Bre-X was a group of companies in Canada. A major part of the group, Bre-X Minerals Ltd. based in Calgary, was involved in a major gold mining scandal when it reported it was sitting on an enormous gold deposit at Busang, Indonesia (on Borneo). Bre-X bought the Busang site in March 1993 and in October 1995 announced 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 (split adjusted) in May 1996 on the Toronto Stock Exchange (TSE), with a total capitalization of over CAD $6 billion. Bre-X Minerals collapsed in 1997 after the gold samples were found to be a fraud.
Busang's gold resource was estimated by Bre-X's independent consulting company, Kilborn Engineering (a division of SNC-Lavalin of Montreal), to be approximately 70,000,000 troy ounces (2,400 short tons; 2,200 t). Reports of resource estimates of up to 200,000,000 troy ounces (6,900 short tons; 6,200 t) were never made by Bre-X though the property was described as having this potential by John Felderhof, Bre-X's Vice-President for Exploration, in an interview with Richard Behar of Fortune Magazine. Bre-X's gold resource at Busang was a massive fraud. Encouraging gold values were intersected in many drill-holes and the project received a positive technical assessment by Kilborn. Crushed core samples had been falsified by salting with gold that has a wide variety of characteristics that had been subjected to mineralogical examination by Bre-X's consultants. The salting of crushed core samples with placer or supergene gold constitutes the most elaborate fraud in the history of mining. In 1997, Bre-X collapsed and its shares became worthless in one of the biggest stock scandals in Canadian history, and the biggest mining scandal of all time.
David Walsh founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd. The company did not make a significant profit before 1993, when 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. The first estimate of the site by its project manager (Filipino geologist Michael de Guzman) was approximately 2 million Troy ounces.
The estimate of the site's worth increased over time; in 1995 it was 30 million ounces (850 metric tons); in 1996, 60 million (1,700 metric tons); finally, in 1997, 70 million ounces. The stock price of Bre-X rose to CA$280 per share by 1997 (split adjusted) and at its peak it had a market capitalization equal to US$4.4 billion, equal to US$6.3 billion in current terms adjusted for inflation.
Some other mineral companies, including Placer Dome organized failed takeovers, but the Indonesian government of President Suharto also got involved. Stating that a small company like Bre-X could not exploit the site by itself, the Indonesians suggested that Bre-X share the site with the large Canadian mining firm Barrick Gold, in association with Suharto's daughter Siti Hardiyanti Rukmana. Bre-X hired Suharto's son Sigit Hardjojudanto to handle their side of the affair. Bob Hasan, another Suharto acquaintance, negotiated a deal whereby Bre-X would have a 45% share, Freeport-McMoRan Copper & Gold would run the mine, and Hasan would get a cut as well. Bre-X would have the land rights for 30 years. The deal was announced February 17, 1997 and Freeport-McMoRan began their initial due diligence evaluation of the site.
Fraud exposed 
The fraud began to unravel rapidly on March 19, 1997 when Filipino Bre-X geologist Michael de Guzman died by falling from a helicopter in Indonesia. His body was found four days later in the jungle, mostly eaten by animals and identified from molars and a thumbprint. A week later, on March 26, 1997 the American firm Freeport-McMoRan, a prospective partner in developing Busang, announced that its own due-diligence core samples, led by Australian geologist Colin Jones, showed "insignificant amounts of gold". A frenzied sell-off of shares ensued and Suharto postponed signing the mining deal. Bre-X demanded more reviews and commissioned a review of the test drilling. Results were not favorable to them, and on April 1, 1997, Bre-X refused to comment. David Walsh blamed the whole affair on web "ghost writers" who had spread rumors on the Internet and damaged the company's reputation. Canadian gold analyst Egizio Bianchini considered the rumors "preposterous". A third-party independent company, Strathcona Minerals, was brought in to make its own analysis. They published their results on May 4, 1997: the Busang ore samples had been salted with gold dust. The lab's tests showed that gold in one hole had been shaved off gold jewelry though it has never been proved at what stage this gold had been added to those samples. This gold also occurs in quantities that do not support the actual original assays. Trading in Bre-X was soon suspended on the TSE and Nasdaq, and the company filed for bankruptcy protection.
