Bre-X
Encyclopedia
Bre-X was a group of companies in Canada
. A major part of the group, Bre-X Minerals Ltd. based in Calgary
, was involved in a major gold mining scandal when it was reported to be sitting on an enormous gold
deposit at Busang, Indonesia
(on Borneo
). Bre-X bought the Busang site in March 1993 and in October 1995 announced significant amounts of gold had been discovered, sending its stock price soaring. Originally a penny stock
, its stock price reached a peak at CAD
$286.50 (split adjusted) in May 1996 on the Toronto Stock Exchange
(TSE), with a total capitalization of over CAD $6 billion. Bre-X Minerals collapsed in 1997 after the gold samples were found to be a fraud.
Busang's gold resource was estimated by Bre-X's independent consulting company, Kilborn Engineering (a division of SNC-Lavalin
of Montreal), to be approximately 70000000 ozt (2,400 ST; 2,177.2 t). Reports of resource estimates of up to 200000000 ozt (6,857.1 ST; 6,220.7 t) were never made by Bre-X though the property was described as having this potential by Felderhof in an interview with Richard Behar of Fortune Magazine. Bre-X's gold resource at Busang was a massive fraud
. Encouraging gold values were intersected in many drill-holes and the project received a positive technical assessment by Kilborn. Crushed core samples had been falsified by salting
with gold that has a wide variety of characteristics that had been subjected to mineralogical examination by Bre-X's consultants. The salting of crushed core samples with placer or supergene
gold constitutes the most elaborate fraud in the history of mining. In 1997, Bre-X collapsed and its shares became worthless in one of the biggest stock scandals in Canadian history, and the biggest mining scandal of all time.
founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd. The company did not make a significant profit before 1993, when Walsh followed the advice of geologist John Felderhof and bought a property in the middle of a jungle near the Busang River in Borneo
, Indonesia
. Project manager, Filipino
geologist
Michael de Guzman's first estimate of the site was approximately 2 million ounces.
The estimate of the site's worth increased over time; in 1995 it was 30 million ounces (850 metric tons); in 1996, 60 million (1,700 metric tons); finally, in 1997, 70 million ounces. The stock price of Bre-X rose to CA$
280 per share by 1997 (split adjusted) and at its peak it had a market capitalization
equal to US$4.4 billion, equal to US$ billion in current terms adjusted for inflation.
Some other mineral companies, including Placer Dome
organized failed takeover
s, but the Indonesian government of president Suharto also got involved. Stating that a small company like Bre-X could not exploit the site by itself, the Indonesians suggested that Bre-X share the site with the large Canadian mining firm Barrick Gold
, in association with Suharto's daughter Siti Hardiyanti Rukmana
. Bre-X hired Suharto's son Sigit Hardjojudanto to handle their side of the affair. Bob Hasan
, another Suharto acquaintance, negotiated a deal whereby Bre-X would have a 45% share, Freeport-McMoRan Copper & Gold
would run the mine, and Hasan would get a cut as well. Bre-X would have the land rights for 30 years. The deal was announced February 17, 1997 and Freeport-McMoRan began their initial due diligence evaluation of the site.
and a thumbprint. On May 12, 2005, however, the National Post
published a front-page story asking if de Guzman might still be alive. One of his multiple wives claimed to have received a Brazilian money order from him, dated after his apparent death.
On March 26, 1997 the American firm Freeport-McMoRan
, a prospective partner in developing Busang, announced that its own due-diligence core samples showed "insignificant amounts of gold". A frenzied sell-off of shares ensued and Suharto postponed signing the mining deal. Bre-X demanded more reviews and commissioned a review of the test drilling. Results were not favorable to them, and on April 1, 1997, Bre-X refused to comment. David Walsh blamed the whole affair on web "ghost writers" who had spread rumors on the Internet and damaged the company's reputation. Canadian gold analyst Egizio Bianchini considered the rumors "preposterous". A third-party independent company, Strathcona Minerals, was brought in to make its own analysis. They published their results on May 4, 1997: the Busang ore samples had been salted with gold dust
. The lab's tests showed that gold in one hole had been shaved off gold jewelry though it has never been proved at what stage this gold had been added to those samples. This gold also occurs in quantities that do not support the actual original assays. Trading in Bre-X was soon suspended on the TSE
and Nasdaq
, and the company filed for bankruptcy
protection.
