Jim Bob Moffett is about to make one of the biggest decisions of his business life. The CEO of Freeport-McMoRan Copper & Gold is about to get a crucial second opinion on the gold content of partner Bre-X Minerals' Indonesian gold find. Then he'll know whether to stay
with Bre-X or walk away
By PAUL BAGNELL
Mining Reporter The Financial Post
By all appearances, Jim Bob Moffett is a man who knows his own mind. A New Orleans newspaper once described his approach to business as a "can-do, damn-the-torpedoes, full-speed-ahead mentality," a compliment that Moffett happily accepted.
He only hoped the traits were infectious to those around him, Moffett said at the time.
Having grown up poor in Texas, Moffett seems to have spent his early life demolishing roadblocks, getting to the University of Texas as a football star, becoming a geologist and then rising through the world of international mining with breathtaking speed.
Now, at 58, he stands atop one of the world's major mining companies, New Orleans-based Freeport-McMoRan Copper & Gold Inc.
It's a company that clearly bears Moffett's personal stamp, aggressively pursuing expansion and rebuffing critics --
whether shareholders or outsiders -- with equal confidence.
And some time early next week, the stage will be set for Moffett to make one of the most watched decisions of his business
career. Calgary's Bre-X Minerals Ltd. will release a much-anticipated report by Toronto's Strathcona Mineral Services Ltd. on the drilling samples from Bre-X's Indonesian gold find. Moffett will finally
have the information he needs to decide whether Freeport should abandon its partnership with Bre-X.
In February, Freeport won an intrigue-filled contest for control of the Busang gold discovery in the jungle of East Kalimantan, Indonesia. The find had been described by Bre-X as one of history's most fantastic gold discoveries at 71 million ounces.
Moffett boasted to analysts that he would get a mine at Busang up and running in just two years. And if anyone doubted it would be the world's biggest gold mine, he assured them it would be producing three million ounces of gold a year -- a figure gold experts found dizzying, but conceivable.
But just five weeks later, Freeport devastated Canadian financial markets with news that it hadn't found enough gold to even think of building a mine on the site. Moffett said Freeport would walk away if further study did not prove an economic gold deposit.
His boots may be made for walking soon. Bre-X almost certainly has the Strathcona report in its hands, and is expected to make its results known at any moment.
A common view among experts who have been glued to the Bre-X story for months now is that the Strathcona report will hold few surprises for Moffett.
Freeport, these people say, has utter confidence in its analysis of the seven holes it drilled at Busang -- seven holes that came up with not a flake of gold.
Significantly, Freeport has made it clear that its testing of the rock cores from the seven holes did not end with the March 26 announcement that it had found only insignificant traces of gold.
"We've continued to analyze these cores and do some additional testing, and the results haven't changed," says Craig Saporito, the company's vice-president of investor relations. "We certainly stand by the results we've released to the press."
For his part, Moffett stressed to shareholders several times Freeport has the right to quit its partnership with Bre-X, and is prepared to do so. "We will participate only if we can confirm an economic deposit," Moffett told them in his no-nonsense tone at Tuesday's annual meeting in New Orleans. "If not, we will withdraw."
Moffett added that Freeport had drilled its seven holes over "several thousand acres," a fragment of new information perhaps intended to underscore the reliability of the company's testing.
Those who are convinced Busang holds no meaningful quantities of gold believe Moffett's remarks were meant to prepare shareholders for an abrupt departure from Busang some time soon.
But Moffett hasn't acted yet. "I think Freeport has done the only thing it could do," says a top executive at a Canadian mining company. "If I were in that position, the last thing I'd want to do is withdraw from the project and find out that, in fact, there was a significant
deposit there. Your shareholders would have the right to be very upset. I would wait quietly for the Strathcona report."
But this same executive doesn't think the Bre-X deposit is going to be found glistening. He predicts Strathcona will confirm Freeport's findings of no significant gold at Busang.
Like others, the executive believes Moffett has total confidence in the results of his company's due diligence review and is patiently waiting for the world to catch up with what he already knows.
"I think they've taken more of their rock core and done more extensive testing, and probably done everything imaginable that would be required to get coarse gold out of the rock" since the bombshell March 26 press release, says John Kaiser, publisher of a newsletter on junior mining stocks. "Because maybe Bre-X told Freeport that you have to handle this ore very carefully."
Victor Lazarovici, a gold analyst at Smith Barney in New York, says the likelihood that Freeport got it wrong is remote.
"Can someone make a mistake? Yes. Could they make a mistake that big? No."
But, Lazarovici notwithstanding, the possibility still exists that Strathcona will find gold at Busang, others say. Mother Nature, they say, has revealed strange geological deposits before, and Busang may be one of them.
If that's the case, the question becomes: how could Freeport have been so wrong?
Among the millions asking the question, no doubt, will be the crowd of class action lawyers -- mainly in the U.S. but also in Canada -- who are now training their guns on Bre-X, accusing the company of fraudulently deceiving investors.
But, under this scenario, those expecting Moffett to provide an accounting of his company's conduct are likely to be disappointed.
Journalists and shareholders who travelled to New Orleans for the company's annual meeting earlier this week were stunned at the heavy-handed way Moffett ran the proceedings. He did almost all of the talking, briskly running through Freeport's affairs in a manner that recalled General Norman Schwarzkopf's triumphant briefing after the Persian Gulf War.
Shareholders were given 60 seconds in which to speak on behalf of resolutions they had brought to the meeting, and were abruptly cut off as soon as they reached that limit.
That's what happened to members of the Seattle Methodist Church, who had travelled from Seattle to query Freeport on its environmental and human rights record at its Grasberg copper-gold mine in Irian Jaya, elsewhere in Indonesia.
Shareholders who didn't notify Freeport of their questions weeks in advance weren't allowed to speak at all.
"I want you to to sit down or I'll ask you to leave," Moffett barked at Robert Bryce, a freelance journalist who has become a thorn in the company's side.
Bryce, representing a Freeport shareholder, wanted to ask Moffett about his pay, US$33.7 million in 1996 and US$42 million the year before.
Nor did Moffett appear fazed by a US$6-billion lawsuit that landed on his desk just minutes before Freeport began its meeting.
"It's an effort by some groups who are trying to intimidate the company and its shareholders because of their own political agendas."
But George Duncan, president of a gold assaying laboratory in Kirkland Lake, Ont., is among those predicting Moffett's decision will be an easy one -- to dump the deal with Bre-X because there is no gold at Busang.
"Either Freeport has messed up terribly, or this was salted," Duncan says. "That's as succinctly as you can put it. I don't know another way to explain what has happened."
Salting is the term used to describe the artificial addition of gold particles to rock samples. "I'm afraid all the information that has been coming forth, and the confusion surrounding that information, simply points to salting," Duncan says.
He says there are three possible conclusions Strathcona can announce.
"One is that Freeport's work is confirmed, and that there is no gold there," he says. "And there would have to be some kind of attempt to explain why. And salting becomes a prime candidate."
It was Strathcona, after all, that first raised the possibility of tampering when it said Bre-X's resource estimates may have been "overstated" due to "invalid samples and assaying of those samples."
A second possible scenario, Duncan says, is that Strathcona will find mineable gold, but not nearly enough to support Bre-X's minimum estimate of 71 million ounces.
"Thirdly, Strathcona could say Freeport messed up and indeed there is as much gold as Bre-X has said.
"Then, Freeport has egg all over its face -- how could they have gone through six holes and get nothing in areas where Bre-X found large quantities of gold?"
But, in New Orleans on Tuesday, that didn't seem to be the scenario on the mind of Jim Bob Moffett.
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