Thursday, March 27, 1997
The real-life drama of Bre-X
Gold, greed, political intrigue, a death in the jungle
By LEIF SOLLID
Sun Media
It's a tale overflowing with all the intrigue of a Hollywood blockbuster: gold and greed, political
intrigue, backroom dealings, and a mysterious death in the jungle.
However, the story is anything but fiction -- it's the real-life drama of Calgary-based Bre-X Minerals
Ltd., a junior mining company that caught the world's attention when it stumbled onto what could be
the biggest gold find in history.
The fantastic tale of Bre-X Minerals is inextricably linked to the company's founder, David Walsh, a
hard-drinking Calgary stock promoter.
Walsh created the company from the ashes of a junior oil and gas explorer, Bresea Resources Ltd.,
which he took public on the Vancouver Stock Exchange in 1984, raising $375,000.
Bresea, which holds 23% of Bre-X, started out looking for oil and gas in Oklahoma and Louisiana,
but later shifted its emphasis to mining exploration in northern Quebec and in the Northwest
Territories.
In July 1989, he created Bre-X and listed it on the Alberta Stock Exchange. However, the genesis of
the two companies transformation began years earlier.
In 1983, Walsh travelled to Australia and met John Felderhof, a globe-trotting geologist who would
play a vital role in that transformation.
Felderhof, now vice-chairman of Bre-X, is a Canadian who co-discovered the giant OK Tedi copper
and gold mine in Papua-New Guinea.
Felderhof was living in Indonesia and had identified two gold properties -- in the Busang and Sangihe
areas -- that looked promising.
At the urging of Felderhof, a graduate of Dalhousie University in Nova Scotia, Bre-X bought them for
$80,000 US.
Exploration of the remote and inhospitable area began in earnest.
Over the following two years, surface exploration and assay results yielded more promising results.
Investors began to pay attention.
In March 1995, Bre-X's shares were trading at $2.05. Four months later, the former penny stock
stock shot up to $14.87 after company officials announced they had identified a major ore body inside
Busang's southeast zone.
Overnight, Walsh and Bre-X became instant celebrities, as estimates of the amount of gold rose from
10 million oz. to 30 million oz., then higher.
As the investor frenzy grew, Bre-X shares soon topped $100, then $150, and finally $200, peaking at
$286.50 ($28.65 after a 10-for-one split) last September.
Walsh, a former stockbroker who was forced to declare personal bankruptcy in 1993 due to credit
card debt, saw his personal wealth rise in tandem.
Estimates of the value of his holdings in Bre-X and Bresea, have placed his fortune well in excess of
$100 million.
But Walsh was soon to be faced with the fight of his life for control of Busang, valued at as much as
$70 million US, if in fact as many as 200 million ounces of gold are found.
Trouble first arose last October when the Indonesian government announced it would delay awarding
a contract of work licence to develop Busang until it cleared up an ownership dispute with its
Indonesian partner.
That partner, PT Kreung Gasui, claimed its 10% interest in Busang I extended to the known
gold-bearing ore bodies in Busang II and III.
The news sent Bre-X stock tumbling, but it wasn't the last bad news for Walsh or the company's
star-struck investors.
The next major hit came when Indonesian authorities ordered the junior gold company to hand over
75% of the fabulously-rich deposit to Toronto-based Barrick Gold Corp., with that country's
government also taking 10%.
President Suharto's government warned Bre-X that failing to co-operate would result in it losing
control of Busang, by then estimated to hold 47 million oz. of gold.
Two of Barrick's international advisory board members -- former Canadian Prime Minister Brian
Mulroney and former U.S. president George Bush -- were accused of using their influence to help
Barrick secure the deal.
The move was jeered by both investors and mining analysts, who charged Bre-X was being robbed by
Barrick. Some investors even threatened lawsuits.
Other gold mining rivals also cried foul, including Placer Dome Inc., Canada's second-biggest gold
company, which felt it was being shut out of the bidding process.
In the end, neither Barrick nor Placer Dome would win the Busang jackpot.
In a stunning announcement in late February, Bre-X revealed that it had instead struck an agreement
with Louisiana-based mining giant Freeport-McMoRan Copper and Gold Ltd.
Under the deal, Bre-X receives 45% of the deposit, several Indonesian companies get 30%, and the
Indonesian goverment lands 10%.
The remaining 15% goes to Freeport-McMoRan, which will develop and operate the gold mine.
"This is a great day for both Bre-X shareholders and for the people of Indonesia," Walsh said
confidently.
Since then, it's been all downhill for once high-flying Bre-X.
The company's stock price tumbled drastically after Bre-X geologist Mike de Guzman, who
co-discovered Busang, plunged 80 storeys to his death from a helicopter over the Indonesian jungle
March 19.
A subsequent investigation prompted Indonesian police to declare the death a suicide, brought about
by de Guzman's grief over learning he had contracted hepatitis B, a terminal illness. The explanation
only ignited the controversy.
Then yesterday, an even greater bombshell fell when Freeport-McMoRan, after analysing assay
samples of Busang, said the results indicate "insignificant amounts of gold."
The news prompted Bre-X to be suspended from trading on the Toronto Stock Exchange.
Walsh, who is believed to be in Calgary, has offered no comment to the media.
But Walsh's meteoric rise to riches as the top gun of Bre-X -- credited with discovering what was
being touted as the world's biggest gold deposit in the jungles of Indonesia -- has been anything but
smooth.
Just four years ago, he and his wife Jeanette were forced to declare personal bankruptcy after they
were unable to pay interest charges on $59,500 owed to 15 different credit card companies.
At the time, Walsh estimated his salary was less than $1,000 a month.
What a difference a few years can make.
Today, the chain-smoking father of two grown sons, Brett and Sean, lives with his wife in the Bahamas
and holds shares in Bre-X and its affiliate, Bresea Resources Ltd., estimated to be worth several
hundred million dollars.
Walsh, a former stock broker, is certainly no stranger to affluence, growing up in the upper-class
Montreal suburb of Westmount.
Like his grandfather, who played the markets as a stockbroker, Walsh took an early interest in
business.
In 1963, he joined a small trust company straight out of high school, studying accounting and finance at
night school.
His career continued to rise when, in 1969, he became head of the firm's investment department.
Seven years later, he moved to another investment firm, Midland Doherty, serving as vice-president of
institutional equity sales.
Although now earning a salary well into the six-figure range, Walsh ran into trouble when he moved to
Calgary with the firm to open a new department.
Unhappy with the job, he quit and then filed a $110,000 lawsuit, claiming his salary had wrongfully
been cut. The suit was later dropped.
Walsh then made a move that would take him on a roller-coaster ride from near-ruin to fabulous
personal wealth.
That ride, of course, came through his founding of junior gold mining company Bre-X Minerals, which
later laid claim to the Busang gold deposit on the island of Borneo in Indonesia.
But things didn't come easily. Walsh spent a lot of time dreaming about the day he'd hit it big while
nursing pints of beer with fellow penny-stock players and promoters in downtown Calgary watering
holes.
"I'm nuts," Walsh once told Canadian Business magazine.
"I'm looking for the bucket of gold at the end of the rainbow."
Calgary Sun columnist and stock market guru Ted Carter, told Canadian Business that while Walsh
"never appeared to be destined for great success, (he was) always scrambling, putting deals together.
"He survived in a tough business. He hung in there, when other guys would have given up the ghost." |