, the head of Barrick Gold, as well as for the then head of the Toronto Stock Exchange
(resulting in his ousting by 1999), and began a tumultuous realignment of the Canadian stock exchanges whose effects are still being felt.
Walsh moved to the Bahamas in 1998, still professing his innocence. Two masked gunmen broke into his home in Nassau, tying him up, and threatened to shoot him unless he turned over all his money. The incident ended peacefully, but three weeks later, on June 4, 1998, David died of a brain aneurysm.
Felderhof, Bre-X's Vice-President, Exploration had a residence in the Cayman Islands
.
In 1999 the Royal Canadian Mounted Police
(RCMP) announced it was ending its investigation without laying criminal charges against anyone. Critics charged that the RCMP was underfunded and understaffed to handle complex criminal fraud cases, and also charged that Canadian laws in this area were inadequate. However, despite the dropping of criminal charges, civil class action
suits against Bre-X directors, advising financial firms and Kilborn continued.
Bre-X finally went bankrupt
in 2002 although some of its subsidiaries like Bro-X continued until 2003.
In May 1999, the Ontario Securities Commission
charged Felderhof with insider trading
. No other member of Bre-X's board of directors, or others associated with the Busang project, were charged by the OSC. The OSC admitted that there is no evidence that Felderhof was either involved in the fraud or was aware of the fraud. The trial was suspended in April 2001 when the OSC tried to have presiding judge Justice Peter Hryn removed for alleged bias against the prosecution. This was denied by an independent judge, and on December 10, 2003 the appeal was also denied by a panel of judges.
The trial resumed in 2005. Felderhof attended a number of the Court hearings — but did not testify — as the six-year case made its way through the system. The basis of the OSC action as well as the civil class-action suits is the alleged existence of numerous and obvious "red flags", as detailed by Strathcona Minerals, that should have been recognized.
Begun in 2001, the trial of John Felderhof was concluded on Tuesday, July 31, 2007, with a not guilty verdict of illegal insider trading. A class-action lawsuit is still pending. Days after the verdict, the OSC also decided not to appeal the decision, a landmark victory for Felderhof and his lawyer, Toronto based Joseph Groia.
The Bre-X mining fraud convinced Canadians to regulate professional geology in Canada.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
. A major part of the group, Bre-X Minerals Ltd. based in Calgary
Calgary
Calgary is a city in the Province of Alberta, Canada. It is located in the south of the province, in an area of foothills and prairie, approximately east of the front ranges of the Canadian Rockies...
, was involved in a major gold mining scandal when it was reported to be sitting on an enormous gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
deposit at Busang, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
(on Borneo
Borneo
Borneo is the third largest island in the world and is located north of Java Island, Indonesia, at the geographic centre of Maritime Southeast Asia....
). Bre-X bought the Busang site in March 1993 and in October 1995 announced significant amounts of gold had been discovered, sending its stock price soaring. Originally a penny stock
Penny stock
In the United States, penny stocks are common shares of small public companies that trade at less than $1.00. In some countries, similar shares of stock are known as cent stocks.-Concerns for investors:...
, its stock price reached a peak at CAD
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
$286.50 (split adjusted) in May 1996 on the Toronto Stock Exchange
Toronto Stock Exchange
Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...
(TSE), with a total capitalization of over CAD $6 billion. Bre-X Minerals collapsed in 1997 after the gold samples were found to be a fraud.
