Hi Augie
or
Where ya been.
Here is that article that everyone is talking about from "misc.invest.canada".
[wsj.com]
December 30, 1997
Bre-X Account Remains Buried [Image]
But Slowly, Leads Are Unmined -----
By PETER WALDMAN and JAY SOLOMON [Image]
Staff Reporters of THE WALL STREET JOURNAL
The day before Michael de Guzman's apparent suicide
in March, the Bre-X Minerals Ltd. chief geologist,
whose purported gold strike at Busang, Indonesia,
would become history's biggest mining fraud, got a
phone call from the field.
It was mining engineer Manny Puspos, calling his
boss in Jakarta to ask if geologists from
Freeport-McMoRan Copper & Gold Inc., the big New
Orleans-based mining firm, could take a particular
rock sample to test for gold. Freeport was
examining the Busang claim, on the island of
Borneo, for a planned joint venture with Bre-X of
Calgary, Alberta. Mr. de Guzman, before leaving for
a mining conference in Toronto earlier in the
month, had left strict orders which samples
Freeport could test.
But now the Freeport team wanted more. Freeport's
own drill-test samples at Busang had shown little
worth mining. Suspicious, the geologists insisted
on testing core samples from supposedly goldbearing
holes provided by Bre-X. Speaking in their native
Tagalog, the Philippine language, Mr. Puspos
conferred with Mr. de Guzman as the Freeport
geologists stood by the phone for an answer.
'It Doesn't Matter Anymore'
"Mike says you can take the core," Mr. Puspos
finally said, according to people who were there.
"He said it doesn't matter anymore."
Hours later, Mr. de Guzman disappeared from a
helicopter over Borneo; chaos reigned. Freeport
executives, worried about their own geologists'
safety, ordered them to evacuate the remote jungle
site immediately. Scurrying to load their choppers
to beat a gathering thunderstorm, Freeport's David
Potter locked eyes one last time with Mr. Puspos.
"Is there something you want to tell me?" he asked
the young Filipino, witnesses say. "No," Mr. Puspos
said after a long pause. "No, no, no."
That parting exchange may have been the last, best
hope for a full accounting of the Bre-X case, the
$4 billion swindle of thousands of investors in
Bre-X's once-soaring stock. In the days following
the scam's exposure, Indonesian authorities,
seemingly embarrassed by the whole affair, let key
Bre-X witnesses disappear. Since then, despite
multiple inquiries by private investigators,
plaintiffs' lawyers, book authors and Canadian
police, none of the Bre-X insiders have apparently
provided any eyewitness accounts of how 40,000 bags
of worthless Busang rocks were salted to yield a
staggering estimate for the entire field of 71
million ounces of gold.
Still, pieces of the global Bre-X jigsaw puzzle are
falling into place.
Two Filipino Brothers
All roads from Busang lead back to the leafy
Philippine town of Desmarinas, which Manny Puspos
and his older brother, Cesar, call home. Cesar
Puspos, 36 years old, was Mr. de Guzman's
right-hand man. A quiet geologist with an excellent
work record prior to joining Bre-X, Cesar was
credited by the brash Mr. de Guzman with
"discovering" the so-called mother lode in Busang's
southeastern zone.
While Mr. de Guzman spent much of his time
island-hopping among Bre-X's several Indonesian
exploration sites, the trusted Cesar Puspos looked
after Busang. Cesar and brother Manny, a computer
specialist, resided at Bre-X's nerve center in
Samarinda, the eastern Borneo city eight hours by
boat down river from the Busang site. The Samarinda
compound appears to be where the heaviest spiking
of Busang rock samples with gold occurred,
according to a report commissioned by Bre-X and to
The Wall Street Journal's own investigation.
On March 19, the day Mr. de Guzman jumped or fell
from a helicopter transporting him to Busang for a
showdown with the Freeport geologists, Cesar Puspos
was away from Indonesia, apparently en route back
from the Toronto conference.
He surfaced nine days later at Mr. de Guzman's
Jakarta wake, and then spent a few weeks watching
Freeport and others drill more test holes at
Busang. In mid-April, Cesar flew to the Philippines
for a scheduled vacation. He was due back on the
job on May 1 -- the same week that Strathcona
Mineral Services Ltd. was scheduled to release its
independent geological audit of the Busang claim.
Instead, while Strathcona was exploding the Busang
fraud, Cesar Puspos ducked out of sight -- along
with $2.2 million of proceeds from his Bre-X stock
options. Jerome Alo, a Filipino metallurgist who
was the site manager at Busang, pocketed $1.2
million from Bre-X stock options. Manny Puspos, who
joined Bre-X late in the game and never received
stock options, now works for Benguet Corp., the
Philippine mining company that gave Mr. de Guzman
and his confidants their start.
