Bre-X of canada forges alliance with Sigit's firm

JAKARTA (JP): Bre-X Minerals Ltd, a Canadian company controlling the world's largest single gold deposit in Indonesia, has forged a strategic alliance with PT Panutan Duta, a company owned by President Soeharto's son sigit Harjojudanto.

The Business Times reported yesterday that the deal will grant Panutan a stake potentially worth C$580 million (US$609 million).

The Singapore-based newspaper quoted a statement issued by the Toronto-listed Bre-X as saying that Panutan, which is 60 percent owned by Sigit, will receive a 10 percent "carried interest" in each of its mining deposits in East Kalimantan, called Busang I and Busang II.

Further, under the terms of a memorandum signed by the two companies, Bre-X will advance a loan to Panutan to buy out the carried interests of its two current Indonesian partners -- PT Askatindo, which has a 10 percent interest in Busang I, and PT Krueng, which has a similar interest in the Busang II zone.

In addition, Bre-X has hired Panutan as a consultant for 40 months "to assist in administrative, technical and other support matters" within Indonesia -- for which Panutan will receive a consultation fee of US$1 million a month.

Panutan's 10 percent "carried interest" entitles it to receive a proportionate share of the project's distributable cash flow after it commences production. However, as Bre-X is a listed company -- it has a market capitalization of some C$5.8 billion on the Toronto Stock Exchange -- Panutan can either float its Busang interest or sell it to a third party, analysts said.

The fact that Sigit -- whose other business interests include petrochemicals, telecommunications and trading -- will benefit without putting any money into the venture is bound to controversy.

Analysts added that another point of contention is the 60:40 joint venture that Bre-X and Panutan have established to provide "support services" for the mine. As the development costs are estimated at C$2 billion, anyone providing support services stands to benefit considerably.

The deal ends weeks of uncertainty about the mining company's future. Bre-X shares fell sharply this month over a dispute with local partner PT Krueng. The company explained to the Indonesian government that Bre-X had unfairly left it out of the Busang II phase of the project.

Bre-X shares went into a free-fall on rumors that the dispute would result in the government not issuing a final contract of work. On Oct. 4 alone, Bre-X shares lost C$510 million in value.

The mining company had earlier seen its share price soar from C$4.5 to C$250 even before it extracted a single ounce of gold. A 10-for-one stock split later sent it down to around C$25.

Bre-X officials have welcomed the alliance with Sigit. Bre-X president and chief executive David Walsh said: "We are delighted to have formed an alliance with a strong Indonesian partner. This is another major step in the progress towards the expeditious development of our Busang gold project in Indonesia."