Bre-X starts search for Indonesian gold partner
Bre-X starts search for Indonesian gold partner
TORONTO (Reuter): Bre-X Minerals Ltd., Canada's hottest junior mining company, has officially started its hunt for a partner to develop its spectacular Indonesian gold discovery.
The Calgary-based company said on Thursday it has hired international investment bank J.P. Morgan and Co. as its financial adviser and Republic National Bank of New York as its corporate adviser.
"This is the first step in finding a joint venture partner," a company spokesman said in an interview. "We've hired J.P. Morgan and the Republic National Bank to evaluate our options."
Bre-X said it wants to find a big, experienced mining concern to buy 25 percent of the Busang gold property and help Bre-X to develop and market the deposit.
"Every major mining company in the world, quite literally, has expressed interest in working with us on Busang," said the spokesman.
"So pick the biggest mining companies in the world. If you want names, RTZ, Barrick, Placer Dome, all the way to some of the South African companies to Australian companies, you name it," he added.
The company said it hopes to have a deal sewn up by the end of the year and start production in late 1998 or 1999.
The global gold mining community has been holding its breath for months, waiting for Bre-X to open up bidding for its prized Busang deposit.
The choice of J.P. Morgan as an adviser "reflects that this is going to be a large international process," Gordon Capital analyst Barry Allan said in an interview. "Everyone is interested. The question is who can afford it."
Buying a chunk of Bre-X will not be cheap. With the company's stock hovering around C$25 ($18.25), it has a market capitalization of about C$5.9 billion ($4.3 billion) fully diluted.
Bre-X shares, which soared from a penny stock to more than C$160 ($116) before a 10-for-one stock split last spring, is expected to climb higher, pushing up the price tag for a 25 percent stake in the deposit.
The decision on a financial adviser is only the first of a slew of announcements expected from Bre-X this month that could drive the stock.
An Indonesian government contract is expected within weeks, which will outline environmental, social, tax and financial obligations for Bre-X and its Indonesian partner.
While details of the draft contract of work are already public, some observers fear the government may try to grab a bigger share of the profits as they see the deposit blossom.
New drilling results are also expected to hit the market within a couple of weeks, Bre-X said.
Both the contract of work and the drilling results will likely send the stock higher, analysts said.
For now, drilling at the Busang deposit has outlined 46.92 million ounces of gold. The next set of drill results should bump up the deposit to more than 50 million, analysts say.
"I've made the joke that everybody who goes to the property tends to see God," Gordon Capital analyst Allan said just days after returning from an analysts' trip to the site. "And I guess I did. There's every probability it will be one of the largest in the world."
The mine should be low cost, especially in the first years, said Allan, with operating costs around US$150 an ounce.
He has set a target of $35 for the stock, in the middle of the C$30 to C$40 range set by most analysts after the most recent tour and a previous tour in July.
"I continue to be really impressed by the deposit," said analyst Chris Bradbrook at Loewen Ondaatje McCutcheon, who has visited the site twice. "It keeps getting bigger and bigger. The upside is substantial."
Bradbrook has a C$30 target for the stock for now, since investors want to see who the company's partner will be and how the partner will develop the property before they bid up the stock. "That is the biggest potential driver."
But Allan said Bre-X's options in developing the site include going it alone.
"They don't want to sell too low and give up some of the upside potential," he said. "I'm sure they'll look at those offers and if they don't find any that are reasonable, I suspect they will go on their own."
The economics of the project are robust enough for Bre-X to finance the mine itself, he added.
Bre-X said it would consider that option too.