Friday, April 3, 1998
Bre-X board told in late 1996 tests showed
no Busang gold
By SANDRA RUBIN
The Financial Post
After learning Barrick Gold Corp. had tested samples of Busang core and
came up empty, the directors of Bre-X Minerals Ltd. decided to set up an
offshore indemnity fund for themselves, company minutes show.
That decision was made at a board meeting on Dec. 15, 1996 - three days after Bre-X shares had
moved on to the prestigious Toronto Stock Exchange 300 index and were flying high.
Exploration chief John Felderhof, chief executive David Walsh and vice-president Steve McAnulty,
as well as independent directors Rolando Francisco, Paul Kavanagh and Hugh Lyons, were at the
meeting.
Douglas McIntosh and Leslie Morrison of J.P. Morgan & Co., Bill Edge of Republic National
Bank and John Sabine, Bre-X's outside counsel, were among those also invited to take part.
Talk of the troubling Barrick test results surfaced during an update on negotiations between Bre-X
and Barrick, which had been ordered into a shotgun development deal by the Indonesian
government.
Sabine told directors Barrick's general counsel, Pat Garver, had advised him of problems in its
assaying of Busang core.
"He reported that of 150 samples taken, 148 contained no discernible gold," according to the
minutes. "This had raised concern with Barrick who were pressing to perform further due diligence
work on site.
"Neither Mr. Felderhof nor Mr. McIntosh had any idea why the results were so disappointing."
Felderhof told fellow directors Busang would be closed down over the Christmas holidays, but
arrangements would be made to allow Barrick's representative on site in January. It was apparently
left at that.
"Every piece of new information that comes out merely confirms the worst fears of investors," said
Houston lawyer Paul Yetter, who is leading a Texas-based class action. "The truth was on the table
in front of them, Bre-X knew it, Bre-X's advisers knew it, Barrick knew it. No one told the
shareholders."
The record shows that a few minutes later, Francisco broached the subject of a directors' indemnity
fund. He told board members they were protected, subject to the limits of the Alberta Business
Corporations Act, and should consider segregating some cash "for additional assurance" since they
had not bought indemnity insurance.
"It was proposed that a trust fund be established with Canadian Imperial Bank of Commerce Trust
Co. (Channel Islands) in the amount of US$5 million to be settled by the corporation."
A motion was made and approved.
Lawyer Harvey Strosberg, who has started a class action suit in Ontario, called the actions very
telling, when told the contents of the minutes of the meeting.
"What's significant is the directors have actual knowledge that 148 of 150 core samples came up as
duds, but apparently did not do anything to independently verify or disprove it.
"But at the same time, they took steps to protect themselves," he said. "It's a peculiar juxtaposition."
The minutes show that on the question of the dud tests, J.P. Morgan's Morrison stressed to Bre-X's
board there was no condition stating Barrick must be satisfied with due diligence at that point.
"Barrick maintained from the outset of negotiations that it did not require due diligence and it should
not now be permitted to add such a condition," the minutes read. "Mr. Francisco concurred with this
advice."
The record also shows Barrick was so anxious to get in on a development deal for Busang, it
quietly upped the ante.
"Mr. Francisco advised directors that, in addition to other terms negotiated with Barrick, he had
met Mr. Randall Oliphant of Barrick who agreed that Barrick would pay an additional US$50
million to the corporation as part of the transaction. The directors commended Mr. Francisco for his
efforts."
The record also reveals that, contrary to their heated public stance Bre-X wanted nothing to do
with Barrick, the directors were wondering privately why it wasn't making a run for the entire
company.
"The board questioned why, after such lengthy negotiations and due diligence, Barrick would not
consider a takeover or merger transaction."
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