Hmmmm! The black box,or the sting.
A New Spin on an Old Story:
Mining Fraud After Bre-X
by Russ Fields and Walt Lombardo
Mining fraud or scams are "as old as the hills." These schemes to part investors from their money are based on people's
desire to get rich quick. In mining, like most things, if it sounds too good to be true, it usually is.
Some of the frauds are sophisticated and fool even knowledgeable investors. Witness the recent Bre-X debacle where a
much-touted gold resource of supposedly more than 70 million ounces in Indonesia turned out to be worthless. Samples
of drill cores had been "salted" with gold. Assays correctly reported the gold which, unfortunately, had been introduced
into the samples in a sophisticated scheme to dupe investors. Stockholders saw share prices fall from more than $200 to
6 cents before the stock was pulled from trading.
In Nevada, we have a tremendous gold mining industry which annually produces more gold than all other states in the
U.S. combined. In fact, Nevada, by itself, is third in world gold production behind only South Africa and Australia. It is
this very real success that attracts individuals and companies bent on bilking investors out of their cash. The common
approach of some of the more sophisticated scams is to form a company, raise some money (sometimes on one of the
stock exchanges like Vancouver or NASDAQ) then stake some mining claims or acquire mining rights in a well known
producing area, like Nevada. Then the press releases begin about the new project located in Nevada, home of
internationally known legitimate mines like Goldstrike and Gold Quarry on the Carlin trend. Next, exploration permits are
in hand and a drilling program is underway. Finally, surface samples or drill results are reported through press releases.
The results are fantastic! Maybe too fantastic. Recently the Internet has been used to promote some of these outrageous
claims. It is important to verify the companies' claims through other sources of information and not rely solely on the press
releases.
Some things to look for that could be a tip off of a scam are:
Platinum Group Metals (Platinum, Palladium, Ruthenium, Osmium and Iridium) showing up in the assays. These
elements are extremely rare and are not present in Nevada in commercial quantities.
Assays for gold/silver that cannot be run using conventional fire assay methods. Fire assays, if properly done by a
competent assayer, will produce accurate values for gold and silver. The only exception is if the precious metals
are associated with tellurium. In that case Atomic Absorption analysis will be able to identify the gold and silver, as
well as tellurium. Gold tellurides are rare in Nevada. Colorado has several telluride occurrences that have been
mined in more recent years.
Claims that gold or silver can only be recovered by means of a new "proprietary" process. While it is true that new
techniques have been and are being developed to enhance recovery, secret recovery processes generally don't
recover much, if they are valid processes at all.
"Reserves" or "gold in place" are reported in the millions or even tens of millions of ounces - even though there has
been very little drilling. Usually hundreds of drill holes are required, with thousands of assays before reserves of this
magnitude can be stated with any degree of confidence.
Actual drilling is ongoing but is slow with one or two drill rigs. If a major new ore deposit is suspected by a
legitimate company, there is significant incentive to get the drilling done as soon as possible so mine permitting and
actual mining can begin. They will use as many drill rigs as they can get their hands on. The primary incentive is to
produce gold, not sell more stock at a higher price. Legitimate operators know that real, cost effective gold
production, together with ore reserves for future mining will result in satisfactory stock prices.
Investors who do not have significant personal knowledge of mining and geology should be extremely cautious in investing
in unknown or brand new mining stocks. Many questions should be asked before investing. Call government mining
regulators, state geological surveys and securities regulators to find out if they have heard of the company and their
project. Ask company representatives if the company has ever actually produced gold (or whatever the commodity is),
where, and how much. Then check it out with local officials. If the proposed investment is significant, independent
consultants, paid by the investor should visit the site, talk to company representatives, take their own samples and
perform an evaluation of the project. If the company objects, this may be another "red flag," indicating that perhaps
something is amiss.
The State of Nevada has a vested interest in seeing that these mining scams do not occur here. Our very legitimate gold
mining industry is a significant contributor to the State's economy and scams hurt that industry's ability to raise capital as
well as tarnishes its image with investors in general. While no one will ever stop mining scams (remember, they've gone on
virtually forever), we can perhaps help investors by suggesting some of the things to look for and questions to ask before
they invest. Call us at (702) 687-5050 in Carson City, Nevada, or in Las Vegas, Nevada, at (702) 486-4343 or contact
us by e-mail at ndom@govmail.state.nv.us. **
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