Bre-X climbs on new Busang gold estimate

Bre-X climbs on new Busang gold estimate

CALGARY (Reuter): A new calculation of the amount of gold harbored in Bre-X Minerals Ltd's huge Busang property in Indonesia sent investors scurrying into the market Thursday, driving up the company's stock in heavy volume.

Bre-X, the Cinderella story of the international gold mining scene, climbed 40 cents in Toronto to C$25.40 with 2.05 million shares changing hands.

The company earlier on Thursday released a new resource calculation for Busang, pegging official reserves at over 39 million ounces.

The new calculation, which is far lower than estimates afforded the project by numerous gold analysts, is the result of a 14-million ounce jump in resource on two sections in Busang's Southeast Zone I.

Bre-X said its objective is to confirm least 50 million ounces in the measured and indicated resource category by the end of the year.

Analysts said the new estimate and the company's intention to start a feasibility study for the project's mining stage, mark a major turning point for Bre-X.

The company, which expects to attract a partner to take 25 percent of Busang, said it anticipates producing 2.5 million ounces of gold per year.

"This is a world-class deposit and it's going to continue to grow. My feeling is you've got to put the pin in at some point and I think that's now," said Catherine Gignac, analyst with BZW Canada.

"You've got to start working out economic details, crunching numbers on a feasibility study and finding out about cost."

The market is already assigning the resource value multiples to Bre-X shares usually given to companies already mining gold, Gignac said.

Exploration companies are generally valued at US$25 to US$50 per ounce and producers garner about US$200 per ounce, which is about the level at which Bre-X is trading.

Brokerages such as Nesbitt Burns and Levesque Beaubien Geoffrion estimate the resource potential of Bre-X's Busang property at over 60 million ounces.

Bre-X vice-president Steve McAnulty said that, given the expected growth in reserve calculation this year, he could not disagree with estimates that a 25 percent stake in the project would be valued at about C$2 billion. Bre-X's current total market capitalization is about C$6 billion.

"The potential for that to go to C$8 billion, or C$2 billion for 25 percent, is entirely realistic," McAnulty said.

Within the next two weeks, Bre-X intends to announce its choice for a financial adviser to oversee the process of bringing a partner aboard. Most of the world's large gold producers are expected to have a look at the deal.

He said a partner will likely be chosen by late autumn.

Gignac said senior companies producing large quantities of gold and need growth opportunities will likely be frontrunners in attempting to strike a deal.

Companies potentially interested include such North American senior producers as Placer Dome Inc, Barrick Gold Corp and Homestake Mining Co and Global player such as RTZ-CRA and Broken Hill Proprietary.

"Things are going to have be pretty attractive on the deal side in terms of what the companies have to spend to earn their interest and operatorship in order to attract them to take a serious look it," Gignac said.