Saturday, May 29, 2010
Indonesian Borneo (Kalimantan) Fool's Gold?
THE shadow left by the US$5 billion (S$7 billion) Busang gold scam, the world's biggest mining hoax, hangs heavily over tiny Ethan Minerals after it reported a possible 64-million-ounce gold bonanza in the rugged upper reaches of the Kapuas River in Central Kalimantan. Unprecedented for an alluvial deposit, the Kapuas River find might have been equal in size to Freeport McMoRan Copper & Gold's open-cast Grasberg mine, currently the world's largest gold reserve in the Central Highlands of Papua.
Perth-based Ethan's share price rocketed 142 per cent to A$48.5 (S$57) after it signed a memorandum of understanding with Indonesian concession holder AL Maruf in late April, but a week later the stock had slipped back to A$37 and has hovered at about that level since. 'These guys are clearly very green,' says one veteran miner who works in Central Kalimantan and has heard all the stories of mystical motherlodes for decades. 'Frankly, I think they're being led up the garden path.'
Unlike Bre-X, the Canadian minnow behind the Busang roller-coaster ride of 1996-97, Ethan has wisely struck a cautionary note in basing its claim on a four-year-old report prepared by Indonesian consultants.
The company quotes at length from an independent study by Australia's Minemap consultancy which says the potential quality and grade of the 'Gold Tiger' alluvial deposit are 'conceptual in nature' and point only to a promising target. Ethan has also sought to protect itself by ensuring its initial US $500,000 payment to secure the deal is refundable if the discovery doesn't pan out after two months of due diligence.
The Busang embarrassment, which made multi-millionaires out of some investors and cost thousands of elderly North Americans their life savings, is not the only reason for such caution. Much of the scepticism stems from the fact that the history of alluvial mining in Indonesia is littered with the rusting carcasses of dredges. Indeed, for many miners, the latest claim only risks bringing the geo- sciences into further disrepute in a country where memories of Busang and its damaging aftermath are still fresh.
'Placer (alluvial) deposits are notorious for ultimately producing very disappointing results,' says Mr Tim Scott, the former commercial manager for Barrick Gold. 'They require precise, systematic and detailed sampling and that would take several years at least.' In fact, Mr Scott notes that commercial grades of 5g to 10g a tonne have never been recorded in Kalimantan, a resource-rich region known more for its coal than its gold, and where alluvial deposits usually run to under 1g.
Feasibility studies of Pelsart Mining's Central Kalimantan dredging operation in the late 1980s indicated 600 milligrams of gold per cu m; in the end it came in at well under 200 milligrams. The venture failed, leaving in its wake thousands of miners who turned the 900 sq km tract into a wasteland from which it has never recovered. While he did nothing untoward there, Pelsart is where Mr Michael de Guzman, the Filipino geologist who perpetrated the Busang scam, got his start in the Indonesian mining industry in the middle of the 1980s.
It was during that time as well that a shady German geologist prospecting along the Kapuas for a wealthy corporate client reported finding gold grades that were remarkably high and, for some, suspiciously uniform. Subsequent testing by an independent Australian due-diligence team revealed that the German and his Indonesian partners were hand-feeding gold into the samples during the panning process. In the 1940s, or perhaps earlier, a German Lutheran missionary called Zimmerman supposedly dug up seven biscuit tins full of gold and diamonds on his many trips into the upper reaches of the Barito - enough, it is said, to sustain seven generations of his descendants. More than a decade later, a German geologist employed by Kalimantan- based Ashton Mining claimed to have tracked down the ancient Zimmerman in Europe and supposedly acquired a copy of his ancient hand-drawn gold map.
But it appears to have produced nothing different from another secret map, purportedly showing a rich discovery along the Kapuas, which an Indonesian miner paid 10 million rupiah (S$1,400) for in the early 1970s. Today, much of the Kapuas and the neighbouring Kayahan and Barito rivers have been intensely surveyed by expert Dayak alluvial miners, who are estimated to make up at least 10 per cent of Central Kalimantan's adult population. In almost every case, once they have worked over small high-grade concentrations, the nomadic miners have quickly found themselves subsisting on deposits of barely 0.2g a metre. Ethan must now prove it has the exception to the rule.
The Busang embarrassment, which made multi-millionaires out of some investors and cost thousands of elderly North Americans their life savings, is not the only reason for such caution. Much of the scepticism stems from the fact that the history of alluvial mining in Indonesia is littered with the rusting carcasses of dredges.
The Straits Times (Singapore) John McBeth
(Read my version of the story in “Indonesian Gold” available in most bookstores. Kerry)