Busang's gold resource was estimated by Bre-X's independent consulting company, Kilborn Engineering (a division of SNC-Lavalin
SNC-Lavalin
SNC-Lavalin Group Inc. is a large Canadian engineering firm. It is one of the ten largest engineering firms in the world and is based in Montreal, Quebec. It formed in 1991 from the merger of SNC and the failing Lavalin, another Quebec based engineering firm....
of Montreal), to be approximately 70000000 ozt (2,400 ST; 2,177.2 t). Reports of resource estimates of up to 200000000 ozt (6,857.1 ST; 6,220.7 t) were never made by Bre-X though the property was described as having this potential by Felderhof in an interview with Richard Behar of Fortune Magazine. Bre-X's gold resource at Busang was a massive fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
. Encouraging gold values were intersected in many drill-holes and the project received a positive technical assessment by Kilborn. Crushed core samples had been falsified by salting
Salting (confidence trick)
In mineral exploration, salting is the process of adding gold or silver to an ore sample to change the value of the ore with intent to deceive, cheat or defraud any person. In the US state of Arizona it is a class 6 felony...
with gold that has a wide variety of characteristics that had been subjected to mineralogical examination by Bre-X's consultants. The salting of crushed core samples with placer or supergene
Supergene (geology)
In ore deposit geology, supergene processes or enrichment occur relatively near the surface. Supergene processes include the predominance of meteoric water circulation with concomitant oxidation and chemical weathering. The descending meteoric waters oxidize the primary sulfide ore minerals and...
gold constitutes the most elaborate fraud in the history of mining. In 1997, Bre-X collapsed and its shares became worthless in one of the biggest stock scandals in Canadian history, and the biggest mining scandal of all time.
History
David WalshDavid Walsh (mining)
David Walsh was a Canadian businessman in the oil and gas and mining industries. Walsh was founder and CEO of the Canadian mining company Bre-X, which was involved in one of the largest stock market scandals in Canadian history...
founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd. The company did not make a significant profit before 1993, when Walsh followed the advice of geologist John Felderhof and bought a property in the middle of a jungle near the Busang River in Borneo
Borneo
Borneo is the third largest island in the world and is located north of Java Island, Indonesia, at the geographic centre of Maritime Southeast Asia....
, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
. Project manager, Filipino
Philippines
The Philippines , officially known as the Republic of the Philippines , is a country in Southeast Asia in the western Pacific Ocean. To its north across the Luzon Strait lies Taiwan. West across the South China Sea sits Vietnam...
geologist
Geology
Geology is the science comprising the study of solid Earth, the rocks of which it is composed, and the processes by which it evolves. Geology gives insight into the history of the Earth, as it provides the primary evidence for plate tectonics, the evolutionary history of life, and past climates...
Michael de Guzman's first estimate of the site was approximately 2 million ounces.
The estimate of the site's worth increased over time; in 1995 it was 30 million ounces (850 metric tons); in 1996, 60 million (1,700 metric tons); finally, in 1997, 70 million ounces. The stock price of Bre-X rose to CA$
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
280 per share by 1997 (split adjusted) and at its peak it had a market capitalization
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
equal to US$4.4 billion, equal to US$ billion in current terms adjusted for inflation.
Some other mineral companies, including Placer Dome
Placer Dome
Placer Dome Inc. was a large mining company specializing in gold and other precious metals, with corporate headquarters in Vancouver, British Columbia, Canada....
organized failed takeover
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
s, but the Indonesian government of president Suharto also got involved. Stating that a small company like Bre-X could not exploit the site by itself, the Indonesians suggested that Bre-X share the site with the large Canadian mining firm Barrick Gold
Barrick Gold
Barrick Gold Corporation is the largest pure gold mining company in the world, with its headquarters in Toronto, Ontario, Canada; and four regional business units located in Australia, Africa, North America and South America...
, in association with Suharto's daughter Siti Hardiyanti Rukmana
Siti Hardiyanti Rukmana
Siti Hardiyanti Rukmana is the eldest daughter of former Indonesian President Suharto...
. Bre-X hired Suharto's son Sigit Hardjojudanto to handle their side of the affair. Bob Hasan
Bob Hasan
Mohamad "Bob" Hasan is an Indonesian businessman, former Minister of Trade and Industry, and friend of former president of Indonesia, Suharto...
