Article in Globe & Mail This Morning...front page of Business Section:
Golden Eagle gold find raises red flags
U.S. regulator interrupts trading,
launches lawsuit as size of claim questioned
Saturday, July 11, 1998
By Paul Waldie
The Globe and Mail
In a saga eerily similar to that of Bre-X Minerals Ltd., a tiny Denver mining company is facing
questions about the size of a gold find it recently touted as the largest in the world.
And, once again, investors in Canada and the United States are worried about being bilked.
The story involves Golden Eagle International Inc. and its property in a remote jungle of Bolivia
called Cangalli.
In May, Golden Eagle released results of a geological study that said Cangalli contained a gold
resource of 157 million ounces -- more than double what Bre-X claimed it had discovered in
Indonesia.
Worried about the possibility of another Bre-X, officials at the U.S. Securities and Exchange
Commission stepped in. They halted trading in Golden Eagle's shares on June 24 and began a
review of the company's claims.
Golden Eagle's shares trade over the counter and the share price has been as high as $6.25 (U.S.)
in 1996.
The shares resumed trading last Monday and at least some investors were still willing to bet on the
company's claims. The share price doubled to 70 cents Monday after 3.7 million shares changed
hands. The price closed yesterday at 50 cents.
"Anything on this proportion scares me," Dan Shea, director of the SEC's Denver office said
yesterday, referring to the company's claims. "It should scare anyone."
This week, the SEC said the study was released "without a sufficient basis as to the reliability of the
report." Golden Eagle now says the geologist who did the study made some "calculation errors"
and it will ask an engineering firm for an audit.
The SEC has also launched a lawsuit in Colorado against the company's founder and former
president, Ronald Knittle, and his wife, Mary Erickson, the company's corporate secretary. The
SEC alleges they and two others affiliated with the company "engaged in a scheme to falsely tout
the stock of Golden Eagle" between 1994 and 1996.
The SEC said it is also considering suing the company over the release of the geological study in
May.
"I think the comparison with Bre-X is inevitable, expected and not accurate," Golden Eagle's
president Terry Turner said from his home in Salt Lake City from which he runs the company.
"[That's] because it's not a fraud. This area, according to government figures in Bolivia, has
produced 32 million ounces of gold in its known history."
He added that the company had another study done on the area that confirmed the same resource
estimates. But, he said, it always intended to verify the estimates and had cautioned investors to "go
slow."
Mr. Turner would not comment on the lawsuit. Mr. Knittle and Ms. Erickson were unavailable for
comment.
Golden Eagle spokesman Guy Murrel said the SEC is overreacting because of Bre-X, the
Calgary-based company that collapsed last year, afterits supposedly massive Indonesian gold find
was found to be a fraud.
"The SEC is hammering them. They are going through every obstacle you could ever think of and
they very well might have what they think they have. I believe they do."
Mr. Shea makes no apologies for the commission's quick action.
"I hope for investors' sake that the gold is there because I don't want to see investors get bilked
again."
Like Bre-X, Golden Eagle hasn't had much success in its short life.
The company was created in 1994 when Mr. Knittle, a former stockbroker, and Ms. Erickson,
who worked in investor relations, acquired a shell company.
Mr. Knittle first tried to buy an interest in a silver mine in Arizona, but the deal fell apart when he
became aware of "unfavourable facts" about the project, according to company documents.
He then tried to buy some mining properties in California, but that also collapsed as a result of
"unsatisfactory due diligence."
In 1995, Mr. Knittle acquired the rights to the Cangalli property from a local co-operative. Golden
Eagle was given a 25-year contract to explore the area in return for an 18-per-cent royalty.
In early 1996, a U.S. geologist hired by Golden Eagle estimated that two small sections of the
region contained a potential gold reserve of 5.4 million ounces.
"The report indicated that these two sites were among at least 15 other gold-bearing sites within the
Cangalli concessions," the company said.
Mr. Knittle resigned in May, 1996, to work in Bolivia. Ms. Erickson stayed on as corporate
secretary.
They are the largest shareholders in Golden Eagle, although company officials couldn't say how
many shares they own.
After a series of interim presidents, Mr. Turner was named president in February, 1997. He has
served as the company's lawyer.
Shortly after acquiring the property, Golden Eagle began mining and has since been recovering a
tiny amount of gold from the area, thanks in part to supplies provided by a local businessman,
Alvaro Riveros. Mr. Riveros is now Bolivia's vice-mininster for natural resources, but he is still a
major shareholder and promoter of the company.
In November, 1996, the SEC began investigating Mr. Knittle and Ms. Erickson. By then, the firm's
share price had jumped above $6 (U.S.).
In early 1997, the company hired Guido Paravicini, a Bolivian mining engineer to review the
potential of the property. He issued a summary report a few months later indicating a find of up to
111.4 million ounces.
The company received Mr. Paravicini's final report in May. His resource calculation was 157
million ounces. The SEC halted the shares, interviewed Mr. Paravicini -- who insisted he owned no
company shares -- and concluded that the report should not have been released.
"The commission staff has raised questions concerning the methodology, analysis and preparation
of the report," the SEC told the company.
Investors have been fuming on Internet chat groups and some are even raising money to send their
own team of experts to examine the site.
When asked whether he believes the gold is there, Mr. Turner replied: "I know this area has
produced millions and millions of ounces of gold. So, do we believe there is gold there? Yes. Is
there gold in these numbers? We want to believe that that's true and we are having that confirmed
by an independent American firm."
As always
Alastair |
