The Wall Street Journal Interactive Edition -- April 4, 1997
Close-Knit Community Made And Lost a Fortune on Gold
By TAMSIN CARLISLE
Staff Reporter of THE WALL STREET JOURNAL
ST. PAUL, Alberta -- This quiet northeastern Alberta farming town has been riding a rollercoaster of collective euphoria and disappointment as it follows the travails of Bre-X Minerals Ltd.
The reason is that St. Paul, population 5,200, probably contains the world's biggest concentration of investors in Bre-X, the controversial gold-exploration company that has
made and broken -- at least for the moment -- fortunes for shareholders with its spectacular gold find at its Busang mine in the Indonesian jungle. Last week, Bre-X stock
tumbled after the company announced that its gold reserves might have been overstated, snatching away the jackpots of Bre-X investors who had recently become millionaires on
paper.
'There's Nothing Wrong'
Many in St. Paul remain staunch believers in Bre-X, based in Calgary, Alberta. "There's nothing wrong with Bre-X, mark my words," asserts Jack Kinderman, a local businessman. Mr. Kinderman sold part of his Bre-X holdings three months ago, but still owns some Bre-X stock.
Having bought Bre-X stock long before it surged to lofty levels, a number of St. Paulites made out well by cashing out before the latest crash. Rhea Labrie, general manager of the
Chamber of Commerce, said she knows people who used their stock-sales gains to buy small businesses and fancy cars, or pay off mortgages on their homes.
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Bre-X shares were again halted on the Toronto Stock Exchange because of heavy volume, creating a source of embarrassment for the exchange.
Small gold companies that rushed into Indonesia following Bre-X's announcement of a big gold deposit are now seeing their stock get pounded -- turning millionaires back into geologists.
Locals describe St. Paul, situated about 130 miles northeast of Edmonton, as basically a conservative place, but one with a penchant for gambling. Two bingo halls are busy every
evening, and video lottery terminals are well patronized.
Then there's the town's wacky side: The Chamber of Commerce building is designed to look like a UFO landing pad. And the town has a UFO hotline to take mysterious reports, usually involving disappearing or mutilated cattle, from local farmers.
Local Banker Leads Way
But St. Paul's romance with Bre-X wasn't brought on by aliens. Residents got bitten by the gold bug about two years ago, after a local banker, John Kutyn, touted Bre-X to family and friends, Mayor John Trefanenko said. At the time, Bre-X traded only on the tiny Alberta Stock Exchange for about two Canadian dollars a share (US$1.40). Following its proclamations about its Indonesian gold find, trading in Bre-X extended to other exchanges, and the stock reached as high as C$286 (US$206) before a 10-for-1 stock split last year.
Thursday, Bre-X shares rose 31.25 cents, or 14%, to close at US$2.625 in Nasdaq Stock Market trading.
Mr. Trefanenko, a former social worker, believes gold fever spread because of the way ideas take hold in this close-knit community, where trust plays an important role in interpersonal relationships. Mr. Kutyn, the father of four preschool children, was well regarded, and when he began liquidating his own assets to buy Bre-X shares, others followed suit, according to Mr. Trefanenko.
Mr. Kutyn sold his Bre-X holdings before the stock crash. According to a number of St. Paul residents and newspaper reports, the banker has since moved to New Zealand.
More St. Paul residents got interested in Bre-X when Guy Drouin, an RBC Dominion Securities Ltd. broker and also owner of the local newspaper, started recommending the
stock. "I know Guy personally. He is very careful about his advice to clients," Mr. Trefanenko says.
Gatherings at Coffee Shops
St. Paul's grapevine shifted into high gear as the town's neophyte stock investors were primed by the takeoff of Bre-X's stock price in early 1996. They started gathering at coffee shops along the town's main street to discuss Bre-X and other mining stocks. They picked at least one other mining winner: Arequipa Resources Ltd. of Vancouver, British Columbia, whose shareholders struck gold when the company was bought by Barrick Gold Corp.
Local eating places became hubs for the discussion of mining information. "If you wanted to hear the latest news on Bre-X, you went to the A&W," says Mayor Trefanenko. "If you wanted to know about Arequipa, you had to go to the Corfou [restaurant]. At Smitty's [diner], they talked about some other small mining companies that never did very much."
Today, life in St. Paul goes on much as it always has. The local economy is benefiting from strong grain prices. With spring planting season around the corner and calving already under way, farmers are coming to town to kick tires on new equipment and to buy fertilizer and feed.
So has St. Paul lost its appetite for stock investments? Apparently not: Walter DeSilva, the Alberta government's regional manager of small business, says he still belongs to a local investment club that had its roots in the Bre-X buying fever.
And Mr. Drouin, the stockbroker, is still dispensing investment advice. He said investors should maintain a "cautious" interest in Bre-X. |
