Globe & Mail Article
Bre-X shares sink on news report
Traders panic over story on Internet questioning size of Busang find
Saturday, March 22, 1997
By John Saunders and Paul Waldie
The Globe and Mail With files from Ann Gibbon in the B C Bureau.
Hundreds of millions of dollars in market value went missing yesterday in the spy-novel atmosphere surrounding Bre-X Minerals Ltd.
Already unnerved by a geologist's plunge from a helicopter over Borneo, traders panicked at a third-hand Internet account of what an unnamed source told an Indonesian newspaper about the size of the Calgary company's famous gold find.
Despite a trading halt of more than 3 hours to let the market hear the company's reassurances, Bre-X slid to $14.25-- its lowest point since April, 1996--and closed at $15.20, down $2.25, on the Toronto Stock Exchange. At the low, its value had fallen about $800-million ($3.40 a share) since the world learned of Michael de Guzman's mysterious fall on Wednesday.
"Absolute insanity--just insanity," said Toronto mining promoter Stan Hawkins, a Bre-X shareholder and former Bresea director who had heard "all sorts of different rumours--you know, that de Guzman was murdered and the assays are all wrong and that's why he jumped off the helicopter or whatever. Certainly there's no question about the assays. They're golden, no pun intended."
Also hammered were Bre-X's parent company, Bresea Resources Ltd. ($6.80, down $2.25). and Minorca Resources Inc., which has a small indirect stake in the Borneo discovery ($4.45, down 90 cents).
The action seemed to focus on a report in a Jakarta business daily, Harian Ekonomi Neraca, that Freeport-McMoRan Copper & Gold Inc. harbours doubts that Bre-X found as much gold as it says it did at Busang in the Borneo rain forest. The Indonesian government last month recruited New Orleans-based Freeport to develop the mine, giving it a 15-per-cent ownership stake and shrinking Bre-X's to 45 per cent.
A synopsis of the newspaper story was flashed to North America by Bridge News, a St. Louis-based wire service formerly known as Knight-Ridder Financial News. The most striking sentences were attributed to an anonymous source at Freeport: "Possibly, the deposits are not as large as has been reported. In fact it is possible that the deposits are not worth mining."
In a market priced for the idea that Busang is one of the great gold discoveries of history, this was incendiary. But it might not have travelled so far so fast without the help of Internet chat groups in which computer junkies swap market news and rumours.
Before dawn yesterday, someone posted the Bridge News report on the Net. Five minutes after trading opened on the TSE, Bre-X was down $1.20 and exchange officials called time out at the company's request. The aim was "to ensure that investors trade on equal information," said Neil Winchester, the exchange's market surveillance manager, who lamented the confusion surrounding Bre-X. "There's been a lot of stuff--innuendo and untruths and some-truths--printed."
For whatever reason, Bre-X and Freeport had nothing definite to say yesterday about how much gold there is at Busang. They suggested, however, that the newspaper story was wrong.
Bre-X president David Walsh issued a statement saying senior Freeport officials assured him that they "are still conducting their due diligence at the Busang site" and "have not commented on the progress, to the press, in this regard."
Freeport's communications manager, Kristin Lemkau, said the company is three weeks into the job of checking out the property. She would not say when it will be finished. "There have been no sources out of Freeport who have commented on the results of due diligence, so either the reporter or the unnamed source was mistaken," she said.
If Bre-X is right, Busang contains at least 70.95 million ounces of gold, a fabulous trove.
Bre-X attributes the figure to consultants from Kilborn SNC-Lavalin Inc., a Toronto-based engineering firm, and Kilborn stood behind it yesterday. Paul Semple, a vice-president in Vancouver, said the firm had "no reason to believe that there is any reason to retract that. If there is other information out there, we just haven't seen it."
Norman Keevil, chief executive of Vancouver-based Teck Corp., which failed to negotiate its way into the Busang project, said Kilborn's people are "reputable engineers" who would not likely be wrong about such a bonanza.
"We've seen the reports and the Kilborn study. It's hard to believe that there is anything materially different than what we have seen. This [newspaper story] is probably just speculation, but I'm as curious as you are." If Freeport has begun drilling on the site, he said, "it couldn't have been much more than three weeks ago, so I don't know how much data they could even have out of it yet."
Other unsuccessful suitors shed no light on the situation. "I'm afraid we never got to do a due diligence on Busang," said Hugh Leggatt, corporate communications manager for Placer Dome Inc. of Vancouver. In Toronto, a Barrick Gold Corp. official said Barrick is bound by a confidentiality agreement and cannot disclose what it learned about the property.
Patrick Sheridan, a Toronto mining promoter and long-time Bre-X shareholder, suggested Freeport's security was lax. "You know, it could be some junior engineer who has overheard something and taken it out of context; that's a possibility."
But maybe Freeport really has come up with smaller numbers than Bre-X did, he said. "It's not uncommon even within the same company that the mining department comes up with different information than the exploration department."
Earlier this month, Douglas Goold of The Globe and Mail talked to skeptical people in Indonesia. Busang "is not a proven discovery," economist Hartojo Wignjowijoto said in an interview. As for the amount of gold, "even the government doesn't know" what the real number is, he said.
B. N. Wahju, head of the Indonesian Mining Association, complained that he could not get a map of the site from Bre-X until this month, even though the association had lobbied the mining department for a fair deal for the company. "Bre-X, where are you?" he asked.
Geologist John Felderhof, co-discoverer of the deposit with Mr. de Guzman, vigorously defended the company's pronouncements on the size of the deposit. Now vice-chairman of Bre-X, he has said publicly that Busang could turn out to contain as many as 200 million ounces. "I was not trying to promote the stock," he said.
Yesterday, Bre-X announced that Mr. Felderhof was on his way to Indonesia to "assist in the due diligence process," replacing Mr. de Guzman. Questions remained about Mr. de Guzman's dramatic exit.
Bre-X's Mr. Walsh has said the 40-year-old Filipino learned he had an incurable form of hepatitis and left a five-page letter to his family that company officials take to be a suicide note.
But Dow Jones yesterday quoted a Filipino diplomat in Jakarta as saying: "We don't know whether he committed suicide, whether he was murdered, or whether he was the victim of an accident. There are even some people who are saying he might not have been on the helicopter. We just don't know." |
