, Munk of Barrick was lobbying Indonesian officials, suggesting it was the best partner for Bre-X. Barrick teamed up with the Citra group, operated by Ms Siti Hardiyanti Rukmana, the eldest daughter of Indonesias long-serving President Suharto and a powerful businesswoman in her own right.
Bre-X countered with its own attempt to gain favour with Indonesias first family. It offered a company associated with Sigit Harjojudanto, President Suhartos son, 10 per cent of the Busang project and $1 million a month for 40 months as consultancy fees as long as permits were given.
At first it appeared Barrick was winning the battle, as the Indonesian government attempted to force Bre-X into a deal with Munks group. But the issue became embarrassing to Suharto.
As talks between Barrick and Bre-X became bogged down President Suharto called in his old friend, Mohamad Bob Hasan, the timber tycoon, to advise and arbitrate. Last month, Hasan recommended that Freeport McMoRan, a New Orleans-based group, should become Bre-Xs partner.
Jim-Bob Moffett, Freeports chief executive, is said to be close to both Hasan and President Suharto. Bre-Xs share of Busang was to be reduced to 45 per cent, Freeport was to have 15 per cent and be responsible for developing a mine, and the remaining 40 per cent was to go to the Indonesian government and two Indonesian companies.
The Busang affair has already left scars. It has damaged the reputations of some North American gold companies that have sho-wn themselves too willing to use political leverage to get control of Bre-X. And the political interference with the ownership of Busang unnerved many potential foreign investors in Indonesia, damaging its hard-won reputation as a competitive and stable mining environment. It is clear that large projects in Indonesia are unlikely to succeed without the help of the Suharto family.
The story is far from over. Freeport says it will take about four more weeks to complete its checks. Analysts say it will take longer than that for investors to regain confidence in gold exploration companies.
