The Short History of
Fabulous Bre-X Minerals

by Dale H. Easley
Department of Geology and Geophysics
University of New Orleans
New Orleans, LA 70148

7/18/2000

Gold. Of all the metals, it has been the one that means wealth, status, glory. Compared to gold, silver is an also-ran, relegated to making table knives and goblets. So when Bre-X Mineral announced that it had discovered the largest gold deposit in the world at Busang on the island of Borneo in Indonesia, a lot of people were suddenly interested---geologists and mining companies, stock brokers and investors. At first blinded by the glitter, only later did they realize that they had been taken by one of the oldest scams in the mining world---the "salting" of samples with gold, making the mine's advocates look like fools with no gold. When the samples of the gold ore were finally examined by an independent lab, the faking wasn't even well done. Some of the samples when examined under a microscope included shavings from gold jewelry. In two days, Bre-X stock dropped 85%, losing $3 billion in market value. Meanwhile, two Bre-X executives had moved to the Caribbean, and a key geologist had apparently committed suicide. How did things get to that point?

Bre-X Minerals was the unsuccessful company of David Walsh, started in 1989 and soon going bankrupt. Using his last $10,000, Walsh flew to Indonesia to meet John Felderhof, discoverer in 1968 of a large gold deposit in Papua New Guinea. Felderhof convinced Walsh to invest in some jungle property, hired a Philippino geologist named de Guzman, and soon drilling began for gold prospects. The first couple of holes showed no gold, and Walsh was ready to shut things down. Suddenly, things began to pick up, even though a dozen other companies had had no luck previously. Felderhof claimed that the previous companies had looked in the wrong places, or too shallow, or with the wrong drilling techniques. Whatever. Soon, Bre-X claimed to have "proven" the existence of 71 million ounces of gold, worth about $25 billion, and Felderhof estimated that there were at least 200 million ounces present. Egizio Bianchini, stock broker and supposedly Canada's top gold analyst, said "What most people are now realizing is that Bre-X has made one of the great gold discoveries of our generation."

To produce such a huge deposit, Indonesia required that Bre-X partner with a large mining company. Freeport McMoRan of New Orleans, already in Indonesia and operating the world's largest gold mine, won the right to develop the Bre-X mine. Freeport first undertook some of its own independent drilling, but no significant amount of gold showed up. Stock analysts who follow the mining industry were incredulous, some accusing Freeport of trying to drive down the Bre-X stock. As the possibility of the samples being salted began to be rumored, Bianchini, the gold analyst, weighed in with the statement to his clients that the rumors were "so preposterous, I am not even going to address the possibility." An independent company, Strathcona Minerals, was hired to examine the Bre-X samples and drilled holes next to those of Bre-X and Freeport. After their study, Strathcona concluded, "the magnitude of the tampering with core samples that we believe has occurred and resulting falsification of assay values at Busang, is of a scale and over a period of time and with a precision that, to our knowledge, is without precedent in the history of mining anywhere in the world." So much for the rumors being preposterous.

Even now, it's not clear who is to blame for the salting of the samples. Walsh moved to the Bahamas and later died. Felderhof is in the Cayman islands. But an even more likely culprit, de Guzman, is dead, maybe, from jumping 800 feet from a helicopter into the jungle. I say "maybe" because when his body was found 4 days later, the face was eaten off. Missing were his internal organs, brain, and genitalia. A partial thumb print from mushy, decayed flesh plus a couple of molars are the basis for identification. De Guzman carefully controlled access to the mine site. He and a fellow Philippino, Cesar Puspos, controlled the samples from the time they were collected until they were turned over to a down-river lab for analysis. Most likely, that window of opportunity was when the salting of samples occurred.

Meanwhile, the Canadian Mounties have called off their investigation. With Walsh and de Guzman dead and Bre-X officers refusing to cooperate, the Mounties ran into a dead end. No one has been arrested or imprisoned. In the old days of the gold fields, someone would have gotten strung up. Today, we sue. A lot of angry investors want some of their money back. With $3 billion dollars lost on Bre-X stock, the investors want to know why their advisors encouraged them to get taken by the oldest scam of the gold fields. The lawsuits continue.