“...some of the world’s most sophisticated analysts and executives had been sucked in by a deception so simple, a child could have conceived it.”
- financial commentator Steve Maich, writing in Maclean’s, June 13, 2005
In the 1990s, an obscure penny-stock company called Bre-X, based in Calgary, Alberta, announced that they had discovered a world-class gold deposit at Busang, Indonesia. The gold reserves increased with every new drillhole, until they reached a fabulous 200 million ounces of gold. Share prices skyrocketed, the company was listed on the Toronto Stock Exchange, and powerful mining companies competed to buy out the lucky upstarts from Calgary. The Bre-X insiders became multimillionaires.
Then people started investigating, and in 1997 discovered that the Busang “ore body” did not contain enough gold to pay for the mining. It was all a fiction. The numerous rock cores had been “salted” with alluvial gold dust bought from local Indonesian placer miners.
Share prices crashed, suffering a drop of $6 billion in market value. Owners of suddenly worthless Bre-X shares looked for someone to sue, but no one was ever brought to justice.
Just days before the swindle was exposed in May 1997, Michael de Guzman, the Philippine head field geologist and number one suspect, jumped to his death from a helicopter (or was pushed, or pushed out someone else dressed in his clothes, depending on what you want to believe). The body was never positively identified. It was discovered that he had four wives in different places at the time of his death. In June 2005, one of his widows told reporters that she had received a $25,000 money order from a still very alive Miguel de Guzman, drawn on a bank in Brazil.
David Walsh, CEO of Bre-X had made an estimated $35 million by selling Bre-X shares. He moved to the Bahamas, and died in 1998.
Dutch-born John Felderhof, head of the Bre-X exploration department sold an estimated $84 million of his Bre-X shares before the swindle was revealed, and retired to the Cayman Islands. He was tried in Canada in July 2007 for insider trading and misleading investors, but the judge acquitted him on all charges.
The scandal caused by the Bre-X is due in large part because mine swindling is relatively rare today, especially in companies traded on a major stock exchange such as the Toronto Exchange.