ONCE AGAIN SO IT SINKS IN.
Saturday, June 20, 1998
Freeport knew Bre-X
'wrong' immediately
By SANDRA RUBIN
The Financial Post
Bre-X case challenge denied
The first geologists allowed by Bre-X
Minerals Ltd. to carry out independent tests on
Busang knew something was fishy before seeing a single drill
result, says the man who led on-site due diligence work for
Freeport-McMoRan Copper & Gold Inc.
It's the first time Freeport has allowed anyone to speak out
about what was going on at the Indonesian property in the
days before the lid was blown off the sensational gold fraud.
Colin Jones, who was Freeport's vice-president of
exploration in Indonesia, says his team was struck by serious
discrepancies and concerns the moment they set foot in the
jungle camp on March 1, 1997.
"There were all sorts of things we as geologists recognized,"
he said from Australia. "We knew there were things wrong
with the project pretty well immediately."
Geologists and mining engineers from a dozen investment
banks and brokerages had trooped through Busang as Bre-X
stock soared on North American exchanges, but none
reported signs of trouble. Many are now being sued for
billions by angry investors who lost their savings.
Jones said it's tough to imagine no one noticed anything. "It's
mind-bogglingly amazing to me no one had spotted any of
this before."
He said the Freeport team was alerted by a series of clues,
starting with senior Bre-X technical staff who were in the
dark about the most basic operations. They didn't know the
assay results or even where the drill holes were.
"They weren't interested," he said. "They didn't have to
know that stuff - because they knew the results were going
to be good."
In a bombshell for SNC-Lavalin
Inc., Freeport said the Kilborn
Engineering group used data that
were so deeply flawed its resource
estimates were rendered "invalid."
"It was obvious the database
supplied to Kilborn contained some
serious discrepancies, and was not
considered suitable for resource
estimation work."
Several geologists said the problems
should have turned up in a routine
database validation check.
"It's a one- or two-day test, and we
do it systematically because there's
no point doing resource model
verification if your data is crap," said
one geologist. "It shouldn't have
mattered whether Kilborn was
supposed to do it as part of the terms
of their contract. They should have
done it anyway. It's common
practice."
SNC has also been named in class
actions suits.
Spokesman Robert Racine said
Kilborn did carry out the tests. "I
don't know what data Freeport had
in its hands, but I can assure you we
did the work professionally - of
course we did data validation checks."
Several members of the Freeport team wrote a paper, called
Busang: Digging For the Truth, which Jones presented at a
conference in Perth, Australia, on Friday.
He said within 48 hours of arriving at Busang, he caught
senior Bre-X staff lying. In a deposit like Busang, there
should have been telltale gold-bearing sediment in area
streams. The company said it hadn't looked for sediment, but
Jones discovered there had been a stream-sediment sampling
program - and the results were "surprisingly negative."
"That was important, because I was being lied to. Anyone
else who asked would have had to accept their first answer,
but I speak Indonesian and could talk to some of the young
geologists, who told me about the tests."
Ironically, Bre-X exploration chief John Felderhof and
geologist Michael de Guzman weren't there while Freeport
combed the site.
They were in Toronto being feted by the Prospectors &
Developers Association, "allowing Freeport staff unrestricted
access ... to carry out a rapid series of tests."
Jones, who now works for Resource Service Group in Perth,
said the Freeport people were struck by a report Bre-X
commissioned from Normet Pty Ltd. that contained "possibly
the best description of an alluvial gold grain ever written."
On March 10, Freeport got its confirmation: the first test
results showed no gold. Security was stepped up
dramatically. Core samples were flown by helicopter directly
to labs, and even rejected core was kept under lock and key.
Transport, logging and sampling were all videotaped.
Core from two holes was flown on the Freeport corporate
jet to an assay lab in New Orleans. It too came up empty.
March 19, the due diligence team "finally put the last pieces
of the puzzle into place" and realized it was a massive fraud.
Before they could tell head office, they were informed de
Guzman had fallen to his death from a helicopter on his way
to meet them at Busang.
Jones said the Freeport crew was immediately evacuated by
helicopter. The company sent the corporate jet to rush them
back to Jakarta. They were registered in hotels under
assumed names.
His paper is important because it proves problems at Busang
were obvious even without drilling new holes, said Paul
Yetter, who is leading a Texas class action lawsuit.
"It's called Busang: Digging for the Truth?" he said. "Maybe
it should be called Busang: The Truth Without Digging." See
MM |
