TORONTO (AP) — The search for a jungle El Dorado is over; the search for culprits in an astounding gold mine fraud has begun.
Half a world apart, Canadian and Indonesian authorities opened investigations Monday into how Bre-X Minerals, a tiny exploration company from Alberta, managed to convince countless experts and investors that a tract of land in Borneo contained the biggest gold find of the century.
After two years as a stock market superstar, Bre-X was suddenly a pariah after an independent consulting company reported Sunday that the Busang site was worthless. It said thousands of seemingly promising crushed rock core samples collected by Bre-X had been doctored with gold from elsewhere in a scam “without precedent in the history of mining.”
Partners in the Busang project promptly jumped ship. The Indonesian government, which held a 10 percent stake, vowed to punish whomever was responsible. New Orleans-based Freeport-McMoRan Copper & Gold — which first cast doubts on Busang’s value in late March — said it was withdrawing from its planned partnership with Bre-X.
The company that reported the fraud, Strathcona Mineral Services, did not attempt to fix blame for the tampering, but offered to assist in subsequent investigations. Industry analysts said it seemed clear that some senior Bre-X personnel were involved, but there was no consensus whether the culprits were Canadian-based executives, geologists in the field, or both.
Mining analysts say only a small amount of gold — perhaps a few pounds — would have been enough to doctor the Bre-X samples to make them appear Busang was a world-class gold deposit.
Bre-X’s president, David Walsh, who launched the Busang project from his Calgary basement while bankrupt in 1993, expressed shock at the evidence of tampering and said his company would conduct its own investigation.
Walsh, 51, sold off some of his Bre-X shares last year, along with other senior company officials, who together reaped more than $56 million in profits.
They have been targeted by at least eight class-action lawsuits in Canada and the United States alleging that Bre-X executives misled shareholders about Busang’s potential while selling off some of their own shares.
The Ontario Securities Commission and the Royal Canadian Mounted Police also are investigating aspects of the Bre-X affair. It also caught the attention of Prime Minister Jean Chretien as he campaigned for re-election in June 2 balloting.
“There’s always unfortunately bad apples in any sector,” he said. “But the Canadian mining industry is considered the most capable and most competent in the world.”
Trading in Bre-X on the Toronto Stock Exchange, NASDAQ and other markets was suspended Monday, but officials said trading would resume Tuesday. Share prices already had plummeted more than 80 percent March 27, following Freeport-McMoRan’s announcement that its preliminary tests showed little trace of gold.
In Indonesia, the investigation may focus on Bre-X’s chief geologist, Michael de Guzman, who plunged to his death from a helicopter March 19. Bre-X claims he committed suicide because of despondency over his health, but his family believes he may have been the victim of homicide.
De Guzman died en route to a meeting with officials from Freeport-McMoRan, and some analysts believe he may have realized the U.S. company had begun to suspect Busang was a hoax.
Before doubts began to surface, Bre-X appeared to be one of the most spectacular successes ever in Canada’s often turbulent mining sector.
Tantalized by ever-increasing estimates of Busang’s value — up to $24 billion — investors drove up the price of a Bre-X share from pennies in 1993 to more than $200 last year. Powerful forces in Canada and Indonesia — including major mining companies and two children of Indonesian President Suharto — jockeyed for a stake in the project.