BRE-X: Inside The $US6 Billion Gold Fraud That Shocked The Mining Industry

Bre-xMasterMindsMichael de Guzman

In 1993, a prospector named Michael de Guzman walked out of the jungles of Borneo with extraordinary news: he found gold.

This is according to MasterMinds, a Canadian true crime documentary television series produced by truTV.

For the next three years, de Guzman produced thousands of core samples riddled with gold. Canada’s CBC News has a detailed timeline of the events.

During that period, the market value of de Guzman’s employer, Bre-X Minerals, went from nothing to $US6 billion. BusinessWeek notes that Wall Street’s top analysts were extremely bullish on the stock. Big funds poured money into the stock and the world’s major miners wrestled for a piece of the action.

The problem: there was no gold.

As the story unravelled, records mysteriously burned and people unexpectedly died. Questions were left unanswered.

There are plenty of people who wish this story would just go away. But a lawyer representing one of the players in the Bre-X story was was found guilty of professional misconduct.

What follows is a summary of MasterMinds’ telling of the incredible story.

NOTE: The images and the details in this feature are from MasterMinds. Many of the images are from reenactments of the events.

Michael de Guzman,a Filipino geologist, was struggling to get recognition from his employer. So, he devised a plan to get rich

He would convince the world that he had found gold in Borneo. But first he needed someone with credibility to corroborate his story

Enter geologist John Felderhof, who immediately got excited about the news. De Guzman convinced Felderhof that they needed an investor

De Guzman pushed for an investor who had a hunger for risk and wasn't going to be asking questions

Felderhof recommended a Canadian businessman named David Walsh

De Guzman and Felderhoff wined and dined Walsh in Indonesia, and immediately got him to commit $US80k to the project

Now that he had financing, de Guzman assembled a team and started pulling core samples out of the ground

After the core samples were crushed and collected, de Guzman made sure he had some privacy with them before they were shipped off to be analysed

De Guzman filed gold from his wedding ring and mixed the flakes in with the rock samples. This scheme is called 'salting' and it happens frequently

De Guzman used a ratio of around 3oz of gold per ton of rock, which was small enough to not attract too much attention. The labs were convinced and gave Bre-X the thumbs up

Shares of Bre-X, a penny stock, exploded on the Alberta Stock Exchange

However, de Guzman could file down his wedding ring for only so long

So, he started paying locals for their gold, which they got through panning. De Guzman would buy $US61k worth of this panned gold over the next two and a half years

Sceptical investors sent in an independent auditor, who noticed the rounded edges of the panned gold. But de Guzman explained it away with something called 'volcanic pool' theory

The auditor bought it, and the stock soared

De Guzman, Felderhoff and Walsh sold off a small portion of their options for around $US100 million

However, all of this wealth creation caught the attention of Indonesian President Suharto, who wanted to get in on the action

Right away, the Indonesian government revoked Bre-X's exploration permits

The Indonesian government's intervention was the beginning of the end of the Bre-X fraud

With the government hot on is tail, de Guzman allegedly set fire to his office, destroying all of his records

The Indonesian government eventually left Bre-X with only 45% control of the mine, and the rest was left to be run by Freeport McMoran. Bre-X's market cap plunged by a billion dollars

To offset this, de Guzman ramped up the amount of gold flake showing up in the core samples, and the stock soared again. The shareholders were pleased

But after much drilling, the miners from Freeport McMoran couldn't find a flake of gold. They were suspicious and they demanded that de Guzman explain

De Guzman boarded a helicopter that would fly him to the site. The only other person in the helicopter was the pilot

According to reports, the pilot turned around at one point and de Guzman was gone. Everyone concluded that he jumped

Days later, the Indonesian Army found de Guzman's body, which they said was badly decomposed and mostly eaten by animals. The family was not allowed to see the body

With no answers and no gold, the stock went to zero.

Walsh denied knowing anything about the fraud. He soon moved to the Bahamas where he died of a heart attack two years later

Felderhof, the only one who was charged of anything was acquitted. He now lives in the Cayman Islands, which has no extradition agreement with Canada regarding white collar crimes

People think that de Guzman is still alive. One expert noted that Indonesia is one of the easier places to disappear. Apparently it only costs a few hundred dollars to buy a dead body

Here are the links to MasterMinds videos

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