Bre-X, Barrick still talking as deadline expires

There was still no deal at presstime for the enormous Busang gold project in Kalimantan, Indonesia, but talks continued between Bre-X Minerals (BXM-T) and its blind date, Barrick Gold (ABX-T).

Meanwhile, Placer Dome (PDG-T) announced it was ready to bid for a stake in the property and the Indonesian government, which started the dealing process with an ultimatum to Bre-X on Nov. 26. And in a move evidently designed to put pressure on Barrick to sweeten its offer, Bre-X released a new resource estimate and the results of an interim feasibility study.

Bre-X and Barrick had been working to a deadline of Dec. 4, imposed by the Indonesian government in marching orders it issued to Bre-X following talks with Barrick President Peter Munk. But like many details of the Busang project — clear title to the property, for example — the deadline turned out to mean little.

The companies, which had been negotiating all week in Jakarta, met with Dr.

Umar Said, secretary-general of the Indonesian Ministry of Mines and Energy at 2 p.m. local time on Dec. 4 (midnight Eastern Standard Time) to report that they had not come to a final deal.

Bre-X released a statement at 10 a.m. E.S.T. that said the parties had reached an agreement on some aspects of the deal, but that “several points remain outstanding.” The “several points” were not specified and Bre-X management had not responded to inquiries at presstime.

The Nov. 26 announcement that the Indonesian government would impose a development agreement on Bre-X fixed a deadline of the deadline, after which the government would “take the necessary steps” to see that the deposit was developed quickly. Indications that the government’s timetable might be more flexible started to appear as Dec. 4 approached. Press reports quoted Chaidir Siregar of the Indonesian Embassy in Ottawa as saying that he had no direct knowledge of a cutoff date.

Similarly, the Indonesian government did not comment when the deadline passed, and both Bre-X and Barrick were awaiting a response from the Ministry of Mines and Energy. “I don’t think either Barrick or Bre-X know what the government will do next,” said Vincent Borg of Barrick.

Telephone calls to the embassy and to the consulate in Toronto were not returned.

Other signs of the government’s flexibility appeared earlier in the week, when Jean Anes, Indonesian vice-consul in Toronto, remarked that the government might consider other offers to develop Busang.

In short order, Placer Dome announced it had been in discussions with Bre-X for the past two months and was still prepared to make an offer. Placer’s president, John Willson, said “we were disappointed to see the auction process pre-empted … [shareholders’] natural right to determine their partner was taken away.”

That the government appeared willing to consider other companies for the development of Busang caught Placer’s attention. Said Placer’s Hugh Leggatt, “they have a responsibility to respond to us if they are serious about wanting to involve others, as they are purported to be saying.” Since Bre-X had already asked the government whether “other transactions” — presumably including deals with companies other than Barrick — would be acceptable, Placer’s bid appears to be in the game. Placer’s gold reserves and market capitalization are both about half the size of Barrick’s, but it has more working capital than the Toronto firm and more experience in the East Indies.

The entry of Placer prompted further speculation about possible bids by other large gold producers, including Newmont Gold (NCG-T) and Teck (TEK-T), which had approached Placer Dome about a joint bid. Newmont spokesman Doug Hock acknowledged that the company was interested, but was waiting to see how the situation develops. “It’s really in the hands of the government, and we’re just waiting to see what they will do.”

Placer Dome, which recently announced a $600-million offer to acquire its Australian subsidiary, Placer Pacific, and Papua New Guinean company Highlands Gold, is believed to have enough backing to take on Barrick in an auction for Bre-X. Leggatt of Placer Dome said, “We certainly are financially strong enough, and don’t forget that if you get control of such a large deposit it would be easy to finance. If and when [takeover] transactions are completed, we’d still have a strong enough balance sheet to finance both the takeover of control and the development of Busang.”

Leggatt also said there was now no likelihood of a joint bid with Newmont and Teck. “If there is a consortium we won’t be part of it.”

Bre-X also released a new resource estimate for the Busang deposit. The measured and indicated resource has increased to 316 million tonnes, and the inferred resource now stands at 464 million tonnes, all at a grade of 2.3 grams per tonne.

Consulting firm Kilborn SNC Lavalin, which calculated the resource figure, also submitted an interim feasibility study that estimated a capital cost of $930 million for the project, which would have an annual production rate of 1.9 million oz. from 29 million tonnes of ore, and a cash production cost of US$96 per oz. Metallurgical tests have estimated the gold recovery at 95% with conventional cyanidation.

The Kilborn report included pit designs for the Central zone, with 32 million tonnes grading 2.2 grams per tonne, and for the Southeast zone, with 614 million tonnes grading 2.2 grams per tonne, both with a cutoff grade of 0.47 grams. The Central Pit would have a 4.45-to-1 stripping ratio, and the Southeast Pit 1-to-1.