Stock-Options Bonanza
Records show Bre-X's top executives in Canada
earned much more money from Bre-X stock options
than did the Filipino employees in the field. No
evidence has emerged linking any Bre-X executives
to the salting.
All the Bre-X Filipinos, while energetically
evading the media, have refused -- until now -- to
make any public statements, despite pleas to do so
from fellow Philippine geologists who fear Busang
has ruined their reputation as a group.
Which brings us back to Desmarinas, an hour's drive
south of Manila, and to a small brown house in a
subdivision called Villa Catalina. A woman emerges
from the screen door and walks toward a visitor at
the front gate.
"Cesar is working," she says, identifying herself
as the maid. She is pregnant and holds a little
girl in her arms who calls her "mama."
The visiting reporter introduces himself. "Is this
a BMW?" he asks, reaching for the vinyl covering on
a sedan parked in the driveway.
Suddenly, a man thunders out of the house. "What do
you want with me?" he yells. "You are the one who
is ruining my life: calling my uncle, calling my
mother!" His lips and jaw tremble, his head shakes.
His voice is choked. He looks like he's about to
cry.
Cesar Puspos, though hardly broke, is a broken man.
In his first contact with a reporter since Mr. de
Guzman's death, he is confused -- one moment
insisting he must call his lawyer, the next moment
settling into banter, albeit reticent, on the shady
sidewalk. He talks for two hours. He is frightened,
emotional, prone to personal remorse and self-pity.
Alone With the Mounties
This summer, the Puspos brothers, Mr. Alo and two
other Filipinos who worked for Bre-X were summoned
by subpoena to the Manila headquarters of the
Philippine National Bureau of Investigation. Cesar
arrived with his lawyer, expecting to be
interviewed by Filipino detectives. Instead, he
found four Royal Canadian Mounted Police, a tape
recorder and no Filipinos in sight. The Canadians
grilled him for four hours.
Cesar says he doesn't remember what they asked, or
what he told them. He does remember getting upset,
and his lawyer intervening, when, he says, they
tried to badger him into a confession. The Mounties
hinted they would go easy on him if he cooperated,
Cesar says. In particular, they wanted information
about John B. Felderhof, former chief geologist and
vice chairman of Bre-X, which is under
bankruptcy-court protection in Canada.
The Dutch-Canadian Mr. Felderhof, along with Mr. de
Guzman, brought the Busang claim to Bre-X Chairman
David Walsh and helped drive up Bre-X's share price
with wild hyperbole. Since the fraud was uncovered,
Mr. Felderhof, who earned at least $35 million from
his Bre-X share options, has been holed up in the
Cayman Islands, issuing statements protesting his
innocence but avoiding journalists.
Cesar doesn't think he gave the Mounties much to go
on.
"We were just geologists doing our jobs," he says.
"How could I tell them about things I didn't know
or didn't see."
The Canadian police haven't given up. They recently
asked Cesar and Mr. Alo to take lie-detector tests,
Cesar says. This month, some Mounties gave separate
polygraph exams in the Philippines to former Bre-X
employees Bobby Ramirez and Rudy Vega, according to
Mr. Vega. But Cesar says he won't take a polygraph
test, worried that he might fail it because of his
jangled nerves. Mr. Alo, through his lawyers, is
also refusing, Cesar says.
"We don't have to take them if we're not charged
with anything," he says.
Since April, Mr. Alo, who used to be one of the
more accessible Bre-X employees, has stopped
returning phone messages left at his Quezon City,
Philippines, home.
Not Even a Guess
Cesar professes to have no idea of how Busang's
samples got spiked; he won't even hazard a guess.
He does confirm that Bre-X took the unusual step of
opening sample bags in Samarinda before sending
them for assaying to the nearby city of Balikpapan,
as The Wall Street Journal disclosed in May. That
news caused consternation among mining
professionals, who said exploration samples should
never be waylaid or opened between mining site and
assay lab. The only reason Bre-X opened the bags,
Cesar says, was to check that none had broken in
transit. He wasn't the only person who inspected
them, he says; several Indonesian staff members
handled the job as well. The only reason Busang
sample bags accumulated in Samarinda, he says, was
because the high volume of samples delayed the
assaying.
But in Samarinda, Bre-X's Indonesian workers recall
a different drill.
Bre-X rule No. 1: No Busang samples could be
shipped from Samarinda unless personally approved
by Cesar Puspos, says Muzayanah, who worked as a
Bre-X logistics officer for 18 months, and, like
many Indonesians, uses a single name. "When Cesar
wasn't in Samarinda," she says, "all the bags would
stack up until he returned."
