Golden Rule Resources Ltd -
Golden Rule's Harper believed good assays, disbelieved bad
Golden Rule Resources Ltd GNU
Shares issued 26,664,081 2000-05-12 close $0.13
Friday May 12 2000
by Dan Westell
Ontario Securities Commission lawyer Jay Naster extracted an admission from alleged insider trader Glen Harper in third day of a gruelling cross examination that left Mr. Harper grim and unhappy. Mr. Harper, president of Golden Rule Resources Ltd., faces two charges of selling more than $4-million worth of the company's stock in early 1997, when he knew but did not disclose poor assay results from its Stenpad property in Ghana. Press releases of good assays, later attributed to salting by persons unknown, drove its stock to $13.80 in January, 1997, from around $2 the previous October.
Mr. Naster led evidence showing that assays released in October, 1996, were doubtful and starting in January, 1997, Golden Rule's geologist, Dr. Mark Nebel, reported bad assays, as did Teck Corp., which studied the property in March, and frequently alluded to sampling problems and tampering.
Yet none of this saw the light until the summer of 1997, after the Ghana Minerals Commission forced the company to release the commission's own poor assays. Mr. Harper repeatedly said Dr. Nebel discounted the bad assays, and rejected them. Mr. Harper said he took his lead from the geologist.
Dr. Nebel deemed the low numbers suspect because of poor sampling practices by local geologists, or even because of tampering, "when we find out who was stuffing the bags with doo-doo, we'll get a local witchdoctor to put the Ju-Ju on them," he wrote Feb. 3, so they were never disclosed to shareholders, regulators, Golden Rule directors, Teck representatives or analysts until summer, 1997.
Dr. Nebel did not change his model of the Stenpad prospect, despite the poor assays and problems, Mr. Harper said. "I had all the reinforcement I needed to believe."
He frequently said the difficulties never became an issue, and because of that, were never raised. Early in January, Golden Rule got 800 soil samples showing virtually no gold, which contradicted earlier samples with very high values. (The results of the 800 were released in July.)
Mr. Naster said they posed a problem, because they were inconsistent with the fall assays and could not be reconciled. "That's a description of the situation, yes," Mr. Harper acknowledged.
You continued to sell stock without telling the public about the samples, Mr. Naster said. "Yes," Mr. Harper agreed.
After Teck geologist Ron Burk took 37 samples at Stenpad in early March, and found no gold, he was called right back to Canada.
On March 14, Mr. Harper was on his way home to Calgary, and was laying over in a hotel in Amsterdam when his broker from Research Capital in Calgary called him and suggested he sell some stock.
He did.
Mr. Naster said he sold to the public while the Teck samples, sampling irregularities and tampering problems ("some samples are suspected to have been tampered with," Dr. Nebel wrote to the Minerals Commission in a regular Stenpad report in early February) had not been disclosed. "Yes," Mr. Harper agreed.
Dr. Nebel had advanced the theory that the poor results occurred because locals had removed the two-kilogram samples for their high gold content, replacing them with dirt from beside the road. (In fact, later investigations would show it was the good samples that apparently had been tampered with, by the traditional method of adding gold to dirt.)
Mr. Harper appeared to discount the "negative tampering" idea, as Dr. Nebel's theory was dubbed. "It was a story that had been told to him (Dr. Nebel)," he said, at a time when the geologist was seeking an explanation for the poor results.
When the two men learned of the Teck results from Mr. Burk in a hotel room in Accra, Mr. Harper concluded that he was unprofessional and had not maintained proper security while taking his samples and described as "shabby" his methods. He rejected the Teck numbers. "I didn't believe in it. He (Dr. Nebel) didn't believe in it."
Mr. Naster led Mr. Harper to admit that Mr. Burk's samples had been taken with help from Golden Rule's Ghanian geologist and crews, and used many, although not all, of the same procedures and transportation arrangements that the company used. He concluded that to attack Mr. Burk was to attack Golden Rule, but Mr. Harper disagreed.
The role of the Ghana Minerals Commission appears to have been crucial in forcing the release of the bad data, but it also looks like Golden Rule fought it.
On May 6, the commission wrote to Dr. Nebel in Ghana, asking Golden Rule to disclose the results of the commission's own Stenpad assays, and assays consultants CMC had done for the regulator.
It took the company nine days to comply. The May 15 release of the commission's poor assays, with the acknowledgement that "there's no way to explain the difference" with the company's positive numbers, started the collapse of Stenpad as a driver of Golden Rule's stock.
The company never decided not to comply with the commission's request, Mr. Harper said. "I wouldn't characterize it as resistance."
Yet on May 14 Dr. Nebel faxed him, saying a Golden Rule employee "could not get the GMC to back down on its position."
When the commission told the company Feb. 3 it was going to Stenpad to take its own samples, Dr. Nebel faxed Mr. Harper: "Ben (operations manager Ben Nanabin) was going to try to put them off." If they persisted, the company would monitor them "to document exactly what they sample, who's there, etc."
Mr. Harper said he did not recall talking to Dr. Nebel about the fax.
The evidence in the 13-day trail in the Ontario Court of Justice is now complete. Nairn Waterman, Mr. Harper's lawyer, called only one witness, his client.
In his re-examination, after Mr. Naster finished his cross-examination, Mr. Waterman led Mr. Harper to reiterate that he relied on Dr. Nebel for all of his information about the actual exploration; he had no proof that assays later found unreliable were unreliable at the time; he had no proof or knowledge of tampering in early May.
The trial will resume June 20 for one day of closing oral arguments. Written arguments will be delivered June 12. Mr. Justice Patrick Sheppard said he hoped to deliver his decision July 21.
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