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The Bre-X Fraud
The history books will add the Bre-X saga to other legendary frauds like the South Sea Bubble. When the Bre-X bubble burst, the stock that had soared from fifty cents in 1994 to the equivalent of $286 in 1996 was worth nine cents in May 1997, before trading halted forever. And the Busang deposit, supposedly as much as 200 million ounces of gold, worth about $70 billion U.S. – the biggest gold find in history – was actually the century’s biggest fraud.
How did this happen, right under the noses of the financial world?
In this book the experienced investigative team from The Globe and Mail’s Report on Business that broke the story of Bre-X’s troubles has combined forces to answer that question. With literally hundreds of Bre-X interviews behind them, and drawing on resources from several continents, they have been able to explain the twists and turns of this complex tale. The result is a fascinating true story that reads like the wildest fiction.
How did this happen, right under the noses of the financial world?
In this book the experienced investigative team from The Globe and Mail’s Report on Business that broke the story of Bre-X’s troubles has combined forces to answer that question. With literally hundreds of Bre-X interviews behind them, and drawing on resources from several continents, they have been able to explain the twists and turns of this complex tale. The result is a fascinating true story that reads like the wildest fiction.
272 pages, Hardcover
First published August 29, 1997
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Displaying 1 - 3 of 3 reviews
November 6, 2012
This mining fraud got more coverage in Canadian papers than any other business story,with one exception,for over twenty years prior to the book being written. The Canadian Globe and Mail newspaper were in the forefront of covering the whole saga,which occurred in the mid 1990s. It was a natural that a book should emanate from this source when the scandal broke, It just required a couple of competent journalists to put the story together. The book which resulted is a competent piece of work,well worth reading.
Much of the book is concerned with a number of parties jockeying for position to get a slice of the action once it seemed clear that a major mining deposit had been discovered. It was inevitable from the start that the Suharto ruling family would be materially involved,whatever the outcome. The book comments that this family looks good only by comparison to the Philippines "kleptocratic" Marcos family. The strategy of any company seeking involvement required taking a Suharto sibling or associate on board. But even that strategy by itself did not guarantee sucess. As Bre X itself discovered when it took on Sigit,'the Suharto offspring who effortlessly combined greed,a bad reputation,and ineffectiveness'. Two Canadian majors, Placer and Barrick(both successive operators of Pogera copper mine in PNG), because serious contendors. Barrick alligned with the more influentual Suharto sibling,Tutut, and got high powered names like George Bush and
Canadian ex premier Mulroney, to plead their case at the highest level. But their pushy coercive approach brought out the critics,and ultimately doomed their efforts. "Bre-X has been saved from a forced marriage with a gold digger",the Jakarta Post commented when it became apparent that Bob Hassan,Suharto's right hand man,had arranged a deal with Freeport McMoRan. Freeport operates the hugely successful copper mine in Irian Jaya and is Indonesia's biggest taxpayer.
The deal struck with Bre-X was instructive in showing how Indonesian interests at the top were ultimately able to muscle in and claim a giant's share of any promising project. Bre-X were left with 45% interest;30% went to two Hasan/Suharto controlled companies;10% to the Indonesian government;and 15% to Freeport who would do all the work - raise finance,develop the mine and be the operator. Bre-X were thus forced to relinquish 45% interest in their project - for free. Either that or no Contract of Work (development licence) - would be issued.
Once the deal was done the story unwinded in no time, when Freeport commenced due diligence. They discovered straight away insignificant amounts of gold from drilling samples - though they drilled in close proximity to where Bre-X had achieved sensational results. The evidence points to De Guzman,the Filipino geologist, being responsible for introducing grains of gold into the samples. In this case alluvial gold found from rivers and streams nearby.
The big question is -did De Guzman act alone? This book addresses this mystery but many questions remain. The Busang campside was manned mainly by a Filipino crew at the end, and it appears most likely,according to the book,that some of his compatriots were also involved in tampering with the samples. It remains a mystery why De Guzman did what he did,knowing that inevitably the whole thing would eventually unravel. Was it a sort of Faustian pact to give him at least temporary celebrity status? Almost plausible in a Filipino context,but still unlikely,one would think.
The big question for me is - what was the involvement of John Felderhof,the Dutch geologist,who along with De Guzman,was responsible for the Busang 'find'. The book suggests that maybe Felderhof was aware of what De Guzman was up to, but his attitude may have been 'see no evil,hear no evil,speak no evil'. The authors may have felt that to imply or insinuate anything further would be foolhardly - Felderhof would sue. I can understand their reticence,given the volatile picture painted of this individual.
John Felderhof was a geologist whose main claim to fame was his part in discovering the Ok Tedi gold and copper mine,still producing in Papua New Guinea. But he endured many lean years thereafter,which may help to explain his grudge towards big companies - they shunned him for many years. This may explain when in Dec 1996 he refused entry to Barrick's drilling team,at a time when it seemed they were close to a partnership. It may also be because he didn't want them to discover what was actually going on. More strange,in 1995,Felderhof refused to use a geologist specially hired by David Walsh, head of Bre-X itself. The book states that throughout,Felderhof and De Guzman preferred to hire recent university graduates,rather than bring in experienced geologists.
In an interview with one of the book's authors shortly before the collapse,Felderhof appeared tense and unhappy,not the picture of a man who should be on a crest of a wave as the project had just obtained a Contract of Work permitting them to proceed.
