Saturday July 26, 1997
Felderhof's statement as unverifiable as Bre-X gold
By DIANE FRANCIS
The Financial Post
The Bre-X Minerals Ltd. saga took another interesting turn on Friday with a five-page "hang-tough" statement from Bre-X's top geologist John
Felderhof.
Besieged with interview requests, Felderhof's response was a hear-no-evil-see-no-evil defence against accusations he may have played a role in a
gigantic Bre-X fraud.
Bre-X stock collapsed and was delisted after two sets of independent drilling results, near Bre-X's discovery holes in Indonesia, found nothing of value.
Felderhof, who made $46 million in net profit selling Bre-X stock in 1996, has been living for months in the lap of luxury on his Grand Cayman estate. This week,
he was visited by his team of lawyers and they came out swinging, deciding that his best defence was offence.
They are not incorrect.
Felderhof's statement reveals how difficult it may be to ever get to the bottom of the world's biggest gold swindle.
He still believes there is gold there. He believes his geological team did an exemplary job by all descriptions. He believes that the drilling
done by an independent consultant does not disprove that. He defends the professionalism of Mike de Guzman, who committed suicide by
jumping out of a helicopter on March 19.
On the other hand, he admits that he wasn't around a lot, but mostly 1,000 miles away involved in other projects and other responsibilities. He admits he was
"surprised by the revelations" after de Guzman's death about his personal life, which included three secret marriages. So much for his fierce defence of de Guzman's
character or his supervision of drilling and testing operations.
Undaunted, he also said he believes that criticism about procedures such as not saving half the core for re-testing are unfounded in light of similar practices
elsewhere in the region. He also slammed critics who say that Bre-X had to be a fraud because its impossible to find more than one type of gold in a deposit. He
said that's not true; other deposits have variety.
"I continue to believe that there is a significant amount of gold at Busang. This belief is based on the structure, geology, mineralogy and alteration, as well as my
many years' experience in the Pacific Rim. There are still many unresolved issues to consider," he wrote.
Felderhof also pointed out that his team of geologists passed the muster of some of the world's best consultants such as Kilborn Engineering and financial analysts
on Wall and Bay streets. This is true.
The RCMP has launched an investigation into whether or not fraud was committed. But to prove that will be difficult, if not impossible.
If the core had been split, with half kept permanently, as is industry practice, auditors could simply re-test to see if something was amiss. If the half left behind
contained no gold, a crime would have been committed. If there is no half to check, then it may be impossible to prove that salting took place.
But there are smaller samples left, added Felderhof, and these can corroborate results.
"A whole library of skeleton core samples are also available for testing, if necessary. Skeleton core consists of a 10-centimetre sample taken before crushing and
preserved from each one-metre core sample," he said.
He makes an interesting point here. But the fact is that drilling beside a discovery hole is much more reliable, say experts, and that's what was done. Besides that,
the credibility of such samples, archived by Bre-X geological team -- whose work has yet to be corroborated despite Felderhof's claim -- is highly questionable.
Felderhof has thrown down the gauntlet. He is saying, in essence, that seven holes drilled by a consultant and another seven drilled by joint venture partner,
Freeport McMoRan Gold and Copper Inc., does not a mine unmake.
In my opinion, 300 Bre-X holes, with great test results that nobody has been able to match, does not a mine make either.
While fraud may never be provable when it comes to Bre-X, the fact is that Felderhof and others face the issue of possible insider trading violations. That
investigation is being conducted separately and Felderhof did not address those matters at all.
Did Felderhof and the other insiders make slightly less than $100 million in the summer selling Bre-X unfairly because they did not tell the public that the company
had lost its permit to explore?
Securities officials on both sides of the border are working to determine whether the permit problem constituted a "material fact," which should have been
disclosed. If they so prove, then Felderhof and other sellers face jail sentences and triple damages.
Friday's statement just proved that Bre-X continues to be a $6-billion riddle wrapped in a mystery inside an enigma.
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