The Bre-X story will probably play itself out on the world stage for months to come, but it is now safe to say that something went terribly wrong at the company’s Busang gold project in Indonesia.
We were alarmed, along with many others, to hear that Bre-X’s chief on-site geologist, Michael de Guzman, had committed suicide by jumping from a helicopter on his way to the property to assist in a due diligence review by Freeport McMoRan Copper & Gold.
Some analysts shared this concern, simply because de Guzman was by far the most credible and experienced person on site. By this point, senior geologist John Felderhof had taken on an executive role as Bre-X’s vice-chairman.
Without De Guzman, the “senior” technical team at Busang consisted of little more than a young geologist, and a site manager/”chief metallurgist” who, to the best of our knowledge, has no degree in either science or metallurgy.
There were no Canadian geologists in any senior capacity, which is surprising when one considers that it was supposed to be one of the largest gold deposits in the world. But, at that time, no one was arguing with success.
Everyone was reassured that a well-known engineering firm was involved in the project, gathering information necessary to complete a feasibility study. The assay laboratory had good credentials, and the ounces started to add up at such a rate that everyone — including us — had to sit up and take notice.
Busang acquired even greater credibility when senior companies began their somewhat frantic efforts to get a piece of the pie. By this time, the drills were not only continuing to add ounces, but hitting glory holes and “paystreaks” as well. Most (but not all) mining analysts were in love. There were millions and millions of ounces, and potential for millions and millions more, and who cared about actually mining the stuff if there was more gold to be found? By this point, the Indonesian government and other people began salivating to get a piece of the “largest gold deposit in the world,” thereby ushering in for posterity a unique, if somewhat bizarre, chapter in the art of the mining deal.
While we had harbored a few niggling doubts up to this point, for us the Busang bubble burst on March 20, the day de Guzman was reported to have committed suicide. For others, it burst on March 26, when Freeport announced that its drilling program had returned “insignificant amounts of gold” and that there appeared to be a strong possibility that potential resources had been “overstated” by Bre-X, because of “invalid samples” and the assaying of those samples. At this point, there were more red flags flying than at a May Day parade during Joseph Stalin’s heyday.
On March 27, Freeport released results from seven holes drilled to confirm Bre-X’s previous results. The results were a bombshell — 166 metres of 4.39 grams gold from one Bre-X hole, compared with 166 metres of zip in a Freeport hole — but even worse was the fact that Freeport had noticed “visual differences” between gold particles from core holes it had drilled and those drilled by Bre-X. This raised the possibility that Bre-X’s samples had been salted, or otherwise rendered “invalid,” most likely during the on-site sample preparation stage. Bre-X brazenly tried to skirt the issue by issuing a non-sensical press release about problems with reproducibility using fire-assay. Nowhere was it mentioned that Freeport had used the same cyanide-extraction process Bre-X had used to analyze its core. Bre-X also failed to release, on a timely basis, the findings of a check-assay program from its own engineering firm, in defiance of requests by the Toronto Stock Exchange.
We can only hope that, from the ashes of this debacle, the mining industry and securities regulators can work together to bring about reforms to ensure that nothing like this can ever happen again.