When the Bre-X story burst,the New York Times lamented,"Oh,Canada" in a page one article that noted the country is home to more stock scams per capita than any other. Alas, that tradition persists to this day. In Papua New Guinea today,for example, the one cowboy resource company I know to operate there is a Canadian oil and gas company. It bribed the government into giving it an exclusive licence to supply refined oil to the local market on the understanding its refinery would refine domestic PNG crude. From day one it never did that, instead it imported crude from Singapore, and the latest I hear its refinery - old secondhand equipment from US - just blends imported refined oil, with the inevitable result that the consumer is paying more its petrol
Much of the book is concerned with a number of parties jockeying for position to get a slice of the action once it seemed clear that a major mining deposit had been discovered. It was inevitable from the start that the Suharto ruling family would be materially involved,whatever the outcome. The book comments that this family looks good only by comparison to the Philippines "kleptocratic" Marcos family. The strategy of any company seeking involvement required taking a Suharto sibling or associate on board. But even that strategy by itself did not guarantee sucess. As Bre X itself discovered when it took on Sigit,'the Suharto offspring who effortlessly combined greed,a bad reputation,and ineffectiveness'. Two Canadian majors, Placer and Barrick(both successive operators of Pogera copper mine in PNG), because serious contendors. Barrick alligned with the more influentual Suharto sibling,Tutut, and got high powered names like George Bush and
Canadian ex premier Mulroney, to plead their case at the highest level. But their pushy coercive approach brought out the critics,and ultimately doomed their efforts. "Bre-X has been saved from a forced marriage with a gold digger",the Jakarta Post commented when it became apparent that Bob Hassan,Suharto's right hand man,had arranged a deal with Freeport McMoRan. Freeport operates the hugely successful copper mine in Irian Jaya and is Indonesia's biggest taxpayer.
The deal struck with Bre-X was instructive in showing how Indonesian interests at the top were ultimately able to muscle in and claim a giant's share of any promising project. Bre-X were left with 45% interest;30% went to two Hasan/Suharto controlled companies;10% to the Indonesian government;and 15% to Freeport who would do all the work - raise finance,develop the mine and be the operator. Bre-X were thus forced to relinquish 45% interest in their project - for free. Either that or no Contract of Work (development licence) - would be issued.
Once the deal was done the story unwinded in no time, when Freeport commenced due diligence. They discovered straight away insignificant amounts of gold from drilling samples - though they drilled in close proximity to where Bre-X had achieved sensational results. The evidence points to De Guzman,the Filipino geologist, being responsible for introducing grains of gold into the samples. In this case alluvial gold found from rivers and streams nearby.
The big question is -did De Guzman act alone? This book addresses this mystery but many questions remain. The Busang campside was manned mainly by a Filipino crew at the end, and it appears most likely,according to the book,that some of his compatriots were also involved in tampering with the samples. It remains a mystery why De Guzman did what he did,knowing that inevitably the whole thing would eventually unravel. Was it a sort of Faustian pact to give him at least temporary celebrity status? Almost plausible in a Filipino context,but still unlikely,one would think.
The big question for me is - what was the involvement of John Felderhof,the Dutch geologist,who along with De Guzman,was responsible for the Busang 'find'. The book suggests that maybe Felderhof was aware of what De Guzman was up to, but his attitude may have been 'see no evil,hear no evil,speak no evil'. The authors may have felt that to imply or insinuate anything further would be foolhardly - Felderhof would sue. I can understand their reticence,given the volatile picture painted of this individual.
John Felderhof was a geologist whose main claim to fame was his part in discovering the Ok Tedi gold and copper mine,still producing in Papua New Guinea. But he endured many lean years thereafter,which may help to explain his grudge towards big companies - they shunned him for many years. This may explain when in Dec 1996 he refused entry to Barrick's drilling team,at a time when it seemed they were close to a partnership. It may also be because he didn't want them to discover what was actually going on. More strange,in 1995,Felderhof refused to use a geologist specially hired by David Walsh, head of Bre-X itself. The book states that throughout,Felderhof and De Guzman preferred to hire recent university graduates,rather than bring in experienced geologists.
In an interview with one of the book's authors shortly before the collapse,Felderhof appeared tense and unhappy,not the picture of a man who should be on a crest of a wave as the project had just obtained a Contract of Work permitting them to proceed.
When the Bre-X story burst,the New York Times lamented,"Oh,Canada" in a page one article that noted the country is home to more stock scams per capita than any other. Alas, that tradition persists to this day. In Papua New Guinea today,for example, the one cowboy resource company I know to operate there is a Canadian oil and gas company. It bribed the government into giving it an exclusive licence to supply refined oil to the local market on the understanding its refinery would refine domestic PNG crude. From day one it never did that, instead it imported crude from Singapore, and the latest I hear its refinery - old secondhand equipment from US - just blends imported refined oil, with the inevitable result that the consumer is paying more its petrol
December 18, 2024
Interesting read. However, there are only a few pages about how they salted the samples and tampered with the process. It supposedly the most significant tampering scandal, however a lot of questions remain unanswered.
August 9, 2019
A timeless fable that illustrates the saying that if it's too good to be true, it probable is.
Displaying 1 - 3 of 3 reviews