The biggest mining scandal of all time

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It’s not often that the general public is interested in mining, let alone Hollywood, but when the 2016 movie ‘Gold’ was released starring Matthew McConaughey, the world took notice.

This is the story of Bre-X, a mining story so wild they made a movie about it.

Discovery, Deceit, and a Tragic End

In the 1993, Bre-X, a modest Canadian junior mining company, was on the hunt for gold and it’s CEO David Walsh decided to acquire a site near the Busang river in Indonesia on the advice of geologist John Felderhof.

Initially, on-site geologist Michael de Guzman reported 2 million ounces of gold, but that number quickly grew, and so did the share price. Estimate were rumored to be over 200 million ounces of gold and the share price shot up to over CAD $286 from mere pennies. This valued the small junior at over $6 billion and made hundreds of investors millionaires.

The plot took a cinematic turn, inspiring the 2016 film "Gold," which, while loosely based on the Bre-X scandal, altered character names and details for dramatic appeal​​.

But the reality was even more dramatic.

Before you learn about the biggest gold mining scam in history, check out this newsletter and learn about real companies making real discoveries. 👇

🚀 The Discovery that Sparked a Frenzy

In 1993, Calgary based Bre-X Minerals Ltd., then a relatively small player in the junior mining world, released incredible news that started one of the most legendary mining stories of all time.

The company initially claimed to have stumbled upon an impressively large gold deposit at the Busang site in Indonesia, with estimates of 2 million troy ounces of gold.

As the project progressed, these estimates ballooned.

In 1995, the reported figures soared to 30 million ounces, and by 1996, they doubled to an astonishing 60 million ounces.

The frenzy peaked in 1997, with Bre-X claiming the site held a mind-boggling 70 million ounces of gold. Bre-X's vice-president of Exploration, John Felderhof, in an interview, hinted at the possibility of up to 200 million troy ounces of gold, a claim that was never formally made by Bre-X but significantly fueled the speculative fire​​.

Lehman Brothers Inc. dubbed it the “gold discovery of the century” in December 1996.

Major mining companies, including Barrick Gold, Placer Dome, and Freeport-McMoRan Copper & Gold, were in a fierce battle to secure a part of this lucrative discovery.

This drove Bre-X's stock price from pennies to over CAD $286.50 per share, catapulting the company's valuation to over CAD $6 billion​​.

🚨 The Plot Unravels

Bre-X, led by David Walsh, a man known more for his charm than mining expertise, and the geologist John Felderhof, who was seen as the brain behind the discovery, presented a story that was seeming too good to be true.

One of the major red flags was the company's lack of transparency. Information about operations at the mine was scarce and often conflicting, making it difficult for investors to make informed decisions. The company's reluctance to allow independent verification of its claims only intensified the doubts.

March 1997 was when the house of cards began to tumble. Freeport-McMoRan, a bigwig in the mining industry, did their own digging (literally) and found next to no gold.

This announcement triggered a rapid sell-off of Bre-X stocks, casting a shadow of doubt over the previously unchallenged optimism surrounding the company. In response to Freeport-McMoRan's findings, Bre-X denied the allegations and called for further reviews by other gold analyst firms.

The situation escalated when Strathcona Mineral Services Ltd., a third-party independent company, was brought in to conduct its own analysis of the Busang ore samples.

The results, published on May 4, 1997, were damning: the ore samples had been tampered with, salted with gold dust. It was discovered that this gold dust was alluvial, sourced from local Indonesian placer miners, and had been used to adulterate the rock cores.

Reports indicated that by 1996, the practice of salting had intensified to the extent that Bre-X's metallurgists even enlisted laborers from a construction project to assist with the mixing.

In the thick of the Bre-X scandal, Michael de Guzman, the orchestrator of the fake gold findings, met a mysterious end in 1997.

Falling from a helicopter over Indonesia's dense jungle just as the scandal was unraveling, his death was suspicious due to the severely disfigured state of the body found.

Was it suicide, an accident, or something more sinister?

Stock fallout 📉

The stock plummeted in value, leading to its removal from the Toronto Stock Exchange (TSX) and NASDAQ.

From $6 billion to $0.

The fallout extended well beyond the company itself, as mutual funds, pension plans, and private investors across North America suffered substantial losses.

This led to a flurry of class-action lawsuits, some targeting Canadian and American investment firms that had long recommended Bre-X stock.

The case highlighted the critical importance of due diligence and verification in the mining industry, dramatically altering its landscape and investor trust​​.

Changing history

The Bre-X scandal didn’t just shake the mining world; it revolutionized mining regulations with the introduction of the National Instrument 43-101 (NI 43-101).

Created in response to the deceitful practices of Bre-X, NI 43-101 set new, stringent rules for reporting mineral resources and reserves.

This move was a game-changer, demanding transparency and verification in reports and ensuring that expert, independent geologists validated claims.

👨‍✈️ Captain always goes down with the ship

In the aftermath of the Bre-X scandal, CEO David Walsh's life took a dramatic turn.

Fleeing to the Bahamas amidst the chaos, he sought refuge from the legal and financial storm.

Tragically, in 1998, just 1 year after the fallout, Walsh's story ended abruptly when he passed away from a brain aneurysm at the age of 52.

His death closed the book in the Bre-X story, leaving behind a legacy riddled in controversy and a tale that serves as a cautionary reminder of the delicate balance between ambition and ethics in business.

👋 Colton, Stock Monster.

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