Emery and Finnerty
Jungle Fever: The Bre-X Saga Is The Greatest Gold Scam Ever
LEAD STORY-DATELINE Fortune , June 9, 1997, pages 116-126.
Labeled the worst mining fraud in history, the Bre-X gold scandal has bilked many investors of their retirement savings and has witnessed several billion dollars of market value disappear. Bre-X Minerals Ltd. is a Calgary-based mining company that claimed to discover a huge gold deposit in Busang Indonesia. Estimates of the size of the deposit ranged from 71-400 million ounces. The firm's common stock, which was listed on the Toronto Stock Exchange (TSE), soared on the news reaching a growth rate of 100,000% during the last three years. Fortune June 9, 1997, pages 116-126. The company, which was started by David Walsh a former stockbroker, grew from a basement office to the 30th largest firm in Canada and a spot on the TSE 300 index. The Wall Street Journal, May 16,1997 pages C1, C17.
Bre-X was apparently "salting" the core samples from the mine with flakes of gold before they were tested. News of the hoax came when Freeport-McMoRan conducted independent drilling next to Bre-X's highest grade holes and found only insignificant amounts of gold. The results were then submitted to the Securities and Exchange Commission. Fortune, June 9, 1997, page 128. The common stock plummeted over 90% on the news. Bre-X has since filed for bankruptcy in Alberta.
The discovery was propagated by John Felderhof the vice-chairman and head geologist of the company. He explained how 3 million years ago a volcano "collapsed back onto itself," and caused a massive buildup of heat and pressure. These forces created a gigantic gold treasure. The amazing part of the story, according to Fortune reporter Richard Behar, is that "everyone believed him [Felderhof]-fellow geologists, engineers, financial analysts, business journalists, the world's largest mining companies, government officials, even a former US president [George Bush]."Fortune, June 9, 1997, pages 116-126. A Wall Street Journal reporter remarked, "What is still striking about the whole thing is how nearly no one suspected that the Bre-X glitter wasn't real. Investment analysts competed to produce the most glowing description of its prospects."The Wall Street Journal, May 16,1997 pages C1, C17.
Business Briefs
Staff, Wire Reports
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Bre-X gold scam sends stock to rock bottom Shares in disgraced Bre-X Minerals crashed to rock bottom yesterday, and Indonesian authorities halted its operations after revelations that its much-touted gold find in Borneo was an intricate fraud. Shares once worth more than $200 apiece traded for a few pennies on the Toronto Stock Exchange in the first day of trading for Bre-X since the hoax was exposed Sunday. During the last three years, officials of the small, Canadian exploration company repeatedly increased their estimates of gold at Busang on the island of Borneo, eventually gauging the deposit at 71 million ounces -- which would have been the biggest gold find this century. On Sunday, however, Bre-X released a report from an independent consulting firm exposing the project as a scam "without precedent in the history of mining." The report said thousands of samples had been doctored with gold from elsewhere.
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