Indonesia pays nothing for big Busang share

Indonesia pays nothing for big Busang share

TORONTO (Reuter): Bre-X Minerals Ltd. Chief Executive David Walsh has confirmed his company, which once owned 90 percent of the Busang gold deposit in East Kalimantan, received no cash compensation for giving up an additional 30 percent of Busang to its Indonesian partners.

But he told analysts Wednesday that the Indonesian partners provided "tangible value" in developing the site.

"This relationship will ensure that things run smoothly. Without a good relationship, things can take years to get processed, and years of hold up for a four million ounce a year producer is very, very costly," Walsh said.

His comments came after an agreement announced on Monday on ownership of the Busang discovery in Indonesia. Under the deal, Bre-X would have 45 percent, with 15 percent to U.S.-based Freeport-McMoRan Copper and Gold Inc., 30 percent to Indonesia's PT Askatindo Karya Minerals and PT Amsya Lyna and partners and 10 percent to the Indonesian government.

Before the deal, Askatindo has had 10 percent of the Busang II gold area.

Earlier, Adrianto Machribie, president of PT Freeport Indonesia, a 90-percent owned subsidiary of Freeport which mines copper and gold in Irian Jaya , told newsmen in Timika that his company paid US$400 million for its 15 percent share in the Busang gold venture.

Bre-X said it would consider merger offers at the right price, but was content for now to develop Busang -- the richest gold discovery this century -- with its existing partners.

"The 'For Sale' sign is not on the front yard," Walsh told analysts in a conference call. "That is not to rule out discussions with a potential suitor if the price is right. The old expression 'everything has its price' must be taken into account here."

Bre-X officials declined to speculate on potential bidders for their Calgary, Alberta-based company, which discovered the 71 million-ounce Busang gold find. Some Bre-X executives said the gold field, which was not yet fully explored, may contain as much as 200 million ounces of gold.

He said the Indonesian government indicated it would process contracts of work, known as COWS, for the Busang site as early as possible. "I do know the government has a wish to process these very, very quickly. So I would not think that we would have to wait very long," said Walsh.

A feasibility study of the project should be completed later in 1997, with construction of the mine expected to begin in 1998. Capital expenditure is estimated at about $1.5 billion.

Production was expected to begin in 2000 at a rate of two million ounces annually and climb to four million ounces a year in 2002, said John Felderhoff, Bre-X's senior vice-president of exploration.

Bre-X's latest estimate for the Busang Two area was about 71 million ounces of gold, but Felderhoff said it could be much higher. "If you would ask me what is the total potential, I would feel very comfortable with 200 million ounces," he said.

Bre-X's financial adviser, J.P. Morgan and Co. Inc., said on Wednesday it would provide a fairness opinion on the agreement.

"We're very confident it provides very good value to the shareholders of Bre-X," said J.P. Morgan's Leslie Morrison, who is advising Bre-X on the deal.

Canadian newspapers reported on Wednesday that Indonesian businessman Jusuf Merukh alleged that the deal with Freeport and the Indonesian interests was illegal and asked Indonesian President Soeharto to cancel it.

Merukh is suing Bre-X for $2 billion in a Canadian court, alleging that his company was entitled to 30 percent of Busang.

Bre-X has filed a motion to dismiss the suit.

Placer Dome

In Vancouver, gold miner Placer Dome Inc. Wednesday dropped its month-old $5 billion merger offer for Bre-X Minerals Ltd., saying it was no longer feasible on the terms originally proposed because Bre-X's deal on a vast Indonesian gold find has made the explorer worth less.

But Placer reiterated it remains interested in gaining a role in the Busang gold project and said it would like to hold talks with Bre-X.

"We've now concluded that our merger proposal is not really feasible," Placer Dome spokesman Hugh Leggatt said. "The goal posts have moved. The terms we described were aimed at gaining control of the property," Leggatt said.

"The value of Bre-X has diminished," he said.

Placer said the decline in Bre-X's stake in the project and the fact that operatorship of the project was no longer available made Bre-X worth less to Placer.

"That's what it comes down to," Leggatt said.

But he said Placer still wanted to talk to Bre-X, which had not formally responded to the original merger offer. The two companies have not been in contact since the pact with Freeport was announced, he said.

He said a deal with Bre-X on different terms or with the Busang joint venture might be options but stressed Placer Dome had no fixed intentions. "We'll continue monitoring the situation to see if there is some role for us," Leggatt said.