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

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."