BRE-X, Indonesia, Ashanti Goldfields, Strong Companies. Message Board

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Gold/Mining/Energy : BRE-X, Indonesia, Ashanti Goldfields, Strong Companies.

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To: drumbeat who wrote (6927)	3/7/1997 9:59:00 AM
From: Goldberry	of 28369

Drumbeat - Posts to other threads Since you find it necessary to post propaganda to other threads concerning your zeal for Bre-x I thought it timely to repost my article no 5654 of Feb 18th 1997. I subsequent to this quit contributing to this thread due to some nasty e-mails I received suggesting I didn't have a clue and was bashing Bre-x for my personal gain. I sure wish I was capable of making the market move but sorry I can't take credit for what has happened to this stock over the past month. You might look to Walsh for those answers. Gosh but that Barrick deal is looking awful good right now. I have bold faced several areas to be noted. Graham Message #5654 Feb 18 1997 I am out!! I spent most of yesterday and last night analysing this deal as best I could with the information available. Sold most late yesterday balance on opening this morning. For those interested here is my reasoning. The Deal in a nutshell. Bre-x has participated in an indonesian joint venture to build and mine the Busang 2 & 3 properties. The joint venture was established with Indonesian interests being given 55% (including the 10% already held). The joint venture has given 15% of the 55% to Freeport in return for Freeport providing $400 Million in funds plus arranging for a consortium loan for $1.2 Billion to finance the balance of the mine costs. While not yet stated I believe the repayment of syndicate loan will come from cash flow from the project prior to any distributions to the syndicate members. If further payment is received for the other 30% IMO it will be delayed until the mine is producing and will come from their share of cash flow. To me this means that the real value now to Bre-x will be based on the cash flow it receives from this joint venture as it will now become essentially an income trust. It would not seem likely that Bre-x will do any further exploration but will possibly act as a Manager to Bro-x, Diadem or other companies which will hold exploration rights with minimal payment received as this would benefit Walsh and other principles who hold a larger share position in those companies and would also benefit due to stock options. It has been said that the mine will be constructed and commence operation in about 2 years and start with production of 2 Million oz increasing to 4 Million eventually. What is this worth to Bre-x? Well they will be entitled to 45% of net cash earnings. There are so many probables to this that it is difficult to estimate so I took what I believe to be a middle of the road position. 2 Million oz sold at $400 oz. less production, royalty and administrative costs of $175. would be $225. Bre-x sh = $202.5 Million which is equal to .85 u.s per share. What is the value of shares which will return this starting in 2 years and with the amount going to say $1.70 u.s. in maybe 5 years. Forget how much is in the ground that just extends the life of the mine longer and the return once discounted has nil value to present day investors. Maybe in 5 years they will increase the mine and double it, maybe the price of gold will go to $600. These aren't worth anything to the shares now but might be down the road. I would consider a p.e. of 25 times to be generous and based on this give a value of $28.75 to the shares once the mine is in operation.Considering the potential for problems in a country such as Indonesia I would discount this value at 50% at this time to around $14.00. The gap in my mind would narrow as the mine gets closer to being operational. My conclusion is to seek out an investment with a possibility of more return with less risk. If a major attempts to buy Bre-X out IMO they will not pay more than about $15-$18 per share and I see the possibility of these shares dropping to that level over the next month or so. Hopefully for those who are still in I sincerely hope I am wrong. I made a decent profit over the past year on Bre-X and I know what it is like to being on the losing end of an investment. I would recommend to anyone who still has a profit at these levels ($21. when I started this message) to sell at least 1/2 or buy puts. Definitely I would begin to sell into any strength.(the stock went back up to $23. the next day or two) Despite all the hype on this thread a couple of us have tried to get the point accross that Bre-x was not going to be more than a $28.00 stock and except for one brief time it hasn't. You are now taking a lot of risk for the potential gain available Good luck to all those still holding and shame on some of you who have hyped this stock so much. I wonder, even though people should no better, how many readers of this thread have placed themselves in the position of a major loss due to this hype. Graham

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