Bre-X
Industry | Mining |
---|---|
Founded | 1989 |
Defunct | 2003 |
Headquarters | |
Products | Minerals, metals, gold |
Bre-X was a group of companies in
Busang's gold resource was estimated by Bre-X's independent consulting company, Kilborn Engineering (a division of
Bre-X's gold resource at Busang was a massive fraud.[4] Encouraging gold values were intersected in many drill-holes and the project received a positive technical assessment by Kilborn. Crushed core samples that had been subjected to mineralogical examination by Bre-X's consultants turned out to have been falsified by salting with gold.[5] In fact in an old report, found in Bre-X files, a mineralogist had reported that some gold particles in Busang samples had the darker yellow skin compared to the interior and some had delicate morphologies composed of electrum. The yellow rims result from selective leaching of silver from the surface of gold particle during river transport or during supergene (in-situ) processes. Electrum is inconsistent with an alluvial origin. The mineralogy gave no indication that it was alluvial gold and was consistent with the assumed origin of the samples. None of the mineralogists who studied the gold grains gave any indication that the gold was not consistent with a hard rock origin. The salting of crushed core samples with 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.[6]
History
David Walsh 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 Kalimantan, Indonesia. The first estimate of the site by its project manager (Filipino geologist Michael de Guzman) was approximately 2 million troy ounces.[7]
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 was originally listed on the
Some other mineral companies, including Placer Dome, organized failed takeovers, 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 initially suggested that Bre-X share the site with the large Canadian mining firm Barrick Gold, in association with Suharto's daughter Siti Hardiyanti Rukmana.[10] 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.
Fraud exposed
The fraud began to unravel rapidly beginning on March 19, 1997, when Bre-X geologist Michael de Guzman reportedly committed suicide by jumping from a helicopter in Indonesia.[11][12] A body was found four days later in the jungle, missing the hands and feet, "surgically removed".[13] In addition, the body was reportedly mostly eaten by animals.[14] According to journalist John McBeth, a body had gone missing from the morgue of the town from which the helicopter flew. The remains of "de Guzman" were found only 400 metres from a logging road. No one saw the body except another Filipino geologist who claimed it was de Guzman. And one of the five women who considered themselves to be his wife was receiving monetary payments from somebody long after the supposed death of de Guzman.[13])
A week later, on March 26, 1997, the American firm
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
Bre-X declared bankruptcy on November 5, 1997 although some of its subsidiaries continued until 2003.
Walsh moved to the
In 1999 the Royal Canadian Mounted Police (RCMP) announced it was ending its investigation without laying criminal charges against anyone.[21] 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.
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 was 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.[22]
The trial resumed in 2005. Felderhof attended a number of the Court hearings 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 was the alleged existence of numerous and obvious "red flags", as detailed by Strathcona Minerals, which should have been recognized.
Begun in 2001, the trial of Felderhof was concluded on July 31, 2007, with a not-guilty verdict of insider trading. Days after the verdict, the OSC also decided not to appeal the decision, a victory for Felderhof and his lawyer, Toronto-based Joseph Groia. A class-action lawsuit was discontinued by court order in early 2014; $3.5 million (CAN) damages were donated to charity and the University of Ottawa since funds were deemed too low to be meaningfully distributed amongst the large number of plaintiffs.[23]
Felderhof passed away on October 28, 2019, in Manila, Philippines, at the age of 79.
The Bre-X mining fraud convinced Canadians to regulate professional geology in Canada.[24] The Securities regulation National Instrument 43-101 was created in the wake of the Bre-X fraud to protect investors from unsubstantiated mineral project disclosures.[25]
Books and articles
- The Bre-X Fraud by Douglas Goold and Andrew Willis, McClelland and Stewart (1997)[26]
- Fool's Gold: The Making of a Global Market Fraud by Brian Hutchinson (pub. by Alfred A. Knopf, 1998)[27]
- Bre-X: sebungkah emas di kaki pelangi by ISBN 9789799523808(1997)
- Bre-X: Gold Today, Gone Tomorrow by James Whyte and Vivian Danielson[22]
- Indonesian Gold by Kerry B. Collison — a fictionalised account[28]
- New Perspectives on Busang by Phillip Hellman, Parts 1 & 2, The Northern Miner, May 2002
- Friction by Anna Tsing (2005, Princeton University Press)
- Fever: The Dark Mystery of the Bre-X Gold Rush by Jennifer Wells
- Bre-X, The Inside Story by Diane Francis (pub by Key Porter Books, 1997)
- Reporter. Forty Years Covering Asia by John McBeth, Talisman Publishing, Singapore, 2011. ISBN 9789810873646
Film
The film Gold, a dramatization derived from the Bre-X story, was released world-wide on January 27, 2017.[29][30][31] For legal reasons, and to enhance the appeal of the film to American audiences, the film's producers denied that the film was in any way connected to the Canadian Bre-X story.[32][33]
Notes and references
- ^ "Long-awaited Bre-X court decision due Tuesday". National Post and Calgary Herald.[permanent dead link]
- ^ Grundhauser, Eric (August 21, 2015). "The $6 Billion Gold Mine That Wasn't There". Slate. Retrieved September 21, 2015.
