The Northern Miner Volume 83 Number
36 November 10, 1997
A few desperate men and a salt shaker -- An excerpt from
The Northern Miner's Bre-X: Gold Today, Gone
Tomorrow
By Vivian Danielson and James Whyte
In March 1993, David Walsh picked up the phone, tracked down
John Felderhof and said he wanted to come to Indonesia to look at
mineral properties for his latest junior company, Bre-X Minerals.
Walsh later told others, including Peter Howe, that it all started with a
"dream". Walsh's nocturnal reverie told him he could recoup his fortune by
going back to Indonesia, so he called the only person he knew there, John
Felderhof.
"I never heard that," chuckled Barry Tannock, Bre-X's first manager of
investor relations. "The company needed a new story. It was as simple as
that."
Walsh was told that because the Australians had packed up and gone
home after the market crash, some good properties were available.
Several sources say Walsh agreed to pay Felderhof $10,000 for the
month or so it would take to beat the bushes and find properties for him
to review in Jakarta. Whether this ever happened is questionable, as
Walsh was not exactly rolling in dough at the time. He did manage to
scrape together the necessary money to make the trip to Indonesia,
thanks to credit-card advances and a loan to Bre-X from Bresea
Resources (Walsh's first publicly listed company), which still had a few
dollars in its till.
After allowing Felderhof some time to compile a property portfolio,
Walsh flew to Jakarta for his eagerly awaited meeting with a man he was
then describing as "the best geologist in the business." He was
accompanied by his son Sean, newly graduated from high school, and
geologist Kevin Waddell, who was to review the properties Felderhof had
assembled.
The trip to Indonesia was a "this-is-it sort of deal," Waddell said, adding
that Walsh's bankruptcy proceedings were already in progress when they
flew to Jakarta via Hong Kong. "He had to find something. I was at his
house on at least one occasion when the bailiff came. He was under
severe financial duress."
The group arrived on April 24 and met Felderhof that evening at the Sari
Pan Pacific, a posh hotel in Jakarta. They also met Mike Bird in the hotel
lobby, the only member of A.C.A. Howe's Jakarta office to have found
permanent employment since the exploration team disbanded after the
market crash. At the time, Bird was managing the Tewah alluvial project
in Kalimantan for Suharto's half-brother, Probosutedjo. He spoke
Bahasa, the national language, and had integrated well into local society
(helped, no doubt, by his marriage to the daughter of an army general).
"It was quite funny, actually," said Peter Howe, who heard a recap of the
dinner meeting from friend Bird. "They were expecting a rich promoter
and in walked David Walsh. They were quite shocked to find out that he
actually had to borrow money for his fare to get there."
Waddell said a few Indonesians were present for the dinner at the Sari,
though he was not sure why. Also present was a prosperous-looking
businessman named Adam Tobin. "He had a lot of different businesses
and was supposedly very influential," he said. "We were told he was
negotiating with the government for cellular phone rights in Indonesia. We
also were told that he was connected to the government somehow or
another. I got the impression he was a partner on some of the properties."
Peter Howe said Tobin had been involved in various mineral properties
during the 1980s. "He had been one of our partners. Later, when John
was broke, he stayed with Tobin. I think John felt an obligation to get
Adam's properties placed with people."
Waddell said Tobin hosted the dinner, which was a catered affair in one
of the hotel's private banquet rooms. "It was a ritzy affair, with several
courses. I remember sushi was involved. I had been told that it was rude
not to eat everything put in front of you in Indonesia, but I had to
apologize. I don't do raw fish."
Waddell said some of the dinner conversation focused on North
American stock markets. Tobin was "a keen listener," Waddell said, and
was particularly interested in how stock markets worked in that part of
the world. "Adam was fairly quiet -- total observation, uncanny
observation, like looking through souls. Bird didn't say much and stayed in
the background, but he was keen on what was going on."
Waddell did not meet either Michael de Guzman or Jonathan Nassey at
the dinner, though he said Walsh later had several private meetings with
Felderhof, in which one or the other might have been present.
"David met privately with John, and I think Adam, a few times in the three
or four days that we were in Jakarta. I'm sure that is where the
discussions got a little more nitty-gritty. I wasn't asked to attend. My job
was to review the various properties Felderhof had put in the portfolio."
Felderhof gave Walsh and Waddell a copy of de Guzman's resume,
saying he intended to hire the Filipino geologist, who was then completing
a short-term work assignment. "Michael de Guzman was not involved
whatsoever and I don't think I met Jonathan Nassey either," Waddell said.
"Umar Olii was John's man at that time."
Olii, a geologist and the nephew of a former mines official, had worked
with Felderhof and Peter Howe in the past. The Indonesian squired
Waddell around town to look at data on various properties.
"He was very up-front and seemed like a good guy," Waddell said. "John
[Felderhof] seemed a bit too on edge, pushy, for my tastes. He was on
hard times then too."
Waddell read a geological report on the Busang project written by John
Felderhof, which included results of Montague's drill program. While he
thought the project looked "interesting," he was surprised that the report
contained only numbers, with no assay sheets as appendices to verify that
they were true as stated. "I thought, maybe they do things differently
here," he said. Waddell was allowed to make copies of the reports for all
the other projects under review, except Busang.
Walsh and his group left Jakarta on April 28. "It was a short trip, though
we did get to see the city a bit. When I went out with Umar one
afternoon, all these little girls were following us down the street. I was a
real novelty. I guess they don't have too many green-eyed, six-foot-four
guys in Indonesia."
According to Peter Howe, Felderhof then phoned McLucas and told him
that he had a buyer for Busang. David Hedderwick of Waverley Finance
and David Walsh negotiated the deal, which granted Bre-X an option to
buy 80% of the outstanding shares of PT Westralian Atan Minerals for
US$80,000, at an exercise price of US$100.
