Gold Find, Touted as Biggest of Century, Doesn’t Pan Out

A Canadian gold prospector’s claim to have made the biggest gold discovery this century was cast into doubt Wednesday when tests of the deposit deep in the jungles of Indonesia showed insignificant amounts of gold.

Calgary-based Bre-X Minerals Ltd., which found the deposit, admitted that the test samples from the Busang gold property on the island of Borneo may have been overstated.

The news stunned investors just one week after the mysterious death of Bre-X’s chief Busang geologist, who plunged out of a helicopter into the jungle.

Bre-X Chief Executive David Walsh, who has made millions of dollars from the discovery and now lives in the Bahamas, acknowledged in a statement that “there appears to be a strong possibility that the potential gold resources on the Busang project in East Kalimantan, Indonesia, have been overstated because of invalid samples and assaying of those samples.”

New Orleans-based Freeport McMoRan Copper & Gold Inc., Bre-X’s partner in Busang, said in a separate statement minutes earlier that analyses of its own drilling results so far “indicate insignificant amounts of gold.”

The news caused pandemonium on the Toronto Stock Exchange, where Bre-X has been the hottest story for months. Traders said the share price, which was last quoted at $11.375 in Nasdaq trading, could collapse to $1.45, but the stock was halted in Toronto.

Freeport shares fell $1.625 to close at $28.75 on the New York Stock Exchange after the news.

“This is devastating news for Bre-X,” said John Ing, president of Toronto brokerage Maison Placements Inc.

Bre-X earlier this year had issued confirmed estimates that the Busang deposit held at least 71 million ounces of gold, worth about $20 billion at current gold prices.

At that level, Busang would be the most significant gold find since the discovery of the Witwatersrand gold fields in South Africa in the late 1800s.

John Felderhof, Bre-X’s head of exploration, said last month that Busang may contain up to 200 million ounces of gold.

Bre-X shares, which had traded at an all-time high of $20.80 after a 10-for-1 stock split in 1993, sank last week after an Indonesian newspaper report quoted unnamed sources as saying Freeport, which holds 15% of Busang, had doubts about the size and viability of the deposit.

The rumors were fanned to a fever pitch by the death, billed as a suicide, of Michael de Guzman, the chief geologist.

Bre-X said de Guzman was depressed because he was suffering from a serious illness.

After Busang’s discovery, Bre-X quickly became the target of an intense bidding war as several heavyweight mining firms battled for control.

Toronto-based Barrick Gold Corp., armed with an advisory board that included former U.S. President George Bush and former Canadian Prime Minister Brian Mulroney, initially dominated the negotiations.

But Barrick’s inside track ended when the government of President Suharto brought in Indonesian businessman Muhammad “Bob” Hasan in January.

Hasan swiftly brokered a deal that gave Freeport McMoRan 15% of Busang and the right to mine the project.

The arrangement left Bre-X with 45%, down from an original 90% stake, and the rest to the Indonesian government and two Indonesian firms.