Bre-X Scandal: A History Timeline
Sponsored by: BDO and BDO Natural Resources LinkedIn Group
This infographic documents the rise and fall of Bre-X.
From initial private offerings at 30 cents a share, Bre-X stock
climbed to more than $250 on the open market. Near the peak of Bre-X
share prices, major banks and media were on board:
The Peak
- It was touted by media and banks as the “richest gold deposit ever”
- In December 1996, Lehman Brothers Inc. strongly recommended a buy on “the gold discovery of the century.”
- Major mining companies such as Barrick Gold, Placer Dome, and
Freeport-McMoRan Copper & Gold, among other top producers, fought an
epic battle to get a piece of Bre-X’s Busang deposit.
- Indonesia’s Suharto regime managed to grab 40% of the deposit for Indonesian interests.
- Fidelity Investments, Invesco Funds Group, and other mutual-fund companies piled into the stock.
- J.P. Morgan bankers talked up Busang in a conference call in which
Bre-X’s top geologist predicted the deposit might contain a staggering
200 million oz of gold, worth over $240 billion in 2014 prices. Morgan
declined to comment.
- Egizio Bianchini, stock broker and one of Canada’s top gold
analysts, said “What most people are now realizing is that Bre-X has
made one of the great gold discoveries of our generation.”
The Timeline:
1989: David Walsh founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd.
1993: Walsh followed the advice of geologist John Felderhof and
bought a property in the middle of a jungle near the Busang River in
Borneo, Indonesia.
1994: Initial drill results were encouraging, and the drill program was ramped up.
1994: However, it was the project manager, Michael de Guzman, who was
filing gold from his wedding ring and mixing the flakes in with the
crushed core samples.
De Guzman used realistic ratios of gold to rock to not set off alarm bells, and to keep project going forward.
Over the next 2.5 years, de Guzman would buy $61k of panned gold from locals to use in salting.
Independent auditors that were sent in by large institutional
investors found that the panned gold had rounded edges, but de Guzman
explained it was because of “volcanic pool” theory.
De Guzman, Felderhoff and Walsh sell off a small portion of their options for $100 million
1996: Bre-X hits a snag with the Indonesian government, who claimed
that Bre-X was not playing by the “rules” of the country. Bre-X’s
exploration permits are revoked.
1997: January fire at Busang destroys many of the sample records.
1997: After many major miners express interest in Bre-X, eventually a
joint venture is reached that gives Indonesia 40% share, Bre-X 45%, and
Freeport McMoRan a 15% share of interests.
1997: Freeport begins due diligence on deposit and starts to twin holes that were already drilled.
1997: Freeport reports “minor amounts of gold” in some holes, but not much else.
1997: On his way to meet the Freeport due diligence team, de Guzman
mysteriously falls to his death 600 ft from a helicopter. Police rule it
a suicide.
1997: Shares of Bre-X crash.
1997: Report confirms that there is no gold at Busang, and samples were tampered with.
