Called World’s Richest, Gold Mine a Likely Hoax

The saga of a tiny Canadian mining company that boasted of discovering the richest gold mine on the planet--turning many of its penny-stock investors in Canada and the United States into paper millionaires in the process--reached an inglorious climax Sunday with evidence that the whole thing was a huge fraud.

Bre-X Minerals Ltd. of Calgary, Alberta, released results late Sunday of an independent analysis of samples drawn from its Busang claim in the Indonesian portion of the island of Borneo. The report concluded that there was no gold worth mining at the site.

Moreover, the report by Strathcona Mineral Services of Toronto determined that soil samples on which Bre-X based its earlier assertions that the site contained as much as 200 million ounces of gold had been falsified on a scale “that, to our knowledge, is without precedent in the history of mining anywhere in the world.”

Sunday’s report was an added twist in a tale that has amassed mystery and intrigue, including a dramatic suicide, and drawn the close attention of book publishers and movie producers across North America.

David Walsh, the 51-year-old former stockbroker who is chairman and chief executive of Bre-X, issued a statement in Calgary saying “we share the shock and dismay of our shareholders and others that the gold we thought we had at Busang now appears not to be there.”

Walsh promised an internal probe to determine the source of the fraud. His company, however, already is under investigation by Canadian securities authorities and the Indonesian government and is the target of half a dozen shareholder civil lawsuits in Canada and the U.S.

Sunday’s report confirms suspicions that particles of gold had been planted in the soil samples drawn from the site, a practice known in the mining trade as “salting.” While Strathcona did not identify any suspects, attention has focused so far on one of Bre-X’s principal geologists in Indonesia, Michael de Guzman, 40, who fell to his death from a helicopter in Borneo on March 19. De Guzman’s plunge was described by Indonesian and Bre-X officials as a suicide brought on by his depression over a recent medical diagnosis that he had hepatitis B.

At the time of his death, De Guzman was en route to a meeting with representatives of Freeport McMoRan Copper & Gold Inc. of New Orleans, which was preparing to become a Bre-X partner in developing the gold mine. A week later, Freeport released results of its preliminary tests on the mine claim suggesting the site was worthless.

That triggered a panic among investors, and on March 27 Bre-X stock dropped 84% in value, a loss of more than $2 billion.

Walsh responded that the Freeport tests must be wrong and hired Strathcona, a highly respected consulting firm, to test the samples independently. On Sunday, Strathcona in effect endorsed the Freeport tests.

Until it began to unravel in March, the Bre-X story seemed like a capitalist fairy tale come true. Walsh was a persevering but largely unsuccessful entrepreneur just emerging from personal bankruptcy in 1993 when he scraped together enough capital to buy exploration rights to the Busang claim.

Bre-X was trading at $2.05 Canadian in March 1995 when reports of the Indonesian strike began circulating.

It rose to more than $250 Canadian last year before it split, 10 shares for one.

Those who sold while the stock was still soaring became millionaires. Among them were Walsh, his wife, Jeanette, and Bre-X chief geologist John Felderhof, now company vice chairman.

The Toronto Stock Exchange announced Sunday night that it would suspend further trading in Bre-X today.