Bre-X scandal

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The 1997 Bre-X scandal , or Busang hoax, was one of the largest mining and stock market scandals in Canadian history. It is named after the Canadian exploration company Bre-X Minerals Ltd. (Calgary) and its territory of Busang in the Indonesian province of Kalimantan Timur on Borneo . Temporarily was Busang as one of the largest ever discovered gold - deposits in the world, to know was that the reserve calculation rock samples used were massive and systematically falsified. The vertigo is considered to be one of the most daring and carefully executed in mining history. The respective responsibilities of individual members of the Bre-X management have not yet been clarified, and no one has yet been legally convicted of the fraud.

prehistory

The catchment area of ​​the Mahakam in Borneo

The Busang Territory is located about 350 km northeast of Samarinda . It was identified in 1986 by John Felderhof , then chief geologist for the small Australian exploration company Jason Mining . At that time, however, the area was still called Muara Atan. To get there, it took a twelve-hour speedboat ride across the Mahakam and Kelinjau , followed by another four to five hours in a canoe on the Atan . Soon after, the Indonesian geologist Jonathan Nassey, who worked for Western Ralian Resource Projects and who had also followed in the footsteps of local gold prospectors , appeared.

The first work was carried out a year later by Westralian's Indonesian subsidiary PT Westralian Atan Minerals (PT WAM for short). Their local partners were the businessman Jusuf Merukh and the influential Syakerani family. The British geologist Stephen Walters took the first rock samples for geochemical analysis and carried out the first geological mapping of the Central Zone. In doing so, he discovered a small system of veins that resembled the ore in the well-known Kelian gold mine in Kalimantan, and the first gold grades determined were encouraging.

Another year later, geologists John Levings and Graeme Chuck took soil samples for Western Ralian, which they used to demonstrate the existence of several gold anomalies extending east or northeast. They then opened some trenches across these anomalies with a bulldozer . The analyzes were also interesting: there were several sections of six to twelve meters with an average gold content of 10 to 15 grams per ton. In addition, other rock samples were also taken on the surface, including in the later “Southeast Zone”. However, these yielded much lower values ​​than those from the central zone.

Meanwhile, Montague bought gold into the project by assuming some of PT WAM's financial commitments, and in 1989 they jointly completed the first 19 test wells. Gold was found in all but two boreholes, but the grades and thicknesses were disappointing. In addition, the location of the mineralized zones was erratic and difficult to classify in a specific geological structure. Bigger mining companies like Homestake Mining , who looked at the results, were not impressed and turned down a joint venture with Montague and PT WAM. After the collapse of the financial market in 1987, the general interest in small projects was still very low.

Work in Busang was suspended for a few years and the project came under the control of financial investor Waverley Asset Management . In 1992 John Felderhof was commissioned by Waverley to find a buyer for the project. He then sent an old friend, the Filipino geologist Michael de Guzman , to re-examine the project. De Guzman was not only regarded as technically competent, but also as having moral integrity. Years ago he had been bullied from his workplace in the Akupan mine for not wanting to be involved in the organized gold thefts of middle management. His assessment of the courtship area was now significantly more optimistic than the previous one. He believed the central zone to be only a small part of a much larger mineralized system, around a former volcanic vent , and recommended further work. His first estimate of resources was at least 20 million tons of mineralized rock, with an average salary of 2 grams of gold per tonne in the open pit could be won to 50 meters deep. That would give a gold grade of about 40,000  kg or 1.3 million ounces . This would mean that the psychologically important “one million ounce limit” would be exceeded, above which larger investors could also be interested. Another, more speculative estimate by Michael de Guzman revealed 60 million tons of ore resources minable underground to 150 meters with a gold content of over 3.5 grams per ton, a total of 210 tons of gold or 6.8 million troy ounces. However, this resource included half of the surface deposit.

The rise of Bre-X

In March 1993, Felderhof was contacted by the Canadian businessman David Walsh , who had met him briefly years ago and who, after several business failures, was now trying to find new promising projects for his exploration company Bre-X Minerals . A first meeting took place in Jakarta in April . Although Walsh was by no means the financially strong investor that they had hoped for, the deal came off nonetheless. Felderhof became Bre-X manager for Indonesia and hired de Guzman as chief geologist. Then there were geologists Jonathan Nassey and Cesar Puspos.

Over the summer, Walsh sought to raise capital - Bre-X stock was trading at around 45 cents at the time - and the first three test wells were completed in Busang in October. While the first two holes were almost deaf , the third hole yielded three gold-bearing zones, one of which was over 40 meters thick, to the relief of all concerned.

