Pick your plot in wildest Borneo
=====================
Pick your plot in wildest Borneo
Prepare to take off in search of explanations. From Bay
Street to Balikpapan, everybody has a theory about the great
gold find that seems to have vanished in the jungle mist.
Saturday, April 19, 1997
By John Saunders
The Globe and Mail
With files from reporters Michael Den Tandt, Janet McFarland, Allan Robinson and Paul Waldie.
AS the off-duty lieutenant-colonel eases forward on the stick, the turbine whines
and the airstrip slips away behind us. Our imaginary helicopter butts through moist
Borneo air toward a date with destiny.
What will we find in the rain forest? A dictator's ransom in gold? A stock fraud of
unrivalled grandeur? A mix-up so awful they will retire the word "oops"?
No one yet has the answer. At least, no one who is talking. The man in the best
position to know, geologist Michael de Guzman, is said to have taken his life a
month ago today by jumping into the jungle from a helicopter, giving new scope to
the concept of fall guy.
Cynics have suggested he incorrectly estimated the distance to the ground. Clearly,
somebody's figures are wrong.
Bre-X Minerals Ltd. of Calgary, which operated out of promoter David Walsh's
rec room until last year, claimed to have found at least 70 million ounces of gold,
maybe as many as 200 million, in the Indonesian part of Borneo. A stupendous,
record-breaking discovery.
Freeport-McMoRan Copper & Gold Inc. of New Orleans, the favourite foreign
mining company of the famously corrupt regime of President Suharto, checked it
out. Freeport said it found nothing worth mining. Uh-oh.
Strathcona Mineral Services Ltd., a Toronto consulting firm hired by Bre-X,
now is trying to determine the truth. Strathcona's report may be out by the end of
the month. Meanwhile, we are left to speculate.
First scenario: No gold.
Bre-X's drillers perforated the landscape at a place called Busang and sent tens of
thousands of samples to be tested. The results seemed to confirm a theory about
where gold would be deposited in such terrain by volcanic activity and underground
water.
The theory had been championed by Bre-X's Nova Scotia-trained chief geologist,
John Felderhof, and his Filipino sidekick, Mr. de Guzman. After years of sweat and
frustration, the two rock breakers were stars.
If the results were faked (by sprinkling samples with gold, for instance), it was the
work of experts.
"It had to be, because they had to salt the things that looked like ore and not the
things that didn't look like ore," said Toronto mining promoter Patrick Sheridan, a
Busang believer turned doubter. ". . . Oh, for this to be a salting job, it had to be a
masterpiece."
It might not have been as hard as it sounds, though. Bre-X has said it routinely
divided its samples into good-looking and worthless-looking rock and sent much
less of the latter out for testing.
Anyway, the test results at different depths in different holes had to suggest a
definite pattern--a very big gold deposit--in the minds of geologists familiar with the
region. "So you had to have someone who got inside Felderhof's head to do it," Mr.
Sheridan said, reflecting the view that Mr. Felderhof played no part in the scam, if
there was one. "And maybe de Guzman was that smart."
Mr. Felderhof and other Bre-X officials got rich before the bubble burst by selling
tens of millions of dollars worth of shares (but not as many as they could have) into
a delirious market. The hard part of picturing them as plotters is to imagine the end
game.
Had they set out to deceive, they could hardly have hoped to escape punishment by
any method short of plastic surgery and flight under new names. In a case so big,
pursuit would be unrelenting and safe havens few. Even Robert Vesco, the
foremost mutual fund looter of the 1970s, found himself in a Cuban prison last year
after dodging U.S. justice for a generation. There is no sign that Mr. Felderhof, Mr.
Walsh or anyone else has tried to flee.
The odd man out, of course, is Mr. de Guzman. Although he is presumed dead, a
shattered corpse found in the jungle has yet to be shown scientifically to be his. He
ran field operations at Busang and recruited key technical people, many of them
ex-colleagues from the Philippines. If anyone had the means and opportunity to
engineer a scam, he did.
Presumed motive: stock market profit. The Bre-X share price went to $28.45 last
year from the equivalent of 19 cents in 1995, then back to as little as $1.76 in the
latest funk. Billions of dollars worth of shares changed hands. A gang with working
capital and market sense could have made a fortune on the way up and another (by
selling the stock short) on the way down.
