NEWS ** 200 million ounces **
Bre-X has 90 million ounces in the bank. 45 percent is starting to sound pretty good to me. That puts the stock at $ 90.00 plus !!!
NEWS RELEASE
V-p predicts 200 million ounces
Bre-X Minerals Ltd BXM
Shares issued 219,103,330 Feb 17 close $23.00
Wed 19 Feb 97 Street Wire
ANALYSTS GROUSE ABOUT INDONESIA
by Brent Mudry
While analysts are still grumbling about the realities of doing business in
Indonesia, Bre-X Minerals' Busang deposit may soon rank as not just the
find of the century, but the biggest gold mine ever. "If you would ask me
what is the total potential, I would feel very comfortable with 200 million
ounces," Bre-X exploration v-p John Felderhof told fund managers, mining
analysts and the media in a 90-minute conference call on Wednesday morning.
Mr Felderhof says that a new resource estimate is expected by mid-April,
and he figures it will be 95 million ounces, while his project manager
expects 100 million ounces. The exploration v-p also expects that two new
higher-grade drilling lines currently in progress should add another 20
million ounces, boosting the resource to 120 million ounces.
On Monday, Bre-X boosted its official resource estimate to 70.9 million
ounces, from the previous 57 million ounce previous estimate. The hoped-for
200-million-ounce potential is just for the Busang 2 deposit. Mr Felderhof
says he has five targets on the Busang 3 deposit, including one he
describes as "exciting." Bre-X is not yet drilling on Busang 3, but it
hopes to begin work sometime later this year. "There is lots of blue sky,"
Mr Felderhof told the conference call. Senior Bre-X and Freeport McMoran
officials are slated to visit the site on a field trip from March 1 to 3.
Bre-X and JP Morgan, which anticipates rendering a fairness opinion for the
Calgary junior soon on the Freeport McMoran deal, both expect the
Indonesian government to issue two presidential decrees by the end of March
formally solidifying the project. The first decree will cover 68
contracts-of-work, and the second will give approvals to the Busang 2 and 3
titles. President David Walsh says that Bre-X hopes to get a better
indication of the timeframe on Monday or Tuesday, after Indonesian
president Suharto returns from a trip overseas and confers with minister of
mines Sudjana.
On the litigation front, Mr Walsh hopes to rid itself of the Merukh lawsuit
in April. Bre-X's lawyers have filed a motion to dismiss the suit on the
basis of improper jurisdiction, and the company expects the judge to decide
on the matter sometime in April. Mr Walsh refused to concede any
possibility that Bre-X may enter into an out-of-court settlement with Mr
Merukh. "I don't see it," he told Lehman Brothers analyst Daniel McConvey.
Bre-X and JP Morgan officials defended the deal with Freeport McMoran,
calling it the best "available," and giving it comparable or better value
to rival offers extended by Barrick Gold and unidentified other bidders. Mr
Walsh calls the success of the Freeport negotiations a major victory for
Bre-X shareholders, pointing out that Freeport is "unmatchable" as the most
experienced operator in Indonesia, and JP Morgan managing director Leslie
Morrison says the Barrick deal was very complex, and its actual valuation
was subject to varying opinions.
According to Mr Walsh, Bre-X did the best it could, at least under the
circumstances in Indonesia, in retaining a 45 per-cent interest in the
Busang 2 deposit. He says that while some observers had the initial idea
that Bre-X somehow owned 90 per-cent of the deposit, this was never the
practical reality. Mr Morrison echoed Mr Walsh's assertion that the Busang
deposit is a project of national importance to Indonesia, and the Republic
of Indonesia will get a ten per-cent interest of the bonanza. This,
however, is just half the 20 per-cent stake that president Suharto's close
business associate Bob Hasan will have control of. JP Morgan's Mr Morrison
describes Mr Hasan's Nusamba organization as a "group of charities," but
no-one mentioned the beneficiaries of this jackpot, for which Nusamba did
not pay a penny. "We are not going to receive anything for the 20
per-cent," Mr Walsh confirmed.
In addition to boosting its resource estimates, Bre-X expects to bump up
the projected production levels significantly. The current pre-feasibility
study, prepared by Kilborn SNC-Lavalin in November, based on 54 million
ounces, calls for a 100,000 tonne-per-day production, netting 2 to 2.5
million ounces per year, at an operating cost of US$96 an ounce. JP Morgan
v-p of natural resources Doug McIntosh expects this will soon be boosted to
150,000 tonnes per day, with an annual production in excess of four million
ounces at a cost significantly less than the US$96 earlier estimate. On a
preliminary "back of the envelope" calculation, expects the true cost could
be closer to US$75 an ounce. Mr Felderhof says that Freeport expects to
finish its feasibility studies by the end of this year, start construction
on the mine and milling complex in 1998, and start production in 2000.
The mine is now expected to produce two million ounces a year for the first
two years, reaching the four million ounce level in 2002. The throughput is
expected to rise to 200,000 or 240,000 tonnes per day within a few years.
Mr McIntosh's numbers are a bit more detailed. He suggests an annual
production of three million ounces based on 100,000 tonnes per day, using
two grinding lines, and with a third grinding line opened as soon as
possible, this would rise to four million ounces per year, based on 150,000
tonnes per day of throughput. Once a fourth line is added, the throughput
will be about 200,000 tonnes per day, yielding six million ounces per year.
As for any potential of Bre-X being taken over, Mr Walsh concedes that
while his company's 45 per-cent interest in unencumbered, any eventual new
partner would still require approval of the Indonesian government, at least
as a "courtesy" to president Suharto and his officials. For now, the
promoter just wants to work with Freeport in developing the property
further. "There is no "for sale" sign in the front yard," Mr Walsh says. He
hopes that Bre-X will continue on as a separate entity, but he will not
rule out a merger or takeover deal if the price is right. Mr Walsh confirms
that Bre-X has no obligation to give any of its Busang partners the right
of first refusal to match any potential offer. "We believe we have barely
scratched the surface of the deposit," he says. Trading was not halted
during the 90-minute conference call, which began a half hour before
markets opened. Bre-X shares opened at $20.50 on Wednesday and rose to
$21.85 before settling up $0.85 at $21.35 at the end of the call.
(c) Copyright 1997 Canjex Publishing Ltd. canada-stockwatch.com
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