Major mining companies like Barrick Gold , Teck Resources , Newmont Mining and Placer Dome also looked at the project, but were not impressed. Only Paul Kavanagh , the renowned director of Barrick Gold’s exploration, showed interest. When he surprisingly gave up his position to join the board of directors of Bre-X, it caused astonishment in the industry. But the very encouraging results of further drilling in early 1994 seemed to confirm his decision brilliantly. Analysts have now published the first positive reviews about the Busang project, and the previously threatened bankruptcy was averted for the time being. Bre-X's share price began to rise slowly, reaching nearly three Canadian dollars by the end of the year .

In February 1995, the first independent resource calculation by consultant Roger Pooley was published: at least 10.3 million tons of ore, grading 2.9 g / t gold, that is, in fact, 29.9 tons of gold (approximately 1 million ounces). At the same time the discovery of the so-called "Southeast Zone" (or Busang II) was announced. Unlike the central zone, this zone of mineralized rock extended over a length of almost five and a half kilometers and was also clearly visible in aerial photographs. Once again, the test drillings produced extremely gratifying results. The local minority shareholders were again the Syakerani family, but the other partner in Busang I, Jusuf Merukh, was not involved in the new prospectus. This circumstance would later lead to decisive legal complications.

In September, Teck also renewed his interest, as it had been noticed that the regional structures and the rock alteration of Busang could be seen even in satellite photography . When Teck suggested carrying out their own test drilling, as is common practice before a joint venture, Walsh surprisingly refused. Also, until the completion of the drilling program in the southeast zone, Felderhof prohibited visits by representatives of interested companies to the site.

In October, PT Kilborn Pakar Rekayasa , the Indonesian branch of the respected consulting and engineering company Kilborn Engineering , published a new resource calculation including the new wells: 35 million tons of ore at 2.44 g / t, i.e. 85 tons of gold (2 , 75 million ounces). Aside from the fact that these results were higher than the Pooleys, Kilborn's reputation was far greater than that of any individual consultant. The unofficial estimates of Felderhof about the possible potential of the Busang project were, as before, always many times higher, after further "scout drilling" with fabulous results in the southeast zone, even by orders of magnitude. In November, Bre-X shares hit a tentative high of 59 Canadian dollars. When no new analysis data was published for a while after that, the price fell again.

The first calculations for the Southeast Zone were published on February 20, 1996: 41 million tons of ore of measured and possible resources, at 2.72 g / t, 110 tons of gold (3.6 million ounces), plus 110 million tons of inferred ore resources at 2.65 g / t, i.e. 290 tons of gold (9.4 million ounces). Together with the resources from the central zone that have already been calculated, this would result in almost 16 million ounces. Investors were delighted with these numbers and the stock market price rose to over $ 100 by the end of the month. However, it was overlooked that with " assumed " resources there is only a certainty of information of 20 to 40%. If you look soberly, the stock market price was already way ahead of the calculated value of the company. But even experienced top analysts like Egizio Bianchini were seized by the euphoria and only stared at the supposedly huge number of "ounces" and the future potential of the deposit. Comparisons have already been made with world-class deposits such as the Witwatersrand or the Carlin Belt ( Nevada ). Skeptics, however, were assumed to be just jealous of the success of the small “junior” society.

On April 23, Bre-X was listed on the Toronto Stock Exchange , where the company soon appeared in the index of the top three hundred companies (TSE 300). In May, the stock hit a record $ 286.5. This brought the company's market value to 6 billion Canadian dollars (about 4.4 billion US dollars ) and serious consideration was given to Bre-X in the Dow Jones Index . From September it was listed on the New York NASDAQ . New resource calculations were published at regular intervals, always with more than millions of "ounces".

Legal problems and the "bidding war" over Busang

Soon after Bre-X's huge success began to emerge, Waverley Asset Management , the former owner of PT WAM, got in touch. The company management accused Felderhof of having acted more in his own interest than that of his client when selling the shares to Bre-X. When it turned out that, for unclear reasons, not Bre-X but still Westralian Resource Projects was registered as a foreign partner of PT WAM with the Indonesian mining authority , Waverley had one foot in the door again. Bre-X "solved" the problem by simply buying Waverley's parent company PT WAM for $ 5.6 million.

On July 20, 1996, Bre-X's official drilling test permit in Busang II expired. The application for an extension of the permit was initially granted, but on August 15 it was withdrawn, probably at the instigation of Merukh, who wanted to emphasize his claims in the southeast zone. Nevertheless, Bre-X continued its drilling program to counter the falling stock market price.