- ISBN 978-0-521-86379-7.
- ^ "Bre-X court battles come to an end". CBC News. May 30, 2013.
- ^ "Great frauds in history: the Bre-X gold-mining scandal". MoneyWeek. 2019-02-20. Retrieved 2019-07-04.
- ISBN 978-3-319-58760-8.
- ISBN 978-1-4462-4188-2.
- ^ A Lode of Lies: How Bre-X Fooled Everyone Washington Post May 18, 1997
- ^ The Economist. Economist Newspaper Ltd. 2007.
- ^ "1996-12-16, Dow Jones International News as cited in R. v. Felderhof, 2007 ONCJ 345 (CanLII)". July 31, 2007.[permanent dead link]
- ^ Goold, Douglas (June 24, 2014). "Remembering Bre-X: Suicide and the gold 'find of the century'". The Globe and Mail.
- ^ Waldie, Paul (April 3, 2009). "The rise and fall of Bre-X". The Globe and Mail.
- ^ a b "The World's Biggest Mining Scam". Business Daily. BBC. Feb 7, 2017.
- ^ Grundhauser, Eric (21 August 2015). "The $6 Billion Gold Mine That Wasn't There". Slate. Retrieved 28 January 2017.
- ^ Schneider, Howard (May 18, 1997). "A Lode of Lies: How Bre-X Fooled Everyone". Washington Post Foreign Service. p. H01.
- ^ Kirby, Jason (September 13, 2011). "Really bad investment advice – Why do analysts so often get things so wrong?". Macleans.ca.
- ^ "No gold at Bre-X site". CNNMoney. May 5, 1997.
- ^ "Bre-X Files For Bankruptcy". The New York Times. May 9, 1997.
- ^ Waldie, Paul (November 24, 2006). "Collected Woes". GlobeAdvisor.
- ^ "Calgary Sun". Calgary Sun. Archived from the original on 2017-02-11. Retrieved 2017-02-11.
- ^ "The Bre-X Saga - CANOE Money". www.canoe.ca. Archived from the original on April 19, 1997.
- ^ ISBN 9781552570036.
- ^ Gray, Jeff (April 23, 2014). "After 17 years, Bre-X case finally closes". The Globe and Mail.
- ISBN 978-0-17-644134-0.
- ISBN 978-0-8137-2501-7.
- ISBN 978-0-7619-3004-4.
- ISBN 978-0-676-97192-7.
- ISBN 978-0-9578709-3-2.
- ^ Gilligan, Melissa. "Bre-X investment scandal hits the big screen in 'Gold' starring Matthew McConaughey". Global News. Retrieved 30 January 2017.
- ^ Hipes, Patrick (July 21, 2016). "Matthew McConaughey Movie Gold Stakes Out Christmas Day Release". Deadline Hollywood. Retrieved July 21, 2016.
- ^ Fleming, Mike Jr. (November 21, 2016). "Matthew McConaughey-Starrer Gold Keeps Awards Window But Moves Wide Release To January 27". Deadline Hollywood. Retrieved November 21, 2016.
- ^ Freeman, Sunny. "Gold: The movie about the Bre-X mining scandal that 'isn't about Bre-X'". The Financial Post. Retrieved 30 January 2017.
- ^ Glasner, Eli. "'They couldn't believe it was true:' Bre-X's Hollywood makeover". CBC. Retrieved 30 January 2017.
External links
- Official website post scandal & Film Use
- "Bre-X corporate website". Archived from the original on 1996-12-19. Retrieved 2016-11-07.
- 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