Thank you Mr Willson for exhibiting integritity in the midst of this tragic situation unlike your counterpart at Barrick Gold who is showing himself to the world for who he is. Most people are trying to find a scapegoat. Let's instead find out who did this despicible deed that apparently even fooled John Felderhof, a world renowned geologist, and bring these people to justice as soon as possible.
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> [Fortune Business Report Button] June 9, 1997
> [Features Button Red]
> [Columnists Button]Jungle Fever
> [Smart Managing Button]
> [Digital Watch ButtThe Bre-X saga is the greatest gold scam ever. But
> [Personal Fortune Bto understand the enormity of the fraud, you had to
> [Road Warrior Buttobe there. Our man in Borneo tells his story.
> [Fortune 500 Button]
> [Special Issues/LisRichard Behar
> [Search Button]
> [Contents Button] [W]hen I stepped off the plane in Jakarta, I was,
> [Fortune Forum Button] like the rest of the world's lemmings, swept up
> in the Bre-X Minerals euphoria. The Canadian company
> had found the largest gold deposit of the century,
> buried deep underground in a dense Indonesian jungle
> [Send Us Feedback Bon the island of Borneo. As Bre-X vice chairman John
> [About Fortune ButtFelderhof later explained to me, a volcano had
> [Marketplace Buttonessentially "collapsed back onto itself" three
> [Special Ad Sectionmillion years ago, causing a massive buildup of heat
> [Free Trial Issue Band pressure, which created the miraculous treasure.
> He drew a diagram. It made sense. After all, he was
> on his eighth beer of the evening; I was on my
> fourth. What's more, everyone believed him--fellow
> geologists, engineers, financial analysts, business
> journalists, the world's largest mining companies,
> government officials, even a former U.S. President.
> "Geologically, it's the most brilliant thing I've
> ever seen in my life," Felderhof sputtered. "It's so
> big, it's scary. It's f--ing scary!"
>
> Horrifying is a better word. Bre-X was a gold-mining
> hoax--the largest of any century--until it collapsed
> onto itself last month. Allegedly thousands of rock
> samples were "salted" with flakes of gold before
> they were tested. Today Felderhof is rich and sends
> his regrets from the Cayman Islands, where he
> professes his innocence and is applying for
> permanent residency. His deputy geologist, Mike de
> Guzman, is not so fortunate, having apparently
> jumped 800 feet into the jungle from a helicopter
> once the jig was up. Bre-X CEO David Walsh is holed
> up at the company's Calgary headquarters, scuffling
> with camera crews. Class-action lawsuits are flying,
> while criminal investigators are poring over the
> company's books.
>
> The numbers are heart-stopping. The market value of
> Bre-X had topped $4 billion--a growth rate of
> 100,000% in three years. In early May the company
> melted into bankruptcy. But not before Walsh, his
> wife, and Felderhof had mined roughly $50 million
> from stock sales. And the gold? In the weeks before
> the fraud was exposed, some 71 million ounces of the
> yellow metal, worth $25 billion at today's prices,
> had supposedly been "proven" by Bre-X. Then
> Felderhof said he was "comfortable" with 200 million
> ounces--far more than the California gold rush. One
> Bre-X official told me "400 million."
>
> The numbers tell only part of the story. To grasp
> the enormity of the scam, you had to be there. You
> had to see the cosmos that Bre-X had created, like
> an elaborate Hollywood set with hundreds of actors
> who could be loaded onto trucks and barges once the
> tickets had been sold. "You have to understand, this
> thing is like a 20-foot man," gushed Research
> Capital mining analyst Chad Williams after returning
> from an early pilgrimage. "For someone in our
> business, it's like taking the biggest Elvis fan to
> Graceland."
>
> I spent two weeks in Indonesia in February to
> chronicle an epic tale of how a bunch of average
> Joes stumbled onto the holy grail, only to find
> powerful and greedy forces conspiring to take it
> away from them. Felderhof told me only one other
> publication (the Northern Miner) had ever been
> permitted inside Busang, the exploration camp on the
> island of Borneo. I felt lucky. I proved even
> luckier when I returned to New York with an illness
> that delayed my story for several weeks. ("Saved by
> a parasite," FORTUNE managing editor John Huey now
> says.) We held our fire again after Freeport-McMoRan
> Copper & Gold, Bre-X's new partner, said it was
> conducting its own drilling tests--the first time in
> nearly four years anyone independent had checked
> beneath the surface. Looking back, I don't have the
> answers. But the trip provided a fascinating look at
> several characters who may be the century's greatest
> scam artists.
