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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.[when?] 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 70,000,000 troy ounces (2,400 ST; 2,200 t). Reports of resource estimates of up to 200,000,000 troy ounces (6,900 ST; 6,200 t) were never made by Bre-X though the property was described as having this potential by John Felderhof, Bre-X’s Vice-President for Exploration, 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.
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 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$6.4 billion in current terms adjusted for inflation.
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 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.
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 molars 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, led by Australian geologist Colin Jones, showed “insignificant amounts of gold”.
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