Bre-X and Barrick submit proposal

Bre-X Minerals (BXM-T) and Barrick Gold (ABX-T) have presented to the Indonesian government a deal that may allow for the development of the Busang gold deposit.

The companies submitted a joint proposal to the Ministry of Mines and Energy outlining an agreement to develop the Busang project. Bre-X had been instructed by the Indonesian government on Nov. 26 to work out a deal with Barrick. Speculation over the nature of the agreement to develop Busang has dominated the gold-mining world for the past three weeks.

Vincent Borg of Barrick described the proposal as “a joint-venture deal, a tender offer.” But until the Indonesian government has made a formal reply, the details of the deal are still under wraps. The consensus appears to be that the government will likely take until the end of the month to respond.

Jean Anes, of the Indonesian consulate in Toronto, said the agreement meets most of the government’s requirements. “The Indonesian government basically already agreed to have a final contract between the government, Bre-X, and Barrick.”

Barrick will hold 67.5% of the project, Bre-X will keep 20.25%, and the Indonesian government will hold a 10% direct interest in the property. No decision has been made yet whether state mining agency Aneka Tambang will get a piece of the action.

Bre-X’s Indonesian partner Askatindo Karya Mineral — which had not been mentioned in recent announcements, prompting speculation that it had been frozen out of the deal — will hold 2.25%.

“[Bre-X] still has to give 10% to their local partner,” said Anes. That, in turn, means that Minorca Resources (MAR-T), which has an option agreement with Askatindo to earn 70% of that interest, still has a stake in the Busang project.

Both Anes and Borg say that the government viewed Barrick as a credible developer for Busang, which has a mineral resource of 780 million tonnes grading 2.3 grams gold per tonne, for 57 million oz. contained gold. Anes suggested the deposit might be in production in three to four years.

The enforced deal with Barrick left shareholders worried that the big gold producer might take advantage of the opportunity. A group of Bre-X shareholders (representing about 5% of the company’s outstanding shares) has retained law firms Lang Michener in Vancouver, and Baker and Botts in Houston.

Both Canadian and U.S. shareholders are represented in the group, which engaged firms on both sides of the border in order to pursue its interests in either Canadian or U.S. courts.

“I think Canadian or American courts would be quite comfortable, in the face of an unfair offer or agreement, to grant relief to Bre-X shareholders who suffered losses as a result,” said shareholder Greg Chorny of Aurora, Ont.

Chorny recognized that the shareholders would have to live with the Indonesian government’s decision on the project, but said the government’s actions, in mandating a development deal with Barrick and in forbidding an open bidding process, had essentially imposed a fiduciary duty on Barrick to deal fairly with Bre-X and its shareholders.

“We’re not trying to get in the way of any deal, we just want the deal to be fair,” said Chorny. “It’s very important, when a junior finds something, that the junior be fairly compensated for what they’ve found.”

“They’ve said talk of lawsuits is premature,” said Barrick’s Borg. “All I can say, in a general sense, is that Barrick has a track record of being fair in these kinds of transactions.”

Chorny, for his part, will be shy of Indonesian plays in the future. “The deals I’m doing now are Canadian, and my money is staying here. I have no relish to undertake more political risk in the Third World. I don’t need those headaches.”