>
> By the time I got to Indonesia, both Walsh and
> Felderhof were trapped in a Javanese version of It's
> a Mad, Mad, Mad, Mad World, the timeless movie farce
> in which Mickey Rooney, Milton Berle, and a slew of
> other characters try to outsleaze one another in a
> manic race to recover buried treasure. The Bre-X
> version came complete with payola, private eyes, and
> break-ins. It led from the leech-infested swamps of
> Borneo to the presidential palace in polluted
> Jakarta. It featured a dictator's greedy kids and
> some of the world's biggest mining firms, stabbing
> one another in the dark.
>
> The story is familiar now. For nearly a year, until
> Freeport was awarded the contract, the Indonesian
> government had delayed giving Bre-X control over
> Busang. Big mining companies jockeyed for position.
> As the gold estimates grew, Indonesian officials
> were determined to select an established firm as the
> operator. Mining giants were lobbying for the post,
> none harder than Peter Munk, CEO of Toronto's
> Barrick Gold, the world's second-largest gold
> producer. Munk hired Kroll Associates, the world's
> biggest detective agency, to dig up dirt on Bre-X in
> anticipation of a hostile takeover bid. He enlisted
> former U.S. President George Bush to lobby Suharto,
> the Indonesian ruler. He retained the services of a
> daughter of Suharto to get an edge. (Bre-X offered
> $40 million to a son.)
>
> When I arrived in early February, Jakarta had become
> a corporate war zone centered on five-star
> fortresses. Bre-X was at the Shangri-La (the "Bre-X
> Shangri-La"). From his window Walsh could see the
> enemy--the "Barrick Hyatt." Just up the road, at the
> Regent Hotel, a Houston lawyer was assembling spies
> to help him figure out whom to sue on behalf of
> Bre-X shareholders. It was impossible to figure out
> what was going on. The man holding the cards:
> Suharto's golfing buddy, a secretive timber tycoon
> named Mohamad "Bob" Hasan. The dictator had asked
> him to clean up the Bre-X mess. At one point it
> wasn't clear whom Suharto's government was favoring
> as Bre-X's partner. "This place is like Casablanca,"
> complained Doug MacIntosh, Bre-X's investment banker
> at J.P. Morgan. "The story changes every day."
>
> In Jakarta, I talked with Walsh, Felderhof, and
> other Bre-X officials dozens of times. We met
> separately. We met together at lunches and dinners.
> Not once did a yellow flag go up during those talks.
> Were they all just playing their parts in an
> elaborate scheme? If so, they were playing those
> parts quite well.
>
> Even now, I have trouble believing that Walsh
> participated in the scam. He was a miserable soul
> when we were introduced in his Jakarta suite, just
> hours after he'd had it swept for electronic bugs.
> He was chain-smoking Dunhills and hacking his brains
> out. He hadn't exercised in years, he said, which
> was apparent from a huge deposit hanging over his
> belt. He was depressed and distracted, and often
> stared out his window at the litter and sewage that
> flowed continuously down a muddy canal--a metaphor,
> we joked, for the corruption that thrived in
> Indonesia. "We all find it hard to believe that
> we're responsible for the largest gold discovery
> probably in the history of the world," he said
> without much feeling. Indeed, Walsh looked more like
> some poor schlemiel who had just won the lottery and
> couldn't locate the ticket.
>
> Walsh told me his story: A former stockbroker, he
> launched Bre-X in 1989. He hunted for gold in Quebec
> and joined a diamond rush in the Northwest
> Territories. His luck was so abysmal that he opened
> his 1991 annual report with the line "Yes, we are
> still in business." After filing for personal
> bankruptcy, he decided he needed "a proven gold
> finder." Enter Felderhof, whose claim to fame was
> the co-discovery of one of the world's biggest
> silver and gold mines in Papua New Guinea in 1968.
> It took Walsh two weeks to track down Felderhof,
> whom he hadn't seen in ten years. Using his last
> $10,000, Walsh flew to Indonesia, where Felderhof
> talked him into buying the rights to part of the
> Busang property in 1993.
>
> Looking back, maybe I should have been suspicious
> when I met the Dutch-born Felderhof. He had a shifty
> mug, a gruff manner, and a hideous laugh trapped in
> the back of his throat ("Kkh! Kkh! Kkh!...Kkh! Kkh!