, another Suharto acquaintance, negotiated a deal whereby Bre-X would have a 45% share, Freeport-McMoRan Copper & Gold
Freeport-McMoRan
Freeport-McMoRan Copper & Gold Inc., often called simply Freeport, is the world's lowest-cost copper producer and one of the world's largest producers of gold...
would run the mine, and Hasan would get a cut as well. Bre-X would have the land rights for 30 years. The deal was announced February 17, 1997 and Freeport-McMoRan began their initial due diligence evaluation of the site.
Exposure of the fraud
The fraud began to unravel rapidly on March 19, 1997 when Filipino Bre-X geologist Michael de Guzman died falling from a helicopter in Indonesia. His body was found four days later in the jungle, mostly eaten by animals and identified from molarsMolar (tooth)
Molars are the rearmost and most complicated kind of tooth in most mammals. In many mammals they grind food; hence the Latin name mola, "millstone"....
and a thumbprint. On May 12, 2005, however, the National Post
National Post
The National Post is a Canadian English-language national newspaper based in Don Mills, a district of Toronto. The paper is owned by Postmedia Network Inc. and is published Mondays through Saturdays...
published a front-page story asking if de Guzman might still be alive. One of his multiple wives claimed to have received a Brazilian money order from him, dated after his apparent death.
On March 26, 1997 the American firm Freeport-McMoRan
Freeport-McMoRan
Freeport-McMoRan Copper & Gold Inc., often called simply Freeport, is the world's lowest-cost copper producer and one of the world's largest producers of gold...
, a prospective partner in developing Busang, announced that its own due-diligence core samples showed "insignificant amounts of gold". A frenzied sell-off of shares ensued and Suharto postponed signing the mining deal. Bre-X demanded more reviews and commissioned a review of the test drilling. Results were not favorable to them, and on April 1, 1997, Bre-X refused to comment. David Walsh blamed the whole affair on web "ghost writers" who had spread rumors on the Internet and damaged the company's reputation. Canadian gold analyst Egizio Bianchini considered the rumors "preposterous". A third-party independent company, Strathcona Minerals, was brought in to make its own analysis. They published their results on May 4, 1997: the Busang ore samples had been salted with gold dust
Gold Dust
Gold dust refers to fine particles of gold produced by machining or occurring naturally.Gold dust may also refer to:*Goldust, the ring name of Dustin Rhodes, an American wrestler...
. The lab's tests showed that gold in one hole had been shaved off gold jewelry though it has never been proved at what stage this gold had been added to those samples. This gold also occurs in quantities that do not support the actual original assays. Trading in Bre-X was soon suspended on the TSE
Toronto Stock Exchange
Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...
and Nasdaq
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
, and the company filed for bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
protection.
The aftermath
By May, Bre-X faced a number of lawsuits and angry investors who had lost billions. Among the major losers were three Canadian public sector organizations: The Ontario Municipal Employees Retirement Board (loss of $45 million), the Quebec Public Sector Pension fund ($70 million), and the Ontario Teachers Pension Plan ($100 million). There was fallout in the Canadian financial sector also; the fraud proved a major embarrassment for Peter MunkPeter Munk
Peter Munk, CC is a Canadian businessman. He is the chairman and founder of the mining company Barrick Gold, the world's largest gold-mining corporation.-Early years:...
, the head of Barrick Gold, as well as for the then head of the Toronto Stock Exchange
Toronto Stock Exchange
Toronto Stock Exchange is the largest stock exchange in Canada, the third largest in North America and the seventh largest in the world by market capitalisation. Based in Canada's largest city, Toronto, it is owned by and operated as a subsidiary of the TMX Group for the trading of senior equities...
(resulting in his ousting by 1999), and began a tumultuous realignment of the Canadian stock exchanges whose effects are still being felt.
Walsh moved to the Bahamas in 1998, still professing his innocence. Two masked gunmen broke into his home in Nassau, tying him up, and threatened to shoot him unless he turned over all his money. The incident ended peacefully, but three weeks later, on June 4, 1998, David died of a brain aneurysm.
