Barrick to finance Yamana’s Indonesian acquisition

With several projects well under way in Argentina, Yamana Resources (TSE) has shifted its focus 6,000 miles to the east and acquired ground in Indonesia.

The junior was awarded the first right to acquire 12 contracts of work (CoWs), comprising more than 2.7 million hectares in northeastern Kalimantan.

Yamana President Victor Bradley is pleased with his ability to diversify geographically.

“We’re an opportunity-driven company, and Indonesia, with its large geological database and geological potential, is the second-best place to be, behind Argentina.”

To help facilitate the acquisition and finance exploration over the next two years, Yamana entered a funding arrangement with Barrick Gold (TSE). The senior will provide Yamana with a US$14.7-million, short-term loan, of which US$7.2 million is convertible into Yamana units priced at $3.25. Each of the more than 3 million units consists of one Yamana common share and half a purchase warrant. Each full warrant allows Barrick to buy an additional Yamana share at $3.75 for the next two years.

The balance of the loan is repayable from the refundable bond posted with the Indonesian government to secure the property. This refund is expected to occur within six months after the bond is posted.

Yamana’s acquisition of the ground was based on diligent homework and a certain amount of luck.

“We found out that land applications that were previously under a moratorium were to come open on Jan. 8.,” says Bradley. “We did our homework and were the first in line with our request. When the office opened, we had established co-ordinates of the ground that we wanted and made the application. We were then given the ground.”

As is the case with all CoWs, Yamana was asked to post a “serious bond” while the government performed due diligence on the company. The bond, which was to cost the company US$5 per hectare, was due within 24 hours.

“Since I didn’t want to deplete the treasury, I had to go looking for a senior partner,” explains Bradley.

Many companies, including Placer Dome (TSE) and Teck (TSE), were courting Yamana for a piece of the action, but, according to Bradley, Barrick had the best offer.

“With this agreement, we will be self-funded for the entire 2-year period and our treasury will remain intact to fund our continuing work in Argentina.” The property exists in the Kalimantan magmatic arc and is underlain by favorable volcanic terrain. The 12 CoWs are grouped into three blocks, the largest of which adjoins the 30-million-oz. Busang gold project, held by Bre-X Minerals (ASE). The other two blocks adjoin ground held by privately owned Indochina Goldfields, which is controlled by Robert Friedland’s venture capital firm, Ivanhoe Capital.

Although the ground is basically unprospected, Yamana states there are at least two alluvial gold anomalies within the largest block, to the north and west of the adjoining Busang. Rumors are also circulating to the effect that the ground next to Indochina’s position includes significant targets near, or at, the drilling stage.

Yamana will now wait for the government to issue a letter-of-intent in which the commitments for the CoW will be made final. Exploration, once under way, will be managed and directed by a joint exploration committee with equal representation from Barrick and Yamana.

In addition to providing financing, Barrick has the right to select any two discoveries for development and will earn a 75% interest upon startup.