Saturday, May 30, 1998
Bre-X 'rights' non-existent
New filings in class action suit indicate company misled investors
Bre-X's Busang site full of red flags: expert
By SANDRA RUBIN
The Financial Post
The Indonesian government told Bre-X Minerals Ltd. in late 1996 the company had no legal rights
to any part of the Busang gold strike and anything it might be allowed to keep was "a gift," according
to the minutes of a private meeting in Jakarta.
The company never disclosed the stunning statement to regulators or North American investors who
had poured money into the stock. In fact, key executives up to and including chairman David Walsh
reassured shareholders everything was fine.
Bre-X shares were flying high on the Toronto Stock Exchange and Nasdaq
at the time, despite rumblings of trouble over the company's ownership of
Busang. The shares moved on to the bellwether TSE 300 index just 12 days
later.
"The meeting records make it impossible for these defendants to claim they were themselves the
victims of a fraud," said Houston lawyer Paul Yetter, who filed them in a Texas-based class action
yesterday.
"These documents show beyond a shadow of a doubt that Bre-X, its advisers and potential
partners were not being completely truthful with investors, many of whom put their life savings into
this company with tragic results."
The first meeting came Dec. 4 as Umar Said, Indonesia's secretary general of mines, was pushing a
partnership deal with giant Barrick Gold Corp. Bre-X was asking for 60 to 90 days to sell the plan
-- which would vastly dilute its stake in Busang -- to its shareholders.
An impatient Said told Bre-X in no uncertain terms it didn't have any say in the matter, according to
the minutes of the private session between Bre-X, Barrick and the Indonesian government.
"From [the] government's point of view it does not appear Bre-X has anything to sell," he told
exploration chief John Felderhof, chief financial officer Rolando Francisco and Doug McIntosh, one
of Bre-X's bankers from J.P. Morgan & Co. Inc.
"[The] government does not recognize any legal interest of Bre-X in pending applications for
Busang 2 and 3, and questions whether Bre-X is properly involved in Busang 1. Due to
improprieties with article 29 of COW [Contract of Work] [the] government, not Bre-X, owns
resources and chooses contractors.
"If shareholders do not approve they would lose everything."
Bre-X shares gained $1.30 that day to close at $20.
Eight days later, amid mounting speculation it was losing its grip on Busang, Bre-X put out a press
release saying Said had apologized on behalf of his government for comments casting doubts on the
company's rights to mine Busang.
"Significant progress is being made on all fronts towards the development of the Busang project,"
Walsh said in the Dec. 12 release.
"Shareholders must be as pleased as we are with the recent developments."
But in another private meeting between Bre-X, Barrick and the government the next day, Said
pointedly denied he had apologized -- and asked Bre-X for a correction.
"Umar Said said that he did not apologize yesterday," the minutes show as the first item discussed.
"He only said 'sorry for the confusion,' and requested that we correct the press release."
No correction was issued.
A sharp exchange between Said and Francisco a few minutes later suggests things between the
company and the Indonesian government were not nearly as rosy as investors were being led to
believe.
A clearly annoyed Said took the Bre-X director to task for too many "irregularities" in the Calgary
company's paperwork. He cited a document he said listed David Walsh "as an Indonesian citizen
holding a Canadian passport."
Francisco said he couldn't explain what had happened because he hadn't seen the document in
question.
"You did not see, that is why there are irregularities!" Said snapped back. "That is why we can
reject your application, although it has already passed the parliament."
Later, at that same meeting, Said again got angry as Francisco asked for time to present the
proposed deal with Barrick to his fellow Bre-X directors.
"You have the wrong perception -- as if you are the owner [of Busang]," Said said. "There will be a
new company."
He told Francisco "you can explain to your shareholders that they have nothing to choose from,
25% is already a generous gift!"
Three days later, on Dec. 16, Bre-X joined the TSE 300 index, obliging institutional managers to
purchase the stock for index funds.
"It certainly reflects the increased stature of Bre-X as a gold company," Walsh said in a statement.
The shares closed at $20.10 that day. Four months later they were worthless, costing the funds,
collectively, millions of dollars.
The documents are included in about 500 pages of exhibits attached to an affidavit by Bre-X
bankruptcy trustee Ross Nelson on file in the Bahamas. They were used to back up a request to
freeze the Walshes' assets pending the outcome of several court cases. The freeze was granted, but
is being appealed.
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