This bottleneck prompted angry phone calls from PT
Indo Assay Laboratories, Bre-X's assay lab in
Balikpapan. When Cesar wasn't around, the sample
flow stopped, says John Irvin, Indo Assay's
general-manager. It caused unheard-of delays for
such a hot exploration project. In its Busang
geological audit, Strathcona found one Busang
sample, drilled on Nov. 16, that didn't reach Indo
Assay until March 13.
What happened in between?
Pantiyani, who worked as a Bre-X accountant in the
Samarinda compound from March 1996 until last May,
shared an office wall with the staff recreation
room where sample bags were stored.
She and other former Bre-X workers say the sample
bags would arrive by truck from the Samarinda wharf
during normal business hours, and were unloaded on
the driveway outside the staff quarters in the rear
of the compound. Then, usually around dusk, Cesar
and local workers would move certain bags inside
the staff house, placing them on the
recreation-room floor. When the shipments backed
up, say former Bre-X staffers, the room became so
jammed with bags of rocks that it became difficult
to thread one's way to the adjoining kitchen.
Alone With the Bags at Night
Pantiyani saw Cesar opening the bags in the
evenings, alone, she says. Sometimes, she says, she
would be in the room when Cesar, working from
documents in his hand, would line up the sample
bags in sequence, open them and sometimes dip a pen
or pencil inside as if mixing the rocks. She says
she never saw him add any foreign material. But she
and other Bre-X workers say Cesar would often
remain in the recreation room long after midnight,
by himself.
In the morning when Pantiyani arrived at work, most
of the bags would already be resealed and ready for
shipment to Indo Assay. It seemed so routine, "I
never paid much attention to it," she says.
Cesar Puspos, invited to lay blame elsewhere for
Busang or to come up with any theory at all for how
it happened, the man who knows more about Bre-X's
sampling procedures than anyone else alive, says
simply, "I can't." He declines to speculate on what
understandings may have existed between his
superiors Messrs. de Guzman and Felderhof.
"Whatever they discussed," he says, "they didn't
tell me."
The evidence of broader involvement in the fraud,
beyond the Filipinos on the ground, is scant. Mr.
Walsh, Bre-X's chairman in Calgary, was the
money-raiser and stock-promoter and made many
millions on Bre-X. But he was completely detached
from the geological side. Mr. Felderhof, Bre-X's
top geologist, might have recognized warning signs
emanating from Borneo and the Busang data, say
geologists who helped uncover the scam. But Mr.
Felderhof appears to have been too enamored of Mr.
de Guzman's abilities and of their prospective
riches to pay any heed, they say.
Mr. Felderhof spent little time in Indonesia, and
deferred most questions about the site's geology to
Mr. de Guzman, according to former Bre-X employees
and executives of other mining companies. At a
geological presentation in Jakarta last year, Mr.
Felderhof couldn't even name the main river
traversing the site, one geologist recalls.
But in the only scientific paper written about
Busang, which was authored, in order, by Messrs.
Felderhof, de Guzman, Cesar Puspos and Indonesian
geologist Jonothan Nassey, the writers made
"special mention" of primary author Felderhof in
the acknowledgments, citing "his vast geological
expertise and inspiration."
'In the Dark'
"Mike kept Felderhof in the dark on most things,"
says Glen Greisbach, a Canadian geologist who
worked for Bre-X. "Felderhof was totally naive, a
dupe."
The Filipinos, on the other hand, could be
ruthless. Messrs. de Guzman, Alo and Cesar Puspos
ran Busang with an iron fist, controlling all
project information among themselves, say former
Bre-X employees. When Bre-X geologist Dimas
Sudibyo, an Indonesian, asked Cesar Puspos why
Bre-X had made the unorthodox decision to process
so-called in-fill, or less-promising rock samples,
at Busang, while sending the more-promising rocks
directly to Samarinda, Cesar shot back, "Because
I'm the boss," Mr. Dimas recalls.
One of the more mysterious episodes occurred in
January, when a fire gutted several buildings at
Busang. The blaze broke out before dawn in a
second-story suite housing Mr. Alo's office, former
workers say. Among the property destroyed were
thousands of pages of Busang logs, the detailed
impressions of freshly drilled core by Bre-X
geologists.
Later, loss of those records would thwart anyone
wanting to compare Busang's extraordinary, yet
erratic, assay results with the scientific
descriptions of the same rocks as they came out of
the ground.
As panic swept through the Busang camp, Mr. Alo
directed the futile efforts to extinguish the
blaze, former workers say. When the fire burned
itself out at about seven in the morning, he
ordered a bulldozer to plow the site under, despite
complaints from some Bre-X employees who wanted to
look for remains of their things, according to
former workers.
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