In the fall, Bre-X announced that it was looking for a partner to develop the Busang project, be it a merger with another company, a joint venture, or the sale of part or all of the deposit. Since it was already foreseeable that this business would be worth billions of dollars, only a few large gold producers came into question. In order to strengthen their own position and to obtain the still outstanding exploration permits, Bre-X entered into a "strategic partnership" with PT Panutan Duta , a company owned by Sigit Harjojudanto, the eldest son of President Suharto . Barrick Gold, however, allied with the Citra Group , which was controlled by Suharto's eldest daughter Siti Hardyanti Rukmana. Other companies such as BHP Billiton also expressed their interest, but withdrew again because the Indonesian government interfered too much in the business. Even Brian Mulroney , the former Prime Minister of Canada, and George Bush , the former President of the United States, both with Barrick consultancy contracts, campaigned for the company at Suharto. This gave the impression of a conspiracy between the Indonesian Ministry of Mines and Barrick, who used legal maneuvers to put pressure on Bre-X in order to steal the find of the century from the small "junior" company. This seriously damaged the reputation of Peter Munk , President of Barrick Gold. On November 26th, Walsh announced that Bre-X had been ordered by the Indonesian government to enter into a joint venture with Barrick by December 4th, at a 25% to 75% ratio.

Meanwhile, Waverley and Merukh threatened further legal action. Apparently, the Indonesian government feared these trials would delay the start of production in Busang and began considering abandoning the forced Bre-X-Barrick joint venture. Instead, Bre-X could be auctioned on the grounds that Bre-X did not have a valid exploration permit and that Busang therefore still belongs to the "Indonesian people". Bre-X promptly issued a new resource calculation to fuel the interest of potential bidders: 780 million tons of ore at 2.38 g / t, i.e. 1900 tons (60 million ounces) of gold. In addition, the Busang open pit mine would have an unusually favorable overburden to ore ratio of one to one and the gold would be easy to obtain using conventional metallurgical techniques. At the beginning of 1997 Bre-X published the results of twelve additional holes with high grade ore, some over intervals of hundreds of meters.

On January 17th, Placer Dome offered a merger with Bre-X, making Walsh the largest single shareholder in Placer Dome. The bait for the Indonesian government should be a local 40% stake in the company. At this point, Muhammad Hasan , a personal friend of President Suharto and an influential industrialist , got involved in the negotiations. Apparently he was trying to avoid the threatening public conflict between Suharto's children, who were on different sides. After Teck had withdrawn from the negotiations, Hasan threaded an agreement with Freeport-McMoRan , in which the Suharto and Syakerani families were generously considered, as well as Hasan himself. The contract was presented on February 17, 1997 and Freeport-McMoRan started with the final evaluation of the project. Unlike Kilborn Engineering before, which could only re-analyze the rock samples taken by Bre-X and check the calculations made, Freeport-McMoRan was now free to carry out their own test drillings and analyzes.

Due to the legal uncertainties and the forced joint venture, Bre-X's stock market price had fallen steadily. To counteract this trend, a resource calculation was published once again: 889 million tons of ore, with 2.48 g / t, or 71 million ounces (about 2200 tons of gold). In contrast, unofficial estimates by Felderhof and Walsh were already in the order of one hundred to two hundred million ounces, without including the supposedly enormous potential of Busang III.

Climax and crash

On March 10, the annual meeting of the Prospectors and Developers Association of Canada took place in Toronto , where Felderhof received the prestigious award as "Prospector of the Year". That same evening Walsh received a call from Freeport that there were unexpected problems with the first control wells in Busang. The project manager Michael de Guzman was then sent back to Indonesia to clarify the matter.

On March 19, 1997, de Guzman disappeared from a flying helicopter, apparently on the way to Busang. The next day, Bre-X published an alleged suicide note in which de Guzman announced that he had ended his life because of a diagnosed hepatitis B illness. Four days later, an already severely decayed and animal-eaten corpse was found in the jungle, which Bre-X metallurgist Jerry Alo identified as the de Guzman's.

Rumors of the problems in Busang leaked to the public and a frantic sell-off of Bre-X shares began immediately. President Suharto postponed the signing of the contract negotiated by Hasan indefinitely. Walsh initially suspected a short-seller conspiracy to depress Bre-X's share price and accused " ghostwriters " who spread rumors on the Internet to damage the company's reputation. The influential Canadian analyst Egizio Bianchini initially declared the allegations "silly". David Walsh asked for a second opinion and hired the consulting firm Strathcona Minerals to review the data. Their first impression was also that the Busang project was far too big to be a complete fraud.

On March 26th, Freeport-McMoRan published the results of the analysis of the sample drilling it had carried out, with the result that its samples contained only "insignificant gold grades". This news shed a whole new light on de Guzman's alleged suicide. When stock trading resumed the next day, Bre-X stocks fell from $ 13 to $ 2 and 50 cents in half an hour.

At first there were still voices that Freeport only wanted to lower the purchase price with these reports; it is physically impossible to forge 48,000 rock samples without the fraud being discovered. But on April 11th, The Northern Miner , Canada's premier mining newspaper, released a video showing a complete metallurgical laboratory on the Busang property, which is downright unusual for an exploration camp. Jerry Alo has been preparing the rock samples there since the early stages of the project before sending them to independent laboratories.