Mr. de Guzman's pilot on the fateful helicopter ride turns out to have been a
moonlighting Indonesia air force officer rather than one of the regular charter
jockeys, and that is just one intriguing detail of the supposed suicide.
Was the geologist murdered to eliminate the only link between an immensely
profitable fraud and shadowy interests behind it? Is he camped out in a secret
jungle lab financed by organized crime or the Indonesian military to orchestrate the
fraud of the century? Is he on a beach somewhere, reading the out-of-town papers
with interest?
Second scenario: A lot of gold.
Stanley Hawkins, a Toronto mining promoter and long-time Walsh crony, sees no
happy ending to this story, no matter how it plays out. "If Bre-X is right, then
there's certainly going to be a lot of recriminations, eh? Geez, they'll go on forever."
Thousands of investors will have lost millions of dollars for nothing, and some who
bought shares on credit will have been bankrupted by accident. They will be
looking for someone to sue, presumably Freeport.
Yet it is tricky, Mr. Hawkins said, "to rationalize how Freeport could drill seven
holes in the heart of the ore body and get zilch. It's difficult for me to believe, also,
that Freeport would make a mistake. I'm not saying they couldn't make a mistake,
because they can, but it's difficult to see how they would."
Others experience no such difficulty. Here are just a few of the theories circulating
in brokerage offices, barrooms and Internet chat groups:
Freeport is a big copper-gold-silver producer elsewhere in Indonesia but did not
understand the Busang geology. It absent-mindedly tested for copper rather than
gold. It wanted to drive down the price of Bre-X shares and take over the
company. It is part of an Indonesian plot to discredit Bre-X and confiscate the
deposit.
Or Freeport itself was scammed. Someone intercepted its samples on the way to
the lab and substituted worthless rock. None of these ideas seems plausible, but
nothing can be ruled out where the Busang affair is concerned.
For its part, Bre-X sticks by its estimate but seems strangely unwilling to cancel
confidentiality agreements binding other parties that have checked its samples.
These include Barrick Gold Corp. of Toronto, which almost reached a deal with
the Indonesian government for a large chunk of the property, and at least three
assay labs.
Favourable reports from outsiders could hardly hurt Bre-X's case, and specialized
testing might cast light on whether samples were salted or not.
Third scenario: Something in between.
At its peak, Bre-X's share price was based on the idea that the company owned 90
per cent of a history-making gold find. The Indonesian government has since
chopped it back to 45 per cent. But 45 per cent of a middling deposit--as likely an
outcome as any--is not going to make Bre-X believers happy.
It may be that Mr. Felderhof and Mr. de Guzman got carried away with their
theorizing, or were blinded by lust for a big win. Maybe all the analysts and
consultants who endorsed their grand claims lost their heads in the enthusiasm. And
who knows? Maybe Freeport's initial drill holes somehow missed pay dirt by
centimetres, which would be astoundingly bad luck.
The view from Jakarta is cloudy. Michael Everett, a mining consultant in the
Indonesian capital, thinks there is "probably some gold there" but not necessarily
enough to be worth digging up.
Even if there is a mine, there is no guarantee that Bre-X will own a piece of it. No
mining licence has yet been issued.
The Suharto regime short-changed Bre-X last year and has little to lose by doing it
again. It flushed its international reputation, such as it was, in a scramble by the
presidential children for a piece of the action, although they eventually lost out to a
presidential crony. The recent confusion could be all the excuse Indonesia needs to
seize some or all of the company's remaining stake.
"Anything's possible in this story," said Mr. Hawkins, the Toronto promoter. "I
mean, look at it. It reads like a goddamn Hollywood movie, or a novel." Right on
cue, Alliance Communications Corp. of Toronto said yesterday that it has
bought film rights to an as-yet-unwritten book about Bre-X.
Gold is mined in various parts of Borneo.
Bre-X said Busang held at least 70 million ounces of gold.
Freeport said it found only "insignificant" amounts of gold in test holes it drilled
beside Bre-X's holes.
More than $3-billion in market value disappeared when Bre-X's stock collapsed.
Bre-X president David Walsh and other Bre-X executives have become
multimillionaires trading in Bre-X stock and options.
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