By May, Bre-X faced a number of lawsuits and angry investors who had lost billions. Among the major losers were three Canadian public sector organizations: The Ontario Municipal Employees Retirement Board (loss of $45 million), the Quebec Public Sector Pension fund ($70 million), and the Ontario Teachers Pension Plan ($100 million). There was fallout in the Canadian financial sector also; the fraud proved a major embarrassment for Peter Munk, the head of Barrick Gold, as well as for the then head of the Toronto Stock Exchange (resulting in his ousting by 1999), and began a tumultuous realignment of the Canadian stock exchanges whose effects are still[when?] being felt.
Walsh moved to the Bahamas in 1998, still professing his innocence. 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.
In 1999 the Royal Canadian Mounted Police (RCMP) announced it was ending its investigation without laying criminal charges against anyone. Critics charged that the RCMP was underfunded and understaffed to handle complex criminal fraud cases, and also charged that Canadian laws in this area were inadequate. However, despite the dropping of criminal charges, civil class action suits against Bre-X directors, advising financial firms and Kilborn continued.
Bre-X finally went bankrupt in 2002 although some of its subsidiaries like Bro-X continued until 2003.
In May 1999, the Ontario Securities Commission charged Felderhof with insider trading. No other member of Bre-X's board of directors, or others associated with the Busang project, were charged by the OSC. The OSC admitted that there is no evidence that Felderhof was either involved in the fraud or was aware of the fraud. 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. Felderhof attended a number of the Court hearings — but did not testify — as the six-year case made its way through the system. The basis of the OSC action as well as the civil class-action suits is the alleged existence of numerous and obvious "red flags", as detailed by Strathcona Minerals, that should have been recognized.
Begun in 2001, the trial of John Felderhof was concluded on Tuesday, July 31, 2007, with a not guilty verdict of illegal insider trading. A class-action lawsuit is still[when?] pending. Days after the verdict, the OSC also decided not to appeal the decision, a landmark victory for Felderhof and his lawyer, Toronto based Joseph Groia.
The Bre-X mining fraud convinced Canadians to regulate professional geology in Canada. The National Instrument 43-101 was created in the wake of this fraud to protect investors from unsubstantiated mineral project disclosures.
Books and articles 
- The Bre-X Fraud by Douglas Goold and Andrew Willis, McClelland and Stewart (1997)
- Fool's Gold: The Making of a Global Market Fraud by Brian Hutchinson (pub. by Alfred A. Knopf, 1998)
- Bre-X: Gold Today, Gone Tomorrow by James Whyte and Vivian Danielson
- Indonesian Gold by Kerry B. Collison — a fictionalised account
- New Perspectives on Busang by Phillip Hellman, Parts 1 & 2, The Northern Miner, May 2002
- Friction by Anna Tsing (2005, Princeton University Press)
- Fever: The Dark Mystery of the Bre-X Gold Rush by Jennifer Wells
Notes and references 
- On May 12, 2005, the National Post published a front-page story asking if de Guzman might still be alive. One of his multiple wives claimed to have received a Brazilian money order from him, dated after his apparent death.
- Andrews, Gordon (2009). Canadian Professional Engineering and Geoscience: Practice and Ethics. Nelson. p. 53. ISBN 978-0-17-644134-0.
- Bre-X corporate website (December 19, 1996 snapshot from the Internet Archive)
- CBC Digital Archives - Stranger than Fiction: The Bre-X Gold Scandal
- Ontario Securities Commission News Release February 9, 2006
- Reprint of Jungle Fever, Richard Behar's on-the-ground reportage of the Bre-X scandal, first published in Fortune Magazine
- September 17, 2007: Bre-X geologist says mine might contain gold