Thursday, February 26, 1998
Felderhof defends procedures at Bre-X
By SANDRA RUBIN
The Financial Post
Guarding bags of untested Bre-X Minerals Ltd. core samples would have been no guarantee against tampering
and leaving them lying around open is normal practice for a junior company drilling at a remote site, John
Felderhof says.
He makes the remarks in a court filing that marks his latest attempt to have himself excluded from a huge class
action lawsuit filed in Texas following the stock's collapse.
The Dutch-born geologist, the company's exploration chief, was responding to charges he should have been
alerted to signs of tampering by several "red flags" - including improperly sealed sample bags. Gold was
added to the worthless rock before it was sent to the lab, giving the impression of a massive strike.
Felderhof said a sealed bag guarantees nothing.
"Common sensically, a sealed bag can be salted with a hypodermic needle, so allegedly
improper sealing is obviously no red flag," he says.
"The allegation that sample bags containing heavy rocks should have been better safeguarded - perhaps
maintained in a locked steel vault with an armored guard 24 hours a day - only demonstrates the gap between
plaintiffs' ivory tower theories and real industry standards and practices when a junior exploration company is
conducting a drilling program in the remote areas of Indonesia."
Calgary-based Bre-X was far from a junior in the months before its disintegration amid allegations of stock
fraud. It had a market capitalization of $6 billion and a listing on the Toronto Stock Exchange 300 index.
Felderhof also rejects suggestions there was anything unusual in not having independent drilling to back up
reserve estimates that pegged the Indonesian find as perhaps the greatest of the century. "Plaintiffs cite nothing
to suggest that the omission to allow independent drilling and sampling by outsiders, at the risk of losing
confidentiality, was a required or customary practice by any geological society, regulatory agency or stock
exchange."
One geologist, who spoke on condition of anonymity, said it's "dead wrong" to say it's not customary to have
an independent resource estimate based on outside drilling. "I really feel his answer there is going down the
street of the strict level of legal thinking. Anyone into what they think is a major mine would do everything
they could to give the public and shareholders all the assurances they need about the ore body. It's sort of like
doing an audit."
But he said Felderhof is right when he says it's not uncommon for bags of untested core samples to sit around
unprotected in a remote site.
"It's not to say we're all sloppy, but in most projects, you tend to think everybody working on it with you is
honest, so you let things slip a bit. It's common for people not to go entirely by the book."
But Calgary geologist Keith McCandlish of Associated Mining Consultants said in his view Bre-X's security
measures fell "far short" of the industry norm. "In my experience, on any project I've ever run, there's been a
locked sample-storage facility to which few people have had access. It seems they didn't even have minimum
security in place."
Felderhof also denied in the 21-page document, filed in court in Texarkana, Tex., that he had run the show at
the Busang site. He said he was not the chief geologist nor was he charged with day to day responsibilities at
Busang. That was the domain of Michael de Guzman, who died in a fall from a helicopter about a week before
the salting scandal hit North American markets.
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