Market Summary MARKET
Shares issued
Tue 25 Mar 97 Daily Market Report
Ryan Henning and Arshad Shah's NORTHRICH PACIFIC VENTURES was today's
volume leader, down $0.05 at $0.92 on 1,015,000 shares. Trading resumed at
7:30 this morning now that Northrich has selected a drilling contractor for
its Coni-1 project in the Northwest Territories. The stock hit a high of
$1.24 today before falling back. This bit of news may seem a strange
impetus to cause a delay and heavy trading, but the company is also going
to start drilling within a week at the Main zone, which has yielded a few
select samples grading 1.02 per-cent cobalt, and 26 to 31.5 per-cent
nickel. The field crew plans eight holes in three weeks for a total of 2500
feet. Northrich expects the first assays around the end of April.
INDOMIN RESOURCES was also active, down $2.10 to $4 on 764,300 shares. As
the chart shows, the stock opened at $6 and plummeted to $3.50 before
recovering slightly.
Today, in addition to being many brokers' year-end, was a potentially
historic day for junior exploration companies worldwide. Few would have
dreamed a week ago or even a day ago that the words "disaster" and "Bre-X"
could be linked in the same sentence. Now the word disaster may be an
understatement. What was thought to be the world's biggest gold discovery
ever, BRE-X MINERALS' Busang deposit in Indonesia, may be far from it. The
question on everyone's mind now is, "how far from true?" Shares of Indomin
and scores of other juniors, especially those exploring in Indonesia, were
hit hard today in a wave of Bre-X-inspired panic selling. While it may be
premature to call tomorrow "Black Thursday," the follow-through selling
will likely be severe, after scores of small investors read the inevitable
headlines on the front pages of tomorrow's newspapers, and waves of margin
calls amplify the selloff.
The bleak news, perhaps the most devastating and unbelievable to hit the
junior mining sector in recent memory, came mid-morning in a terse release
issued by Bre-X promoter David Walsh. Bre-X had been halted since the open
on Tuesday, pending news. Mr Walsh told the world today that Bre-X has been
advised by an independent mining consultant that the phenomenal gold
reserves at Busang may have been "overstated because of invalid samples and
assaying of those samples." The promoter publicly disclosed for the first
time that Bre-X hired Strathcona Mineral Services late last week to review,
audit and comment on its exploration programs to date, and to review
Freeport-McMoRan Copper & Gold's due diligence. Press accounts have
suggested that Freeport's due diligence is still at a very early stage, but
the outlook sounds, er, not good.
Until now, Bre-X's stated reserves have been stated at 70.9 million ounces.
This had been boosted from 57 million ounces on February 17. During the
90-minute conference call two days later, Bre-X officials portrayed even
these numbers as small. Mr Felderhof said he expected to disclose a 95 to
100-million ounce revised resource estimate by mid-April, with expectations
of much greater wealth in the ground. "If you would ask me what is the
total potential, I would feel very comfortable with 200 million ounces,"
the geologist told fund managers, mining analysts and international media.
All these numbers now appear to be suddenly out the window, and the truth
about Bre-X will likely be much smaller. While Bre-X stopped short today of
describing the harsh new reality of the Busang deposit, proposed joint
venture partner Freeport has caused great alarm. Unbelievably, the US
mining giant told Dow Jones today that based on several check holes, Busang
II, the largest deposit, has "insignificant amounts of gold."
Today's bombshell comes after escalating speculation about Busang in the
past week. Mr Walsh sent the rumour-mongers and conspiracy theorists into
high gear a week ago, when he disclosed the tragic death of Bre-X chief
geologist Mike de Guzman, credited with discovering the Busang deposit with
Mr Felderhof. The promoter said that Mr de Guzman fell 800 feet out of a
helicopter as he was returning from the mine site. The stock fell $0.40 to
$17.25 on the news. The details that emerged in the following days did
little to quell the speculation. After a cursory investigation by
Indonesian police, not known for their thoroughness, Mr Walsh said that Mr
de Guzman appeared to have committed suicide. The geologist is said to have
left his Rolex watch and a suicide note in the helicopter before jumping
out. The official story was that Mr de Guzman was distraught after he
received a fax at his hotel from a doctor, confirming that he had a
terminal case of hepatitis. Mr de Guzman is said to have suffered stoically
through a number of bouts of malaria in the past, and the prospect of
tolerating any more pain, especially with no hope of recovery, was just too
much.
A day or two after news of Mr de Guzman's fatal fall, an Indonesian
newspaper, citing unattributed sources, claimed that Freeport's due
diligence had some sort of difficulty, and the Busang deposit may not be
mineable at all. Bre-X was quick to dispel the report, and the credibility
of the Jakarta newspaper was questioned. The story, however, stuck, and
newspapers around the world began to parrot the report. Mr Walsh felt
compelled a few days ago to vigorously re-assert Bre-X management's
confidence in the assays and exploration work on the property.
Now, the entire validity of the project is up in the air, especially after
Freeport's comments. The development has sent shock ripples throughout the
mining community. "It is an amazing turn of events," says Hugh Leggatt,
spokesman for PLACER DOME, which earlier appeared keen to enter the Bre-X
bidding race once-dominated by Peter Munk's BARRICK GOLD. "It is hard for
me to accept that a deposit of 70 million ounces can go to zero," adds Mr
Leggatt, expressing sentiments held throughout the street. Placer, he said,
never had a chance to look at Bre-X's internal data first-hand, or visit
the property, as it was relegated to the sidelines. "Obviously, this is
going to change a lot of the stuff in our industry," says Mr Leggatt,
citing the ability of juniors to raise financing, the amounts paid for
properties and the trust between companies.
While Bre-X remains halted indefinitely for now, the market is waiting for
more news, good or bad. The losers are numerous, especially amongst mining
analysts and fund managers, who have made and staked much of their
reputations on Bre-X. In the brokerage community, two houses stand out:
FIRST MARATHON SECURITIES and Nesbitt Burns. Between them, the pair's net
buying of Bre-X since March 1, for clients and/or pro accounts, is worth
$78 million. Both firms' analysts are among the most enthusiastic
supporters of Bre-X. Nesbitt analyst Egizio Bianchini, perhaps Bre-X's
biggest booster, told the Globe and Mail yesterday that the stock remains a
buy, and the simmering questions coming out of Indonesia about the size of
the deposit are very likely erroneous. He said that if there is any
discrepancy between Bre-X's work and Freeport's initial sampling, it is
more likely related to preparation or to the sample assay procedure
employed. If he is correct it will be the best news the junior mining
market has had since Bre-X found Busang.
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