THE BRE-X SCANDAL
Busang samples salted at depot
Freeport knew of scam in March but kept silent
to allow completion of independent report
Tuesday, May 6, 1997
By Michael Den Tandt
The Globe and Mail
With files from reporter Ann Gibbon in Vancouver.
The Busang gold mining fraud was perpetrated at Bre-X Minerals Ltd.'s storage warehouse in Indonesia's East
Kalimantan province, and Freeport-McMoRan Copper & Gold Inc. knew this more than a month ago, Freeport boss
James (Jim Bob) Moffett said yesterday.
In a conference call with reporters, Mr. Moffett spoke openly for the first time about his company's role in the Busang
saga. Early yesterday, Freeport announced it was pulling out of its partnership in the Busang project.
Mr. Moffett said Freeport realized in March that samples from the Busang site had been tampered with, but restricted
itself to a cryptic disclosure of "visual differences" to allow time for further study and completion of an independent audit
by Toronto-based Strathcona Mineral Services Ltd.
The audit, a summary of which was released by Calgary-based Bre-X late Sunday, revealed that the ore body was
faked. As recently as February, the deposit was touted by Bre-X chief geologist John Felderhof as a 200-million-ounce
mother lode. That would have made it the biggest gold find of all time.
Both Freeport and Strathcona believed that Bre-X's samples were tampered with at a warehouse in the city of
Samarinda, Mr. Moffett said. The city is downriver from Busang on the island of Borneo.
He also said that Michael de Guzman, the Bre-X geologist who fell to his death from a helicopter over the Borneo jungle
in March, knew that Freeport wasn't finding any gold at Busang. He was headed back to the Busang site at Freeport's
request, Mr. Moffett said.
The Samarinda warehouse was a hub in Bre-X's complicated assaying process. Core samples were shipped by boat to
Samarinda, then trucked to Balikpapan, at the east end of the island, for assaying.
"It appeared that the samples that went through Samarinda had gold," Mr. Moffett said. "The ones that didn't had no
gold."
Microscopic trace elements of gold found in Freeport's seven exploratory drill holes were very different from gold
particles found in Bre-X samples, Mr. Moffett said. "The [Bre-X] gold grains didn't look like volcanic gold."
Busang was supposed to be a volcanic deposit -- igneous rock left over from volcanic intrusions in the far-distant past.
But rather than being tiny and jagged in shape, as they should have been, the Bre-X grains were relatively large and
weathered -- suggesting it was worn by water, Mr. Moffett said.
Bre-X's failure to keep half its drill core was an additional early warning sign, Mr. Moffett said. "They had explanations
for why they did it, but we thought it was unusual."
Mr. Moffett also revealed that Montreal-based Kilborn SNC-Lavalin Inc., which produced a 71-million-ounce resource
estimate released by Bre-X on Feb. 17, had previously had access to a detailed metallurgical study of Busang rock done
last year by Normet Pty. Ltd. of Perth, Australia.
The report contained ample evidence that Busang samples had been tampered with, according to Stuart Averill, a leading
expert on gold grains commissioned by The Globe and Mail.
Kilborn spokesman Robert Racine confirmed that the company had used the Normet study in its work for Bre-X.
However, he said Kilborn's mandate restricted it to analyzing the metallurgy for purposes of designing a plant for
extracting gold from ore.
"We stand behind the work we have done," he said. "It was done professionally."
Mr. Racine said Normet never raised any concerns about the nature of Busang gold. "We were never warned, either
verbally or in writing."
Mr. Moffett would not comment on Kilborn's work. However, he said that "we didn't really pay a lot of attention to it"
because the firm had done had not been asked to do independent drilling. "There was no independent analysis as far as
we were concerned."
Mr. Racine said Kilborn's mandate was three-fold: to develop a resource estimate, to carry out an economic feasibility
study, and to design an ore processing facility. The company also ran a check assay program this year that confirmed
Bre-X's original assay results. Samples for the check assays were prepared by Bre-X.
SNC-Lavalin's stock closed at $16.25 yesterday, down 50 cents.
Freeport began drilling at Busang in March, after acquiring the rights to 15 per cent of the deposit in a development deal
with Bre-X and the Indonesian government.