On May 4th, Bre-X's own consultant, Strathcona, also stated that the samples from the very first drillings in the Central Zone had already been "salted" with gold dust or gold concentrates from soap deposits . The consistency of the forged samples resulted from the fact that no whole cores were sent to other laboratories, but only samples that had already been ground. Otherwise the erratic, strongly fluctuating results would have been noticed immediately. The fact that the analysis data fit plausibly into the geological framework also contributed to the credibility. Had the Indonesian government not insisted on bringing in a joint venture partner of its own choice, this deception could have gone on for a long time. New "gold finds" would have kept the share price high, and any interested parties would have had to sign a confidentiality agreement with Bre-X, which means that they would not have been allowed to pass on the reasons for their withdrawal from planned contracts to third parties. In summary, Strathcona stated: “Nonetheless, the magnitude of the falsification of drill samples, […] and the subsequent falsification of analytical data in Busang, is of an extent, of a duration and of a precision which, as far as we know, has no parallel in history mining, somewhere in the world. "

Trading in Bre-X shares on the Toronto Stock Exchange and NASDAQ ceased on May 5, and the price fell to three cents the following day. On May 8th, the companies Bre-X and Bresea filed for bankruptcy.

In the aftermath, numerous and contradicting rumors soon circulated, especially about the unexplained disappearance of de Guzman, after it had become clear that the geologist, previously considered to be of integrity, who at least sold Bre-X shares worth 4.5 million dollars, had lived a double life for years Had led. At his funeral it emerged that he had been married to four women at the same time without any of them knowing anything about the other. De Guzman's family, however, sharply rejected the suicide hypothesis. In reality he was thrown out of the helicopter on behalf of those actually responsible in order to be able to represent him as the only scapegoat . The very fact that a corpse was found in the swampy jungle area aroused suspicion, because a year earlier in the same region a complete helicopter crew had disappeared without even the slightest trace of them being discovered. In some versions it was said that the corpse was identified on the basis of fingerprints and tooth position, in others that the fingerprints did not match and that de Guzman no longer had any teeth of his own due to a deficiency disease in his childhood. According to a report in the conservative Canadian newspaper National Post on May 12, one of his wives is said to have received a money transfer from Brazil in February, at a time when de Guzman, according to official reports, was still in Indonesia. This would mean that de Guzman was actually still alive.

The consequences

Similar to the financial crash of 1987, the Bre-X scandal brought the entire raw materials industry into distress. For years it became very difficult for small and medium-sized exploration and mining companies to obtain venture capital.

Bre-X was sued several times by angry investors during May. Among the biggest losers are three public institutions were in Canada means retirement fund of the municipal employees of Ontario (Ontario Municipal Employees Retirement Board) lost about $ 45 million of pension funds from Quebec (Quebec Public Sector Pension Fund) 70 million and the pension fund of teachers of Ontario (Ontario teachers Pension plan) about 100 million. The scandal also had an impact on the Canadian financial sector, embarrassing, among other things, the head of the Toronto Stock Exchange, who was fired in 1999.

In 1999 the Canadian Federal Police closed their investigations without filing criminal charges against anyone; only the private class action lawsuits against directors of Bre-X, Kilborn and some financial advisory firms were pursued. The public criticized the insufficient personnel and financial resources of the police to investigate large-scale fraud cases, as well as the unsatisfactory legal situation in Canada.

In 2003 the last remaining company in the Bre-X group of companies (Bro-X) went bankrupt.

The Bre-X story was picked up by Hollywood producers in 2015. Under the title of Gold - Greed has a new color turned Stephen Gaghan a film loosely based on the story is based, and came into the American US on December 25, 2016 cinemas.

See also

literature

  • Douglas Goold, Andrew Willis: The Bre-X Fraud , McClelland and Steward, 1997
  • Vivian Danielson, James Whyte: Bre-X: gold today, gone tomorrow. Anatomy of the Busang Swindle , The Northern Miner Publications, Toronto 1997 ISBN 1-55257-003-7
  • Brian Hutchinson: Fool's Gold: The Making of a Global Market Fraud , Alfred A. Knopf, 1998
  • Brett Messing, Steven Sugarman: The Forewarned Investor: Don't Get Fooled Again by Corporate Fraud . Career Press, Franklin Lakes, NJ 2006, ISBN 1-56414-881-5 , pp. 143 (English, limited preview in Google Book Search [accessed January 27, 2017]).

Web links

Individual evidence

  1. ↑ Hollywood filmed the biggest scandal in the gold industry. In: goldreporter.de. June 29, 2015, accessed June 30, 2015 .