--Bre-X Minerals Ltd.'s (BXMNF) long-awaited independent
drill results from its Busang gold property will soon help explain the mystery of the
missing gold, but there's still time to pick a theory and place your bets.
Bre-X's claims of a monstrous gold find of some 70 million to 200 million ounces at
Busang have been in doubt ever since Freeport-McMoRan Copper & Gold Inc. (FCX)
last month announced ''insignificant'' findings of gold from seven drill holes at the
remote Indonesian property. Freeport, a New Orleans mining company, was testing
Busang after making a deal with Bre-X to build and operate a mine at the site. Under
that deal, Bre-X would hold 45% of Busang, Freeport 15%, and various Indonesian
interests 40%.
There are many theories available to explain the discrepancy in the drill results.
Freeport's findings caused many to wonder if Busang was ''salted'' with foreign gold to
make the property appear rich. Others, including Bre-X officials, have suggested
Freeport could have bungled its tests.
Bre-X, based in Calgary, hired Strathcona Mineral Services Ltd., a Toronto mining
consultant, to conduct an independent audit and drilling program at Busang.
Strathcona is expected to report its drilling results to Bre-X any day now, and Bre-X
said it will release the results to the public on Monday before trading opens. A Toronto
Stock Exchange official said the exchange will maintain a trading halt in Bre-X shares
long enough to ensure the information is properly disseminated.
When trading resumes, Strathcona's results will undoubtedly spark a quick reaction in
Bre-X's stock.
At Tuesday's Nasdaq closing price of $2.75, the stock market is valuing the Busang
property at roughly $1.2 billion, ''a big number,'' said Marc Cohen, mining analyst with
PaineWebber Inc. in New York. ''A good portion of the world does believe there will be
significant amounts of gold'' at Busang, he said. If Strathcona's announcement
supports Bre-X's findings, and if investors decide Busang contains, say, 30 million
ounces of gold, then ''the stock realistically could double,'' Cohen said, based on an
$80-per-ounce valuation.
On the other hand, if Strathcona's announcement supports Freeport's findings of
''insignificant'' amounts of gold, then Bre-X could collapse ''way down to sub $1, a very
nominal number,'' Cohen said.
While Strathcona Mineral Services Ltd.'s study isn't likely to answer all the questions
about Busang, ''we will at least know whether or not there are significant amounts of
gold,'' said Marc Cohen, mining analyst with PaineWebber Inc. in New York.
Questions such as exactly how much gold lies at Busang and the economics of any
planned mine aren't likely to be answered until later, he said.
Bre-X Minerals Ltd. (BXMNF) shares have continued to trade heavily ever since
plummeting 83% on March 27 to about $2 on Nasdaq, after Freeport-McMoRan
Copper & Gold Inc.'s (FCX) results were released. Investors have since jerked the
stock around with every rumor and whiff of news. Strathcona's results will only add to
the volatility, analysts expect.
The action is too much for some. One gold-fund manager who asked not to be
identified said he sold the last of his Bre-X shares last week, even though ''the general
feeling is that there's going to be some gold there.''
Other fund managers said they're holding on to at least some of their Bre-X shares, in
case the gold is there. ''I just want to see how this ends,'' said Victor Flores, gold-fund
manager with United Services Advisors Inc. in San Antonio, Texas. But even if
Strathcona's results support Bre-X, ''the stock may not fully recover'' to earlier levels,
due to the ''unpredictable'' Indonesian government, he said. And if Strathcona turns up
insignificant gold? ''What stock I have will disappear into the sunset, I guess,'' Flores
said.
Investors are now focused on where the Strathcona Mineral Services Ltd. holes were
drilled and their relationship to holes drilled by Freeport-McMoRan Copper & Gold Inc.
(FCX).
Four of Freeport's drill holes at Busang were ''twins'' of four Bre-X Minerals Ltd.
(BXMNF) drill holes, meaning Freeport's drill holes were beside and parallel to the
four Bre-X holes. Freeport's results showed ''insignificant'' gold, while Bre-X's results
had shown good grades of gold. Freeport's three remaining holes, which also found
''insignificant'' gold, were drilled beside three Bre-X holes that found good grades, but
the Freeport holes were drilled at different angles.
Strathcona's results will be from six twin holes at Busang, according to Bre-X officials
interviewed earlier this month. Two of Strathcona's holes are twins of two of Freeport's
holes. Two holes are twins of Bre-X holes which Bre-X had already twinned at the
request last year of a unit of SNC-Lavalin Group Inc. (SNC.A), Montreal. The
SNC-Lavalin unit calculated Busang's gold reserves based on data provided by
laboratories used by Bre-X. Both the original Bre-X drill holes and the twinned Bre-X
drill holes showed good grades, according to Bre-X.
The two remaining Strathcona holes are on the famed line 69, the area of Busang
where Bre-X hit high grades of gold over long intercepts. All of the twinned holes are in
the southeast zone, where Bre-X says the vast majority of Busang's gold lies.
In the meantime, many of the players involved in Busang mystery have gone silent,
awaiting the Strathcona report. Bre-X officials haven't returned calls for more than two
weeks. Freeport officials won't comment beyond the company's official statements,
and kept reporters from asking its chief executive James Moffett any questions at the
company's annual meeting Tuesday. Strathcona won't talk, and an official at Lakefield
Research Ltd., a Lakefield, Ont. assay laboratory, declined to confirm or deny a report
that Lakefield is one of the three labs that Strathcona is using to test its Busang
samples.
Bre-X's silence isn't helping anyone piece together the puzzle. For example, Bre-X
hasn't said when its latest drill results, released last week, were drilled. Six of those 22
drill holes encountered ''no significant intercepts,'' rare misses compared with the
earlier consistent findings of gold in the southeast zone. Bre-X hasn't responded to
inquiries about the timing of those holes. |
