NBMG Special Publication 22
Gold from Water (And Other Mining Scams)
by Paul Lechler, Chief Geochemist
Investors lose $2 billion as mining-stock price plummets on news that Indonesian gold ore contains no gold! The Canadian mining company Bre-X successfully attracted a range of investors, from unsophisticated individuals to savvy mining professionals, to invest in its Busang gold prospect, claimed to be the largest discovery of gold in history. After years of successful promotion, the truth about this worthless property slowly emerged early in 1997 and drove Bre-X stock prices nearly to zero. The boldness, sophistication, and magnitude of this scam is almost unbelievable, dramatically eclipsing previous schemes like this. It is the largest case on record, but only one of many such mining scams, both large and small, apparently unintentional or boldly deceitful, perpetrated on investors over the centuries.
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Mining, when entered by a novice, can be a dangerous place to invest one's money. Mark Twain said, "A mine is a hole in the ground owned by liars." Mark Twain spent a number of years on the Comstock lode in Virginia City, Nevada, and through repeated experience, knew what he was talking about. Mining is a thoroughly respectable business, but the unwary investor can be duped by con artists.
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Having worked as an analytical geochemist for many years I have been confronted with many scams and many confused prospectors. Analytical geochemists are professionals who, after many years of college and two or three degrees in chemistry, geology, or the hybrid, geochemistry, are skilled at determining the concentrations of elements (such as gold, silver, platinum, and copper) in rocks, minerals, soils, sediments, water, and vegetation. These natural materials are complex, containing at least trace amounts of all of the naturally occurring elements on the periodic chart from hydrogen (atomic number 1) through uranium (atomic number 92), except for technetium (number 43, which has not been found to occur naturally) and promethium (number 61, another short-lived radioactive element not found naturally). The complexity of these natural materials makes their analysis a difficult task, requiring extensive knowledge, experience, and expensive instrumentation.
I have been exposed to many varieties of mining scams and have tried to help people whose limited knowledge has gotten them in over their heads in one situation or another. That people might pursue prospecting or investing in mining projects comes, I think, from the perception that, with little financial investment and/or only very basic knowledge, one can successfully find a valuable mineral deposit just waiting for discovery. This is akin to a pot of gold at the end of the rainbow or finding a buried or sunken treasure. The problem, I have found, is that when exploring a new field of knowledge that is unfamiliar to us it is very difficult to know just how ignorant we are. We can read books, magazines, and technical papers and feel that we have learned a tremendous amount and feel very knowledgeable about the subject. The problem is that we don't really know whether we now have a command of the subject or whether we have not even scratched the surface. This is one very valuable feature of obtaining a formal education or even taking a class in a subject given by a specialist in the field: the professor or specialist knows the breadth and depth of the field and can answer this question for you.
I have observed that there are several types of people who become involved in mining imbroglios or promotions:
The classic con artist who intentionally tries to sell a worthless mining property or ineffective machine or technology for extracting valuable metals from a deposit that cannot be otherwise worked at a profit.
The prospector with marginal knowledge who inadvertently promotes a worthless property or process on friends, family, other investors, or himself, because he knows no better.
The devious small laboratory owner , generally in a rural location, who intentionally reports high concentrations of valuable metals in almost every sample he analyzes to encourage customers to continue prospecting, sampling, and developing properties. In this way he guarantees himself more business as customers extend their sampling and chase their tails trying to outline a rich mineral deposit that is not there.
The incompetent assayer or self-taught, but incompetent, extractive metallurgist who inadvertently causes others to develop a worthless property or process through erroneous analytical results. This he does out of incompetence, not malice, but the end results are the same disastrous ones.
Some people possess a natural savvy or personal cautiousness that leads them to seek a second opinion from a professional specialist before being drawn into a promotion or misguided project. I have met more people, however, who are already in trouble (financially and/or legally) when they come seeking professional, unbiased help. In either case, the victim wants to believe the incompetent or devious promoter rather than believe me when I generally have to tell them that there is no value in the property or process that they are pursuing. Or they are reluctant to accept the truth when I have to point out that they have brought me a sample containing a significant amount of gold, for instance, but that the small vein from which it came does not contain enough tonnage of this same material to constitute a valuable ore deposit, and it would cost more to mine and process the vein material than there is value of gold present in the vein.
But this, I have come to understand, is reasonable because the victim wants to believe that there are riches to be had from the project in which they have become involved. The alternative is to believe me when I have to tell them that they have wasted their money and/or have inadvertently led others to throw their money into a worthless project.
Often, there is some aspect of the project that does not seem quite right or consistent, however, which is the reason that they have come seeking another opinion. This is often the point where a misguided or promoted extraction technique has been financed and a mill built, only to find that there are "low- recovery" problems with the mill. In actuality, there is generally no precious metal in the "ore" to be recovered. Once I show them how to use scientific methods to control the number of variables that they are dealing with, to assess whether their rocks are ore or not, they reluctantly take my advice, agreeing that my careful, stepwise assessment has led to the unambiguous conclusion that the project is worthless.
Other people, however, come with samples several times before they are persuaded to cut their losses and abandon the project. And then there are those who simply get angry and accuse me of close- mindedness and of being unwilling to consider anything new. I am really not, however, and have often followed others' "menus" under controlled conditions in our clean laboratories, to assess special assaying or extraction protocols that are said to release or liberate the gold in a sample that otherwise would report nothing when assayed. Without exception this has convincingly and unambiguously demonstrated that the "special" protocols or treatments are useless.
There are many varieties of scams and many claims, for one reason or another, that certain ores cannot be assayed by conventional methods. The story generally goes that the materials contain fabulous, ore- grade concentrations of precious metals but some peculiarity of the ore causes conventional assaying methods to fail to record their presence. Not only is the ore very high grade, there are tremendous quantities of it that will yield millions or billions of dollars in riches when using the new methods of assaying and/or extraction. Many of these scams and claims are recurring and one must have patience to deal with them over and over again. The types of scams will be reviewed below and the claims of unassayable ores will be explained and dismantled.
This problem of promoting worthless properties and procedures is a very old problem that is difficult to exterminate. People who become interested in investing in mining projects and look for tremendous returns by funding unusual new technologies or unusual new properties generally do not have the depth of knowledge required to properly assess these projects. Unless they realize this and hire an unbiased consultant to guide them, they are doomed to repeat this aspect of history. Mark Twain, in his book Roughing It , tells an interesting and not uncommon vignette:
"Assaying was a good business, and so some men engaged in it, occasionally, who were not strictly scientific and capable. One assayer got such rich results out of all specimens brought to him that in time he acquired almost a monopoly of the business. But like all men who achieve success, he became an object of envy and suspicion. The other assayers entered into a conspiracy against him, and let some prominent citizens into the secret in order to show that they meant fairly.
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