After some discussion, it was agreed that Felderhof would become
Bre-X's Indonesian manager. Barry Tannock does not recall how the deal
was structured, or how it came about. "I'm not sure how they persuaded
each other, but they cut some sort of deal."
Felderhof then hired de Guzman as chief geologist. Also joining Bre-X's
Indonesian team were Jonathan Nassey as senior geologist and Cesar
Puspos as geologist and project manager.
Walsh went back to Canada with an Indonesian property and an
exploration team, but not much else. He still had to raise money to explore
the property, which was not an easy task as the market was still as weak
on his return as it was when he left.
"Ten years of patience involved while following events in Indonesia
appears to be ready to bear fruit," David Walsh told Bre-X shareholders
in late April of 1993. "It would take an enormous amount of time and
money for others to set up and achieve our level of properties and
expertise."
Walsh also told shareholders that it was important to have an Indonesian
partner to conduct business in the country. "Mr. Adam Tobin, a prominent
businessman in Jakarta, has agreed to be our domestic partner. This
association will greatly assist in dealing with the government and acquiring
mineral properties."
Whatever Tobin did, he must have done quickly, because Bre-X never
mentioned his name again. "I thought they were going to give him options
and all the rest of it," Waddell said. "What happened there, I have no
idea, but it is intriguing." Olii, meanwhile, bowed out of the venture
because of a personality conflict with de Guzman.
John Felderhof, Michael de Guzman and Cesar Puspos had much at stake
when the first rig began turning at the Busang property in October 1994.
Everyone knew David Walsh was operating on a shoestring and that there
was no potful of money to be squandered on wildcat drilling. To play it
safe, the drill was set up in an area known to contain at least some gold
mineralization -- the Central zone, previously drilled by Montague.
Bre-X later reported that the first hole hit "weak mineralization," which
usually means anomalous, or slightly higher than trace, values. The second
hole also was a dud.
After the third hole was pulled, one or more persons on site decided to
add gold to the core to keep the project going and the paycheques
coming. It was a humble beginning for what was to become the world's
largest, most daring and the best engineered salting scam. The salting
might have had another rationale, however. The Muara Atan CoW was
aging fast. The CoW could only be kept alive if it was moved to the
feasibility stage from exploration. A resource had to be proved up on the
Central zone, or the CoW would have to be relinquished.
Results from the first three holes at Busang were not released until
December 12. Why the samples took this long to assay is not known.
Perhaps there were problems with reproducibility of results (good labs
regularly split samples and assay the duplicate as an internal check).
Perhaps the lab was simply busy. Or perhaps the samples took an
unusually long time to get to the lab.
Hole 3 was impressive, by any standard, though not consistent with the
results previously obtained by Westralian. The drill hole cut three
mineralized zones, one of which was 40 metres long. Subsequent reports
show the third hole was crudely salted. Some man-made copper-gold
shavings were found in one portion, while placer gold had been added to
another.
The risks of early detection were enormously high at this point. The salting
methodology had to be refined. It was about this time that the
metallurgical skills of Jerome Alo were brought to bear on Busang.
Normally, exploration projects do not have metallurgists working on site.
But Alo had special skills that were badly needed at this juncture. He had
previously worked in the mill at Benguet, where Guzman knew him.
In mid-January of 1994, Cesar Puspos returned to the jungle to begin
upgrading the field camp in preparation for more drilling. According to
Puspos's internal company report, which covered the period up to April
1, 1994, Alo was on site before drilling began. Soon, the camp housed
Puspos, Alo, a surveying crew, two samplers, an eight-man drill crew,
and sundry camp help.
Puspos busied himself with core logging and with some reconnaissance
mapping around the Central zone of mineralization. In a foreshadowing of
things to come, he took some rock samples near the southeastern corner
of the property, where he reported "very impressive assays."
His drill holes, BRH 4 through 9, all had encountered mineralization, as
had hole BRH-2A, a re-drilling of the second hole in the program. Hole 4
encountered a single intersection measuring 6 metres long and grading
10.8 grams of gold per tonne. Hole 7 caught 5 metres grading 16 grams
per tonne.
BRH-8 intersected 26 metres grading 12.9 grams, and BRH-9 found 21
metres that averaged 8.1 grams. The Central zone was on its way, with a
little help from its friends.
There were signs, even then, that the project staff was unusually interested
in the sampling and assaying side of the project. An internal memo from
de Guzman to Felderhof, dated March 19, 1994, was copied to Puspos
and Alo. It dealt with the preparation and analysis of check samples that
held coarse gold. De Guzman was concerned about the reproducibility of
the assays.
De Guzman, apparently wishing to ensure that the assays he was getting
from Indo Assay were accurate, selected "14 coarse-gold-bearing drill
core samples" from the bags of coarsely crushed rock and finely ground
rock pulp that Indo Assay had returned to Busang. From each bag, he
split off 200 grams of coarse material and 100 grams of pulp, and sent the
samples to another commercial lab, PT Geoservices in Jakarta, for
analysis.
The results came back from Geoservices, and de Guzman drew up a table
with one column showing the grades Indo Assay had reported, and two
adjacent columns with the grades Geoservices had reported on Guzman's
duplicates.
Geoservices showed slightly higher gold assays than Indo Assay, possibly
because the samples it received had been homogenized more thoroughly
during handling.
There were too few samples to render these "check assays" conclusive,
but de Guzman, who evidently knew just enough sampling theory to jump
to conclusions, felt a modification to the sampling procedure was going to
be needed. Jerry Alo would complete a study of the sample preparation
procedure and recommend a way to achieve reproducible results. |