Felderhof, Bre-X's Vice-President, Exploration had a residence in the Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
.
In 1999 the Royal Canadian Mounted Police
Royal Canadian Mounted Police
The Royal Canadian Mounted Police , literally ‘Royal Gendarmerie of Canada’; colloquially known as The Mounties, and internally as ‘The Force’) is the national police force of Canada, and one of the most recognized of its kind in the world. It is unique in the world as a national, federal,...
(RCMP) announced it was ending its investigation without laying criminal charges against anyone. Critics charged that the RCMP was underfunded and understaffed to handle complex criminal fraud cases, and also charged that Canadian laws in this area were inadequate. However, despite the dropping of criminal charges, civil class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
suits against Bre-X directors, advising financial firms and Kilborn continued.
Bre-X finally went bankrupt
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
in 2002 although some of its subsidiaries like Bro-X continued until 2003.
In May 1999, the Ontario Securities Commission
Ontario Securities Commission
The Ontario Securities Commission is a regulatory agency which administers and enforces securities legislation in the Canadian province of Ontario...
charged Felderhof with insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. No other member of Bre-X's board of directors, or others associated with the Busang project, were charged by the OSC. The OSC admitted that there is no evidence that Felderhof was either involved in the fraud or was aware of the fraud. The trial was suspended in April 2001 when the OSC tried to have presiding judge Justice Peter Hryn removed for alleged bias against the prosecution. This was denied by an independent judge, and on December 10, 2003 the appeal was also denied by a panel of judges.
The trial resumed in 2005. Felderhof attended a number of the Court hearings — but did not testify — as the six-year case made its way through the system. The basis of the OSC action as well as the civil class-action suits is the alleged existence of numerous and obvious "red flags", as detailed by Strathcona Minerals, that should have been recognized.
Begun in 2001, the trial of John Felderhof was concluded on Tuesday, July 31, 2007, with a not guilty verdict of illegal insider trading. A class-action lawsuit is still pending. Days after the verdict, the OSC also decided not to appeal the decision, a landmark victory for Felderhof and his lawyer, Toronto based Joseph Groia.
The Bre-X mining fraud convinced Canadians to regulate professional geology in Canada.
Books and articles
- The Bre-X Fraud by Douglas Goold and Andrew Willis, McClelland and StewartMcClelland and StewartMcClelland & Stewart Limited is a Canadian publishing company. It is partially owned by Random House of Canada, now a subsidiary of Bertelsmann....
(1997) - Fool's Gold: The Making of a Global Market Fraud by Brian Hutchinson (pub. by Alfred A. Knopf, 1998)
- Bre-X: Gold Today, Gone Tomorrow by James Whyte and Vivian Danielson
- Indonesian Gold by Kerry B. Collison — a fictionalised account
- New Perspectives on Busang by Phillip Hellman, Parts 1 & 2, The Northern MinerThe Northern MinerThe Northern Miner is a weekly trade journal that reports on the mining industry. The Northern Miner began publication Cobalt, Ontario Canada in 1915, and has since moved publication to Toronto....
, May 2002 - Friction by Anna Tsing (2005, Princeton University Press)
- Fever: The Dark Mystery of the Bre-X Gold Rush by Jennifer Wells
External links
- Bre-X corporate website (December 19, 1996 snapshot from the Internet ArchiveInternet ArchiveThe Internet Archive is a non-profit digital library with the stated mission of "universal access to all knowledge". It offers permanent storage and access to collections of digitized materials, including websites, music, moving images, and nearly 3 million public domain books. The Internet Archive...
) - CBC Digital Archives - Stranger than Fiction: The Bre-X Gold Scandal
- Ontario Securities Commission News Release February 9, 2006
- Reprint of Jungle Fever, Richard Behar's on-the-ground reportage of the Bre-X scandal, first published in Fortune Magazine
- September 17, 2007: Bre-X geologist says mine might contain gold