EDITORIAL PAGE — Hardball or spitball?

The Voisey’s Bay nickel deposit in Labrador is an asset of strategic importance to Inco, which is why the major worked hard to defeat rival Falconbridge in the bidding war for the deposit earlier this year.

The huge Busang gold deposit in Indonesia is of equal importance to Barrick Gold, a major company with ambitions of becoming the largest gold producer in the world.

Two years ago, Bre-X rebuffed Barrick’s initial offer to acquire a stake in Busang and, since then, the junior has been cool to the idea of a business arrangement with the major. Bre-X had been courted by other interested suitors, and, had events been allowed to take their course, the junior might well have selected “anyone-but-Barrick” as its partner of choice.

But Barrick managed to enter through the back door of the Busang mansion by somehow convincing the government of Indonesia that it should be the majority owner of a mine at Busang. Toward that end, the government stepped in to facilitate a deal in favor of a 75-25 split between Barrick and Bre-X. At the same time, the government told Bre-X it would “appreciate” a 10% interest for itself, whereupon various parties threatening lawsuits against Bre-X indicated that these might be set aside once a Barrick/Bre-X deal is reached.

These events, if viewed in a Canadian context, are bizarre. It is impossible to imagine, for example, that Prime Minister Jean Chretien would ever dictate the terms of a deal to anyone with a major discovery, that he would ever seek an interest for the Canadian government or for a family member, or that he would interfere in any way with the normal business process. But Canada is not Indonesia, where an altogether different business climate prevails.

Even so, it is hard to understand why the Indonesian government believed it was necessary to arrange a shotgun wedding between Barrick and Bre-X. The argument that Bre-X was not moving Busang forward fast enough doesn’t wash, given that Placer Dome was negotiating a deal with Bre-X at the time. Placer Dome has operated in Southeast Asia for decades and has the technical and financial wherewithal to build and operate a mine at Busang. And the major has made it clear it is prepared to make a fair and competitive bid for a stake in Busang.

These events may cause some companies to think twice about working in Indonesia, even though, for the most part, foreign groups have operated there without incident. While some Barrick shareholders believe Busang is an asset worth playing hardball for, concerns have been raised that the company’s actions abroad may result in some damage to its reputation, as well as legal actions if Bre-X’s shareholders are not satisfied by the terms of any deal that is arranged.

Some will argue that Bre-X left itself open to this pre-emptive strike by its weak performance in the areas of government and public relations and by its apparent lack of any defensive strategy. While there may have been room for improvement in those areas, Bre-X was more likely a victim of its own success.

And therein lies the tragedy.

Bre-X Vice-president John Felderhof, a co-discoverer of the Ok Tedi copper-gold deposit in neighboring Papua New Guinea, found two major deposits in Kalimantan before his team put together the complex geological puzzle at Busang. And he and Bre-X President David Walsh believed in the project even after many majors turned it down. Their success triggered a surge of foreign investment in the mining sector — a surge that continues to this day.

The Indonesian government’s handling of the Busang affair is shabby treatment indeed for a company that has done more to stimulate mining and mineral exploration in that country than just about any other.