The company quickly became aware that something was wrong, Mr. Moffett said. On March 27, Freeport disclosed that
it had found virtually no gold in the ground at Busang, sending Bre-X's shares plunging to $2.50 from $15.50 on the
Toronto Stock Exchange. Three billion dollars of investors' money disappeared.
The stock was halted yesterday. It was to resume trading this morning, the TSE said in a news release. The exchange
said it is reviewing the company's listing, and will meet with Bre-X officials within the next week.
In the conference call, Mr. Moffett apologized to reporters for the almost military security and scanty disclosure about
Bre-X at Freeport's annual general meeting in New Orleans a week ago. "We felt it was important to let the [Strathcona]
report be written, let Strathcona come up with a recommendation, and let Bre-X make an announcement," he said.
Meantime, other major gold producers who avoided the Busang morass expressed shock at the news of the fraud, which
Strathcona characterized as the biggest in the history of mining.
"We're shocked and appalled that this has turned out this way," said Placer Dome Inc. spokesman Hugh Leggatt in
Vancouver.
"I'm relieved we didn't get involved," said Norman Keevil, chief executive officer at Vancouver-based Teck Corp. in a
telephone interview. "But I'm disappointed."
As a geologist trained in exploration, he said, he always hoped there would be gold and still can't imagine how such a
massive salting job could have been undertaken. "I guess there was some kind of evil genius involved."
Teck had been in talks with North American gold giant Newmont Gold Co. of Denver about a joint bid for Busang but
got pushed aside late last year when the Indonesian government told Bre-X to deal only with Barrick Gold Inc. of
Toronto. Barrick was then replaced by New Orleans-based Freeport.
Teck's Mr. Keevil said the company never did any testing of its own in Indonesia nor did it receive samples from Bre-X
for testing.
Placer Dome of Vancouver has consistently refused to disclose whether it received samples in Indonesia because of
confidentiality agreements. But Mr. Leggatt said the company "never would have inked a deal without a due diligence
study with our own people doing drilling, our own sample preparation and our own assaying" in its Vancouver lab.
Placer Dome's CEO John Willson has said someone -- he did not say whom -- informed him Placer Dome wasn't
chosen to develop Busang because it insisted on carrying out its own tests.
Dec. 12 '93: Initial drilling results released
Feb. 11 '94: Bre-X joint venture offer from Barrick Gold
Feb. 22 '95: Bre-X announces estimate of 1 million ounces of gold
Jan. 15 '96: Bre-X says deposit contains at least 30 million ounces
Feb. 20, '96: 10-for-1 stock split
April 12, '96: Bre-X lists on the TSE
Oct. 4, '96: Globe and Mail reports ownership dispute over Busang
Oct. 28, '96: Bre-X strikes deal with Indonesian president's son
Nov. 26, '96: Indonesia orders Bre-X to deal with Barrick
Jan., '97: fire in Busang offices destroys documents
Feb. 16, '97: Deal between Bre-X and Freeport McMoRan
Feb. 17, '97: Estimate of 71 million ounces
Mar. 19, '97: Geologist dies in fall from helicopter
Mar. 26, '97: Bre-X says reserves may be overstated
May 4, '97: Strathcona reveals massive fraud
.
1. Drilling teams sink diamond-toothed bits into bedrock and remove cylindrical core samples. The cores are washed,
placed in a tray and moved to base camp.
2. At base camp, cores laid on concrete pad, wetted down, photographed, logged and moved to a storage area. Cores
cut into 2 metre sections and samples taken to test specific gravity. Cores put in bags. Waste stored at Busang.
3. Bags moved 30 km by truck to river.
4. Moved by boat down river to Samarinda
5. Moved by trucks to Indo Assay lab at Balikpapan.
6. Samples crushed and washed in 13 kilo lots. One kilo collected and stored at Bre-X's Samarinda warehouse.
Remaining 12 kilos hammer milled or crushed to 2mm size.
7. Crushed material put in rotary splitter. About 1.2 kilograms is taken for further assay testing, with the remaining
material collected for storage at Samarinda warehouse. |
