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Bre-X STK DN on reported pact, reaction could be premature

Dow Jones Business News - February 14, 1997

Ben Dummett, Toronto – Bre-X Minerals Ltd.'s (BXMNF) stock is under selling pressure, indicating that investors are disappointed with the Calgary firm's reported deal for the development of its huge Busang gold prospect in Indonesia's East Kalimantan province.

However, analysts said the activity might be premature, because a Dow Jones report Friday about the deal still lacks crucial information.

The news report out of Asia quoted unnamed sources as saying that Bre-X had signed a memorandum of understanding with Freeport-McMoRan Copper & Gold Inc. (FCX) of Louisiana to develop Bre-X's Busang project. The story said Bre-X will retain a 45% stake in the deposit, Indonesian partners will hold 40% and Freeport will hold 15% and be operator of the mine.

As part of the reported deal, Freeport will pay $400 million toward the cost of developing the mine and has secured a bank commitment of $1.2 billion to cover the remaining development costs.

Analysts said investors are extrapolating from the reported payment of $400 million and Freeport-McMoran's 15% interest in the deposit that the Busang mine carries a total value of around $2.67 billion, which translates into about C$16 per Bre-X share.

Currently, Bre-X Minerals is trading at 23.55, down 1.10, in Toronto, on volume of 4.0 million shares.

Analysts stressed it's premature to assess the reported deal's impact on Bre-X shares until more information from the companies involved is known. For example, the press reports don't indicate whether Freeport will need to pay for its stake in the deposit, said David Thomas, mining analyst at Griffiths McBurney & Partners in Toronto. Press reports only refer to Freeport-McMoRan making a contribution to the development of the mine, Thomas said.

Investors don't know if Bre-X will receive any money from its Indonesia partners in exchange for their stake, analysts added.

If the reports are accurate, Canadian mining firms Barrick Gold Corp. (ABX) and Placer Dome Inc. (PDG), which both had been pursuing a deal with Bre-X, have lost out in being part of the huge gold project.

A Placer Dome spokesman said his company hasn't heard anything from the Indonesian government or Bre-X indicating that Placer Dome is out of the running for Busang.