Busang, Kalimantan Indonesia

(Compiled Prof. Michael Cummings)

I. Announcement stage

    A. March, 1996 announcement to shareholders of Bre-X Minerals

    B. Property located in East Kalimantan, Indonesia

1.     "933 t (30 million ounces) plus, plus, plus."

2.     grade: 0.088 oz/short ton

3.     Decided to sell 25% of project to a senior partner

4.     Open-pit operation (ore body near the surface)

5.     Poor reproducibility of grades by fire-assay result of gold being fine and coarse-nuggetty

6.     Hosted in volcanic domes intruded into a diatreme (explosively emplaced neck of a small volcano)

7.     Eighty percent of gold can be recovered by gravity (low cost of production)

II. Joint Venture Stage

A.   Freeport-McMoran Copper and Gold Inc wins competition for 15% interest in Busang

1.     Freeport obtains mining rights to the deposits

2.     Joint venture between Freeport and Bre-X Minerals would form an Indonesian company that would obtain Contract of Work from Indonesian government to explore and develop the mining rights

3.     Indonesian company ownership: 45% Bre-X Minerals, 40%Indonesian interests including government of Indonesia 15% Freeport-McMoRan

4.     Freeport provide 25% of total estimated cost of US$400MM

5.     Freeport obtained on behalf of Indonesian Company US$1.2B project financing commitment from Chase Manhattan Bank

III. The unraveling stage

A.   Up to the unraveling stage

1.     Deposit contained anywhere from 2.2 to 6.2 kt (71 to 200 million oz) of gold

2.     Bre-X Minerals rose from small company to greater than C$3.3-billion powerhouse

B.    By March, 1997 trouble in paradise

1.     Apparent suicide of Bre-X’s chief Geologist:Michael de Guzman - jumps to death out of a helicopter

2.     Freeport announces their drilling program at Busang "indicate insignificant amounts of gold"

3.     Massive sell off of Bre-X shares (off 82% in one day)

4.     "potential gold resources on the Busang project ... have been overstated because of invalid samples and assaying of these samples"

IV. The Finger Pointing Stage

A.   "multibillion-dollar Busang gold fraud in Indonesia is one of the century’s biggest scams"

B.    "Who masterminded, executed and knew about the huge sample-spiking process? And who profited from the scam?"(Wall Street Journal May 27, 1997)

C.    President of Bre-X Minerals says he is a "victim" of the fraud

D.   Filipino geologists who ran Bre-X’s sampling operations are not available.

E.    The legal questions:  "No one really has jurisdiction. The salting {of the gold samples} took place in Indonesia, but what laws were really broken in that country? The law against salting? There is none. The law against deceiving shareholders? That happened in Canada and the U.S. Most of the main suspects probably disappeared in the Philippines. But what law did they break in the Philippines? Are they fugitives? No. Can a prosecutor in Canada get a warrant for those guys in the Philippines for what they did in Indonesia? Very tricky."

F.    In Indonesia, no extradition or law-enforcement cooperation agreements exist with Canada or the U.S.

G.   Bre-X Minerals Ltd and two affiliated companies have been ordered out of Indonesia (Wall Street Journal October 13, 1997)

H.   President of Bre-X Minerals "holds out scant hope that Bre-X ... would be able to repay any more than a tiny fraction of the billions of dollars of shareholder value wiped out in May..."

I.      Properties are almost worthless   Stock collapsed from C$280/share to pennies per share

J.     Criminal investigation by Royal Canadian Mounted Police continuing

K.   Blame for salting scam placed firmly on Mr. de Guzman.

V. The "Silver Lining?"  (Wall Street Journal, October, 1997)

A.   Bre-X Minerals Ltd share certificates being sold on the streets of Toronto

B.    US$18 for framed certificate, US$7 for rolled-up certificates

C.    Certificates are not the real thing - just a reprint of one

D.   Real certificates are going for up to $215 each

VI. Ten years later: Geologist John Felderhof was found not guilty of insider trading as allegded by the Ontarios Securities Commission.

http://www.canada.com/calgaryherald/story.html?id=bda3bc88-69eb-4fce-a80c-205737df46e4&k=172

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