> Kkh!"). Still, his talent for storytelling made him
> more enjoyable than Walsh. Here was a pirate without
> the eye patch--a hard-drinking, swashbuckling
> explorer who had prowled the world's jungles,
> dodging flash floods and poisonous snakes. He wore
> his 14 bouts with malaria like medals on his chest.
> He said he was so poor that in 1992 he had to steal
> a Christmas tree for his family. Never again. He
> pulled out a photo of Ingrid, his second wife. "She
> just bought me a Lamborghini for Christmas," he
> said. "It's two seats strapped to a f--ing engine. I
> think she's trying to kill me. Kkh! Kkh! Kkh!"
>
> [S]hortly after we met, Felderhof took me to dinner
> with de Guzman, his longtime pal whom he'd
> invited to join the Bre-X team. The Filipino
> geologist beamed like a jewel when Felderhof
> explained that he couldn't have discovered the gold
> without his deputy's "pioneering theories." De
> Guzman boasted that his IQ ranged from 150 to 170,
> which came in handy when he hiked 32 kilometers
> through dense jungle "with the camp on my back,
> eating noodles every meal for a week," and hunting
> for signs of mineralization. The first two drill
> holes were failures. "We almost closed the
> property," recalled de Guzman. "In December 1993
> John said, 'Close the property,' and then we made
> the hit." Never mind that more than a dozen mining
> companies had dismissed the property as worthless.
> The previous operator had even drilled 19 holes, but
> "they were all in the wrong places," snickered
> Felderhof during the meal. Or they were "too
> shallow." Or the workers used a wet-drilling method
> that, ironically, washed away whatever gold they did
> strike. "Geology wasn't on their minds," added
> Felderhof. "They were spending all their time in
> town chasing girls and naming creeks after them." De
> Guzman, who, as it turns out, had at least four
> wives simultaneously, laughed as he recalled the
> various creeks--"Karen, Jenny, Martha, Ann." After
> consulting with a local tribe of Christian Dayaks,
> he gave the creeks back their traditional names.
>
> As I continued my work, things got tense. Walsh
> complained about a break-in at his Calgary office;
> two weeks earlier his wife had found a spy rifling
> through the garbage at their Bahamas estate. He
> claims he sent a memo advising employees to "shred
> sensitive materials." (If true, that will make it
> harder for investigators to solve the mystery.) The
> company's top financial officer, Rolando Francisco,
> was also caught up in the hysteria. He would talk in
> his hotel room only after cranking up the volume on
> the TV. Over at the Hyatt, Barrick spokesman Luc
> Lavoie was waxing philosophical: "If this was the
> biggest oil discovery, so what? More oil. But gold
> is different...It brings up more emotions. It clouds
> the minds of people." It clearly fogged the mind of
> his client. I later learned that Barrick, last
> November, couldn't find gold in many Bre-X samples.
> "This can't be a scam!" Munk screamed at his
> deputies. "Do some more tests! Figure it out! I know
> it's there, okay? You confirm it's there."
>
> I looked forward to seeing the gold. After four days
> in Jakarta, Felderhof joined me on the flight to
> Balikpapan, the only place in Borneo with a runway
> big enough to handle the plane. During the trip he
> explained that Bre-X had spent more than $1 million
> on a social-development program for the tribe of
> Christian Dayaks that comprised the bulk of the 400
> workers. "I've always been interested in developing
> people," he said. From Balikpapan, it was an
> exhilarating two-hour jaunt in a helicopter to
> Busang. The dense, swampy jungle stretched as far as
> the eye could see. Felderhof leaned over and said
> that a chopper once made an emergency landing in the
> area. "When the pilot was found, four days later,
> his body was covered with leeches," yelled
> Felderhof, over the roar of the engine. "Kkh! Kkh!
> Kkh!" Little did I know that, six weeks later,
> Felderhof's sidekick, de Guzman, would apparently
> throw himself out of the same chopper we were
> sitting in. It would also take four days to find the
> body, which had been partly devoured by wild pigs
> and other creatures.
>
> Once on the ground, you would never know that this
> wasn't the real deal. What a production! If Busang
> was a Hollywood set, the 2,000 Dayaks were the
> extras. Bre-X had electrified their village, built a
> new church, opened a kindergarten, and organized
> sewing classes for the local women. A swath of
> jungle had been cleared for an airport. Bre-X
> planned to open a fishery and a poultry-farming
> venture to enable the tribe to sell products to the
> mine.
