05/05/97 - 09:27 AM ET - Click reload often for latest version
Gold mine declared mother lode scam
TORONTO - The tract of Borneo jungle was touted to eager investors as the biggest gold find of the century. Instead,
damning new evidence has exposed the supposed mother lode as one of the most audacious scams in mining history.
A respected independent consulting firm, hired to resolve a dispute over the value of Bre-X Minerals' Indonesian site,
said in a report released Sunday that its tests showed no evidence of any gold worth mining.
The testing company, Strathcona Mineral Services, asserted that the thousands of supposedly promising samples
gathered earlier by Bre-X had been tampered with by the addition of gold from other sources.
"The magnitude of the tampering ... and resulting falsification of assay values at Busang is of a scale and over a period of
time and with a precision that, to our knowledge, is without precedent in the history of mining anywhere in the world,"
Strathcona said.
Its report did not indicate who was responsible for the tampering, but it offered to assist in subsequent investigations.
Bre-X, a small Calgary exploration company, had been Canada's biggest stock-market sensation over the past three
years as glowing accounts of gold at its Busang site attracted a horde of investors.
Bre-X hired Strathcona to conduct tests after a prospective partner in the Busang project said in late March that its
preliminary tests indicated the claims of a vast gold deposit were false.
That announcement by New Orleans-based Freeport-McMoRan Copper & Gold triggered a meltdown of Bre-X stock
on the Toronto Stock Exchange. In less than 30 minutes of trading on March 27, Bre-X stock plunged 84%, a loss of
more than $2 billion.
Despite the stock collapse, Bre-X insisted further testing would validate its claims that the Busang site contained up to 70
million ounces of gold. But Strathcona corroborated Freeport's negative results.
"We very much regret having to express the firm opinion that an economic gold deposit has not been identified in the
southeast zone of the Busang property, and is unlikely to be," wrote Strathcona's Graham Farquharson of the Indonesian
claim.
Strathcona said in its report that only trace amounts of gold were found in the samples it tested and there were no
samples with gold values worth mining.
It also said gold recovered in samples submitted by Bre-X came from a source other than the area they supposedly were
collected from.
Reacting to the Strathcona report, the Toronto Stock Exchange said it would halt trading in Bre-X shares Monday. A
similar freeze, of indefinite duration, was being imposed on the Nasdaq and other exchanges "in light of the extremely
negative report," the TSE said.
In Indonesia, Mining Minister Ida Bagus Sudjana said he had not been surprised by Strathcona's findings.
"The government had anticipated the results of the report because we have had our own data about the gold deposit
there," Sudjana said.
"The government, of course, will take strong measures," Sudjana added, without elaborating.
Bre-X said it would launch an investigation.
"We share the shock and dismay of our shareholders and others that the gold we thought we had at Busang now appears
not to be there," said Bre-X president and chief executive David Walsh. "We have spent millions of dollars in the strong
belief that a sizable deposit existed and have directed all our efforts towards development of the project."
But since the March 27 stock collapse, Bre-X has become the target of several class-action suits in Canada and the
United States. The suits allege Bre-X executives misled shareholders about Busang's potential while selling off some of
their own shares at a huge profit.
The Canadian Press reported Monday that trading records filed with securities regulators show Walsh, his wife
Jeannette, a Bre-X director, and company vice-chairman John Felderhof made more than $57 million last year from
selling shares of Bre-X and its parent company. They sold close to the stocks' peak on the stock market.
Until the Freeport-McMoRan announcement in March, Bre-X had been a stunning success on the markets, Its share
price rose from pennies in 1993 to a high of $206 U.S. last September as the company steadily increased estimates of
the amount of gold at Busang.
Even before the Freeport-McMoRan announcement, however, doubts were surfacing. In particular, suspicions were
roused by the mysterious death of a key Bre-X engineer, Michael de Guzman, who plunged from a helicopter over the
Borneo jungle March 19.
Bre-X said de Guzman committed suicide because he had just learned he was suffering from a fatal illness. His family and
some former colleagues dispute this theory, suggesting he was murdered in some conspiracy related to the doubts over
Busang's value.
"The family stands by Michael's findings," Jojo de Guzman, the younger brother of Michael de Guzman, told The
Associated Press in Manila, Philippines. "One day he will be vindicated in the same way that we will find out the truth
about his death."
By The Associated Press |
