Bre- X papers were in order, Indonesian official testifies

Firm had permits needed to mine for Busang gold Foreign companies said at odds with decision makers

Bre- X Minerals Ltd. had all the necessary permits to explore and mine for gold at its Busang property, a former Indonesian government official told an Ontario court yesterday. John Felderhof, Bre- X’s former chief geologist, now facing insider trading charges, watched from the back of the courtroom as defence witness Ridwan Mahmud described the complex system of work permits for Indonesia’s mining industry. Even if a company held a work permit, known as a KP, for general surveying, it was allowed to take samples or even drill on the property, Mahmud told the court.

“ If the company can speed up its activities, it was welcomed by the government. If you drill a hole and you find an ore deposit, you’re not going to stop there.” Asked by defence lawyer Nicholas Richter why this was allowed, Mahmud replied with a chuckle, “ I remember the economic minister once told me, the more we can know about our wealth, the easier it is to borrow money from outside.”

Felderhof has pleaded not guilty to eight criminal charges of insider trading and misleading investors. He is alleged by the Ontario Securities Commission to have sold $84 million worth of Bre- X stock between April and October 1996 while having information that hadn’t been disclosed to investors.

Bre- X collapsed in March 1997. The court has heard complex — and often conflicting — testimony from experts in the longrunning trial on whether Bre- X had the proper permits for Busang. Company officials previously testified that even though the Indonesian government cancelled a preliminary work permit, known as a SIPP, in the fall of 1996, two other permits, a KP and contract of work or COW, were renewed. The government granted a SIPP to allow a mining company to continue its work on a property while awaiting approval for a COW, the court heard yesterday. COWs have to be approved by parliament and then a Indonesian investment board, testified Mahmud, a former director in the department of mines.

“ It might take six months. It might also sometimes take one year before the government can discuss this contract of work. During the waiting time, the foreign company is sitting down in Jakarta, waiting for this. For months and months they have nothing to do.” The Indonesian government was anxious to have foreign companies exploring for precious minerals in remote parts of the country, Mahmud said. The firms provided employment for indigenous people, tax revenues, and perhaps most importantly, detailed geological information that could later be used by the government for public works projects, infrastructure and water systems. The biggest difficulty for the foreign companies was often dealing with various levels and departments of government.

“ This system made the foreign companies confused. One department, another department, one might agree, one might disagree and so on,” Mahmud testified. The trial continues today.