Canadian mining company (1989?2003)
For the American company, see
Brex
.
Bre-X
Industry
| Mining
|
---|
Founded
| 1989
|
---|
Defunct
| 2003
|
---|
Headquarters
| |
---|
Products
| Minerals, metals, gold
|
---|
Bre-X
was a group of companies in
Canada
.
Bre-X Minerals Ltd.
, a major part of Bre-X based in
Calgary
, was involved in a major
gold mining
scandal when it reported it was sitting on an enormous
gold
deposit at
Busang
[
id
]
,
East Kalimantan
,
Indonesia
. 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 fraudulent.
[1]
[2]
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 71,000,000
troy ounces
(2,400 short tons; 2,200 t). Reports of resource estimates of up to 200,000,000
troy ounces
(6,900 short tons; 6,200 t) were never made by Bre-X though the property was described as having this potential by
John Felderhof
[
de
]
, Bre-X's vice-president for Exploration, in an interview with Richard Behar of
Fortune
magazine
.
[3]
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
[
edit
]
Bresea logo.
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
Alberta Stock Exchange
in 1989, and subsequently in 1996 on the
Toronto Stock Exchange
and
NASDAQ
.
[8]
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, equivalent to US$8.4 billion in 2023.
[9]
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
[
edit
]
The fraud began to unravel rapidly beginning on March 19, 1997, when Bre-X geologist Michael de Guzman reportedly died of 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
Freeport-McMoRan
, a prospective partner in developing Busang, announced that its own due-diligence core samples, led by Australian geologist Colin Jones, showed "insignificant amounts of gold".
[15]
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. Canadian gold analyst Egizio Bianchini, of BMO Nesbitt Burns, considered the rumors "preposterous".
[16]
An 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
.
[17]
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 it had been added to those samples. This gold also occurred in quantities that did not support the original assays. Trading in Bre-X was soon suspended on the
TSE
and
NASDAQ
, and the company filed for
bankruptcy
protection.
[18]
Aftermath
[
edit
]
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
Caisse de depot et placement du Quebec
, 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 Munk
, 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.
Bre-X declared bankruptcy on November 5, 1997 although some of its subsidiaries continued until 2003.
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, Walsh died of a brain aneurysm.
[19]
[20]
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
[
edit
]
- 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
Bondan Winarno
.
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
[
edit
]
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
[
edit
]
- ^
"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
.
- ^
Kevin Gibson (19 July 2007).
Ethics and Business: An Introduction
. Cambridge University Press. pp. 76?.
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
.
- ^
Manuel Bustillo Revuelta (23 August 2017).
Mineral Resources: From Exploration to Sustainability Assessment
. Springer. pp. 22?.
ISBN
978-3-319-58760-8
.
- ^
John Minkes; Leonard Minkes (24 June 2008).
Corporate and White Collar Crime
. SAGE Publications. pp. 45?.
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.
- ^
a
b
Vivian Danielson; James Whyte (1997).
Bre-X: gold today, gone tomorrow : anatomy of the Busang swindle
. Northern Miner.
ISBN
9781552570036
.
- ^
Gray, Jeff (April 23, 2014).
"After 17 years, Bre-X case finally closes"
.
The Globe and Mail
.
- ^
Andrews, Gordon (2009).
Canadian Professional Engineering and Geoscience: Practice and Ethics
. Nelson. p. 53.
ISBN
978-0-17-644134-0
.
- ^
Marion E. Bickford (24 September 2013).
The Impact of the Geological Sciences on Society
. Geological Society of America. pp. 16?.
ISBN
978-0-8137-2501-7
.
- ^
Lawrence M. Salinger (2005).
Encyclopedia of White-Collar & Corporate Crime
. SAGE. pp. 109?.
ISBN
978-0-7619-3004-4
.
- ^
Brian Hutchinson (1 May 1999).
Fools' Gold: The Making of a Global Market Fraud
. Knopf Canada.
ISBN
978-0-676-97192-7
.
- ^
Kerry B. Collison (1 January 2002).
Indonesian Gold
. Sid Harta.
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
[
edit
]