Bre-X Minerals Ltd. was a Canadian company that perpetrated a major fraud when it claimed that there was an enormous gold deposit at its gold mine in Busang, East Kalimantan, Indonesia. However, samples from the mine were "salted" and, in reality, the mine did not contain much gold at all; an estimated 40,000 investors were defrauded and lost their entire investments.
Bre-X bought the Busang site in March 1993. In October 1995, the company announced that significant amounts of gold had been discovered, sending its stock price soaring. Originally a penny stock, its stock price reached a peak at CAD$286.50/share (split adjusted) in May 1996, with a total market capitalization of over CAD$6 billion.
The company collapsed in May 1997 after the gold samples were found to be fraudulent.
Filipino chief geologist Michael de Guzman is widely considered to be the mastermind behind the fraud. However, due to his highly suspicious death, the death of founder David Walsh, and a lack of evidence that other executives knew about the fraud, no one was criminally convicted.
History
right|thumb|Bresea logo.
David Walsh founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd. The name Bresea was derived from the first names of Walsh's two sons: Brett and Sean. In 1995, it was increased to ; in 1996, it was ; finally, in 1997, it was , as estimated by Kilborn Engineering, a division of SNC-Lavalin of Montreal. Felderhof said that the mine even had the potential for , although the company itself never confirmed those estimates. If Bre-X‘s gold claims had been real, the company would have had roughly 8% of the world's gold supply.
In 1996, the company moved its headquarters from the Walsh family home in Varsity, Calgary to Kensington, Calgary.
In April 1996, the company was listed on the Toronto Stock Exchange and opened for trading at $187.50/share. In August 1996, it was listed on the Montreal Exchange and the NASDAQ. The share price of Bre-X rose to CA$280 per share in 1997 (split adjusted) and at its peak it had a market capitalization of CAD$6 billion.
Stating that a small company like Bre-X could not exploit the site by itself, Indonesian President Suharto initially suggested that Bre-X share the site with Barrick Gold, in association with Suharto's daughter Siti Hardiyanti Rukmana.
Bre-X hired Suharto's son, Sigit Hardjojudanto. Bob Hasan, another Suharto acquaintance, negotiated a deal whereby Bre-X would have a 45% share, Freeport-McMoRan would run the mine, and Hasan would get a cut. Bre-X would have the land rights for 30 years. The deal was announced on February 17, 1997 and Freeport-McMoRan began its due diligence.
On March 10, 1997, Freeport-McMoRan received due diligence results that showed an insignificant amount of gold in the mine. de Guzman also allegedly suffered from Hepatitis B and recurring malaria and allegedly attempted to kill himself the day before the incident, although others said he was in good spirits. One of the five women who considered themselves to be de Guzman's wife claimed to receive a payment from de Guzman years after his alleged death, although she did not provide any evidence. However, despite the evidence, several stock analysts still insisted that the company really did own the world’s biggest gold deposit.
An independent company, Strathcona Minerals, was hired to make its own analysis; on May 4, 1997, the firm reported that the crushed core samples that had been subjected to mineralogical examination by Bre-X's consultants were falsified by salting with gold dust. The lab's tests showed that gold in one hole had been shaved off gold jewellery though it has never been proved at what stage it had been added to those samples. This gold also occurred in quantities that did not support the original assays. De Guzman used realistic ratios of gold to rock to not cause alarm. Over 2.5 years, he purchased an estimated $61,000 worth of panned gold from locals to salt the mine.
On May 7, shares plunged to 6 cents each; volume set a record on the Toronto Stock Exchange. People bought shares in hopes that the stock certificates would become collectables.
On May 9, 1997, Bre-X Minerals Ltd., as well as sister companies Bresea and Bro-X, filed for bankruptcy protection. The Walsh family owned 19% of the company and Deloitte owned 12%.
Walsh and his wife moved to the Bahamas in April 1996, allegedly to be away from the public, where they purchased a multimillion-dollar colonial estate. In May 1998, two masked gunmen broke into his home in Nassau, tying him up, and threatened to shoot him unless he turned over all his money. The incident ended peacefully but three weeks later, on June 4, 1998, Walsh died of a brain aneurysm at age 52.
In May 1999, the Royal Canadian Mounted Police (RCMP) ended its investigation without pressing criminal charges against anyone. Critics noted that the RCMP was underfunded and understaffed to handle complex criminal fraud cases, and that Canadian laws in this area were inadequate.
In May 1999, the Ontario Securities Commission (OSC) charged Felderhof with insider trading and spreading false information, the only charges filed by the OSC. Felderholf sold C$84 million of Bre-X stock in 1996. However, there was no evidence that Felderhof was either involved in or aware of the fraud. The OSC argued that he should have been aware based on "red flags". The trial was suspended in April 2001 when the OSC tried to have presiding judge Justice Peter Hryn removed for alleged bias against the prosecution. This was denied by an independent judge, and on December 10, 2003, the appeal was also denied by a panel of judges. The trial resumed in 2005. On August 9, 2007, Felderholf, represented by Joseph Groia, received a not-guilty verdict on the charge of insider trading.
After the plaintiffs realized their case was hopeless, the class action lawsuit was discontinued by court order in early 2014; lawyers received C$850,000 in fees and the C$3.5 million remaining in the trust was donated 80% to the Law Foundation of Ontario and 20% to the University of Ottawa since funds were deemed too low to be meaningfully distributed among the 40,000 investors.
Felderhof died in October 2019, in Manila, Philippines, aged 79.
Canadian securities regulation National Instrument 43-101 was created and went into force on February 1, 2001 to protect investors from unsubstantiated mineral project disclosures. It requires qualified persons to be involved, standardized reporting, and clearer boundaries around what could and could not be said.
In popular media
Books
- Bre-X: sebungkah emas di kaki pelangi by Bondan Winarno. (1997)
- Bre-X: Gold Today, Gone Tomorrow by James Whyte and Vivian Danielson
- Fever: The Dark Mystery of the Bre-X Gold Rush by Jennifer Wells
- Reporter. Forty Years Covering Asia by John McBeth, Talisman Publishing, Singapore, 2011.
Podcasts
Documentaries
Film
The film Gold (2017) is a fictionalized drama, whose story and characters were inspired by Bre-X. The theme song for the movie, also titled "Gold", was written by Iggy Pop and Danger Mouse.