>
> I shared a cigar with a young villager who had just
> received a scholarship from Bre-X to study
> engineering. I met Pebit, the barefoot Dayak leader,
> as he was helping construct new homes for the
> workers--a tribal Levittown, courtesy of Bre-X.
> Through a translator, Pebit boasted that it was his
> decision to sacrifice a pig to God that "allowed the
> gold to be pulled from the ground." Then there was
> the army of young geologists working the site. At
> the exploration camp, I drank Bintang (a local beer)
> deep into the night with ten of these workers, many
> of whom were fresh out of geology school in Canada,
> Indonesia, or the Philippines. As we listened to
> wild monkeys screech like sirens in the darkness,
> the young men talked about the rigors of life in the
> bush. They complained about the grueling work
> schedule (eight weeks on, two weeks off) and the
> lack of sex. But they believed they were making
> history. They were the geological equivalent of
> batboys for the World Champion Yankees. They didn't
> know that they were pawns in a crooked game that was
> fixed from the get-go.
>
> [Cesar Puspos] After two days, my tour was over. I
> saw no gold. But then again, I
> didn't know what real gold was
> supposed to look like buried in those long, tubular
> core samples. My return trip included a seven-hour
> speedboat ride down the narrow Mahakam River with
> Cesar Puspos, de Guzman's 36-year-old deputy. We
> spent the day waving to the locals, who lived in
> shabby huts and washed in the muddy water they used
> for defecation. Puspos, by contrast, had struck it
> rich. He drove a BMW. He described how de Guzman,
> "my mentor," awakened him in the middle of the night
> in a frenzy to announce that he had solved Busang's
> geological puzzle. When we arrived at Bre-X's office
> in the city of Samarinda, I noticed huge piles of
> core sample bags and persuaded Puspos to climb atop
> for a picture. Investigators say Bre-X's samples
> were "probably" salted in Samarinda before being
> delivered to testing labs in Balikpapan. (Walsh had
> once said that the bags were transported directly
> from Busang to the labs.)
>
> After a few more days in Jakarta, I returned to the
> States on February 17. Bre-X soon unraveled. Even
> then, many believers chose to stay blind. In March,
> after de Guzman's death, Barrick's Peter Munk told
> FORTUNE, "I don't believe that those guys salted the
> mine...you couldn't have fooled that many analysts
> for that long." When Freeport said its drilling
> showed "insignificant" gold, Bre-X's flacks at Hill
> & Knowlton suggested that Freeport was behind a
> scheme to lower the stock price (see following box).
> The last time I heard from Walsh, March 20, he left
> me a phone message confirming some arcane historical
> facts in my story--a day after de Guzman's death and
> a week after Freeport called Walsh with the news
> that they were coming up dry at Busang. This is a
> crook? Or the Mr. Magoo of mining?
>
> Looking back, some things seemed suspicious. Like
> the "accidental" fire at Busang that destroyed a
> building containing de Guzman's papers and visible
> gold samples. I was also disappointed to see no gold
> at the century's biggest gold deposit. A geologist,
> Steve Hughes, took me through the bush to a creek.
> We panned. We found nothing. "That's strange," said
> Hughes. "You'd think we'd find something." The next
> day I needled Felderhof, telling him I had bad news
> for Bre-X. "No gold, huh?" he snapped back. "Kkh!
> Kkh! Kkh!" There was another peculiar moment. In one
> of my last meetings in Jakarta with Felder-hof, de
> Guzman walked in. I rose and slapped him on the
> back, congratulating him on Freeport's emerging as
> Bre-X's new partner. He should have been thrilled.
> Instead, he was stone cold. Grim. Icy. He didn't
> even look at me. It was clear he wanted to talk to
> Felderhof alone.
>
> No matter who pulled off the crime, Bre-X has left a
> mother lode of victims--from individual investors to
> the poor tribal people counting on the mine to earn
> a meager living. But even the pros got burned in
> this tale of greed. Recently I caught up with
> MacIntosh of J.P. Morgan, the Bre-X banker. We'd
> shared several meals in Jakarta, where he jabbered
> for hours about how the gold mine would be the most
> lucrative in the world. Doug is a mining engineer
> with 30 years of experience. I was curious how it
> felt to be suckered. "I have been surprised at every
> turn of this thing," he said, noting how fortunate I
> was that we had held the presses. "I hope that we're
> as lucky as you have been." Not a chance, mate.
>
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