Financial Post: Saturday, April 26, 1997 As old as the hills
No one is sure yet if Bre-X Minerals' Busang deposit was salted. What we do know is that salting gold deposits is a story...
By DAVID THOMAS
The Financial Post
The recipe varies from story to story, but gold mining swindlers know that a surefire way to add some pepper to a company's stock is to "salt" its rock.
If done right, it is not only easy but downright cheap to artificially boost gold grades by adding outside gold to rock samples.
Unfortunately for swindlers, the only thing that keeps every salting job from becoming the perfect scam is that people always find out.
"In the end, fraud always comes out," says Keith McCandless, a mining engineer with Associated Mining Consultants Ltd. of Calgary. "It's simply a matter of how long you can sustain it."
Although the outcome is likely already known to the principals, it could be days or possibly weeks before the world learns for certain if Bre-X Minerals Ltd. will recover its lustre or go down in the annals of history as the most ambitious and devastating mining fraud ever inflicted on the investing public.
But if Bre-X's mammoth estimate of 71 million ounces of gold at Busang in Indonesia was based on salted samples, it wouldn't be the first gold mining scam that has shaken stock markets.
It takes as little as 0.018 ounces of gold per ton of rock to justify the construction of a mine, so salting represents a minimal investment for a huge potential windfall.
According to Bre-X, the Busang deposit averages close to 0.072 ounces of gold per ton, but geologists estimate it would only have cost between $10,000 and $30,000 to taint the 30,000 13-kilogram bags of ore samples that were prepared.
"There are hundreds of ways to do it," says George Poling, a professor of mineral process engineering at the University of British Columbia. "It doesn't take a genius, although it can also be as devious as the most devious minds can devise."
Financial backers have been duped into investing in companies after fraudsters fired shotgun blasts of gold dust onto the walls of mines to crudely simulate a strike.
At the other end of the spectrum, gold assaying folklore is full of stories of intrigue right out of a John le Carr‚ spy novel. Poling says one legendary case reputedly involved flakes of gold stuffed into a cigarette. The tobacco didn't get hot enough to melt the gold, which allowed a fraudulent assayer to salt samples with cigarette ash without arousing the suspicion of anyone else in the lab.
McCandless and other mining engineers have often played the role of salt cops in uncovering frauds. "Often the problem can be traced to technical mistakes, rather than fraud," he says.
But when he was hired by the Alberta Stock Exchange to investigate the Timbuktu Gold Corp. fiasco last year, the problem was clearly no accident. Based largely on his work, the ASE concluded that Timbuktu's deep-drilled rock samples from its property in Mali had been "enhanced" by outside gold.
While McCandless and the ASE were unable to identify who had added it, placer, or river-type gold, was recovered from Timbuktu's rock samples. Placer gold is rounded and beaded by erosion and its discovery in Timbuktu's drill samples was a dead giveaway of fraud.
Ironically, McCandless's work also helped to confirm that there were, in fact, a few gold-bearing drill holes at the site. As a result, the property is still being actively explored today.
In an even more bizarre twist, Toronto-based Agnico-Eagle Mines Ltd.'s predecessor company, Eagle Mines Ltd., capitalized on a salting hoax in the mid-1960s. Investors were scared away from the Joutel property in northwestern Quebec after it was revealed that rock samples had been sprayed with gold dissolved in a chloride solution. Eagle bought the property cheaply and later found sufficient gold values to put the mine into operation. "They didn't need to salt the thing in the first place," laughs Wencel Hubacheck, vice-president at Agnico-Eagle.
In the wake of the uncertainties surrounding the Busang find, markets are calling for tighter rules and regulations. But no matter what changes are made, there will be more salt jobs in the future, say mining and market experts.
"There is something almost spiritual or supernatural about people's attraction to gold," says George Duncan, president of Accurassay Laboratories, a mineral testing facility based in Kirkland Lake, Ont.
In one of his first jobs in the salt-detection field after giving up teaching analytical chemistry, Duncan went south to a California desert to assess a gold property for a friend.
The property was owned by the son of a high-profile U.S. entrepreneur, and Duncan's job was to help figure out how to get the "difficult" gold out of the sand.
"The gold was supposed to be locked up and only recoverable through a specialized assay method, which used a wild variety of chemicals and loads of silver to recover the gold.
"I ran a check on the silver and proved that it contained trace amounts of gold at exactly the same levels being found in the so-called ore." End of story.
Shortly thereafter, Duncan was called to another California desert gold "find" whose promoters were again using silver to "extract" the gold. In this case, they were using a special technique that required 10 grams of silver, even though 10 milligrams would have been more appropriate, he explains.
"The last I heard of that project was a call from an FBI officer investigating a US$34-million investment fraud."
One colorful case that has resurfaced as a popular subject for discussion in recent days is that of New Cinch Uranium Ltd., a Toronto mining company that became notorious in the early 1980s.
"It had a lot of similarities to Bre-X," says John Woods, editor of Stockwatch, a Vancouver-based market newsletter.
The parallels include claims from New Cinch that salting could never have taken place on such a large scale; a hyperactive rumor mill; a suspense-filled geological audit and even a mysterious death.
Willroy Mines Ltd., controlled by what later became Lac Minerals Ltd., bought into New Cinch after the stock shot up to $29.50 from $2.80 in a few weeks.
The excitement was due to New Cinch's Orogrande, N.M., gold property, which had some excellent gold values according to analysis by an El Paso lab called Chem-Tec.
But in 1979, a year before the stock had its run-up, Vancouver assayers W.G. Stevenson & Associates turned up negligible values on the same drill cores.
In early 1981, rumors of huge differences in assay results finally hit the market, prompting Willroy to dump its stake. The stock slumped to $3.
The Vancouver Stock Exchange then ordered a review of the assays to get to the bottom of the mystery, in much the same way that Bre-X appointed Strathcona Minerals Ltd. to audit all recent drilling and testing at Busang.
The stock continued to fluctuate wildly on a run of rumors and more than doubled in value in a single trading session.
After the engineering auditors weighed in with damning results, New Cinch investigated the possibility of "deliberate or inadvertent salting."
The tampering took place at the Chem-Tec lab, which came up with flawed numbers by fumbling a measurement technique called atomic absorption, according to Duncan.
"It was garbage in, garbage out. They mistook iron for gold."
At the end of the year, New Cinch acknowledged that samples had been contaminated and the affair shifted to a legal venue for a series of lawsuits.
At the same time, an ex-employee of Chem-Tec was murdered in a professional hit-style killing. The employee, Michael Opp, had earlier told his parents he feared for his life because of the lab's involvement.
Ten years later in 1992, Dessir Resources Ltd. was caught salting rock samples from its California property with gold nuggets, rumored to be sourced from the Klondike.
"I am disappointed that people would stoop to such skullduggery," Jim Mackie, a geologist employed at the time by the VSE to confirm suspicions of tampering, said of the case.
There are numerous other examples of recent salt jobs, but investors can take heart in the fact that they are still very rare, McCandless says.
"It's like a plane crash -- it doesn't happen very often."
For Bre-X stockholders, caught as they are in a metaphorical holding pattern, it would be best to pray for a safe landing. |
