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Bre-X the Gold Scam and Hollywood's Film Version 20 Years Later

"Fraud:  Theft by Lying"

This year 2017 marks the 20th anniversary of the Bre-X gold scam that took place on the island of Borneo, Indonesia, but reverberated around the globe.  On stock markets in Toronto and New York fortunes were made and lost.  The scam even fooled major investment houses and government pension funds.  The rise and fall of Bre-X shares was covered by major newspapers, magazines and TV networks.  It also caught the attention of the corrupt Indonesian government.

Link to an archived copy of the Bre-X website (December 19, 1997)


After the scam was discovered it made the cover of Time magazine on May 19, 1997.

Location map of the Busang "Gold" Deposit from and archived copy of the Bre-X's website from 1997.

A clue as to the origin of the gold scam and salting of the core samples is a photo of gold panning in the area of the Busang gold deposit.  The photo of the panning is from the photo album on the Bre-X website.

The key players are:

MR. DAVID G. WALSH
Chairman, President and Chief Executive Officer

 MR. JOHN B. FELDERHOF
Vice-Chairman and Senior Vice-President Exploration

MR. MICHAEL T. DE GUZMAN
Exploration Manager

MR. CESAR M. PUSPOS
Senior Geologist



The three at the top:  Felderhof (far left and right), Guzman (second from the left), Walsh (second from the right.
Three at the top:  during the "Happy Daze" of Busang.  Note the cross sections of the mythical gold deposit. 
The "ore is shown in red.

John Felderhof was an exploration geologist working in Indonesia.  In the 1980's, he co-discovered the Ok Tedi copper-gold deposit in Papua New Guinea.  He had gained prestige as a successful minerals explorationist.  Felderhof enjoyed exploration in the jungles of Borneo and elsewhere in the southwest Pacific, even with the snakes, malaria and primitive conditions.

David Walsh first meet John Felderhof in Australia in the early 1980's.  Walsh started at a small trust company after graduating from high school without any college education.  In just two years he was making a six-figure income.  He was transferred to Calgary, Alberta by the firm.  In 1989, he started Bre-X, a sister company of Bresea Resources which was his original company.  Bre-X shares started trading on the  Alberta Stock Exchange.  The initial share price was thirty cents Canadian.  Bresea was unsuccessfully involved in diamond and gold exploration in Canada.  Walsh went bankrupt and had $60,000 in credit card debt.

In 1993, when the junior exploration companies were experiencing good times he wrote to his acquaintance Felderhof with a proposal to seek a gold exploration project in Indonesia.  The two agreed. The pair acquired a gold property from an Indonesian party.  The property was in a remote part of Borneo.  The property had some artisanal, placer mining which enhanced the story of the Busang Project and later "gold" deposit.  Borneo did have several operating gold mines which enhanced image of the project and the company, such as the Kelian gold mine.  There had been some previous gold exploration including drilling, but the results were less than promising.  However, that did not prevent Bre-X from raising capital on the Alberta exchange in Calgary.

Felderhof then set out the create an exploration team.  He first selected a Filipino geologist named Michael T. de Guzman.  Guzman would be the Busang Project manager.  He would run the drilling program and sampling program.  Guzman hired a fellow Filipino geologist, Cesar M. Puspos, that he knew from working in the Philippines.  Guzman and Puspos are the ones responsible for the salting of the drill samples.  The first drilling by Bre-X encountered only minor gold.  Guzman was concerned that the project might be terminated.  His solution was to add gold to the crushed core samples that he filed from his wedding ring.  Later he needed more gold; eventually he bought $61,000 work of gold from local placer miners for his scheme.  The core was submitted as whole core and did not follow  the industry standard of splitting the core.  He had complete control over the sampling and submittal of the core to the assay lab.  He did an "excellent" job of salting the core; weighing out the gold to be added to each core sample in proportions that would yield geologically reasonable assay results.  The cross-sections with the bogus sample results also seemed to be geologically reasonable.

The Bre-X exploration camp in the jungle of Borneo.
The camp mysteriously burned in in January 1997, destroying many of the records.

The fraud fooled a lot of people: investment houses, retirement funds, stock analysts and Suharto then president of Indonesia.  Several analyst groups visited the project and heaped praise on the potential of the monster deposit. At least three major mining companies tried to get the Busang gold "deposit."  The companies are Barrick, Placer Dome and Freeport McMoRan.  Freeport operates the giant copper-gold mine of Grasberg in Indonesia.

Bre-X contracted PT Kilborn the Indonesian subsidiary of SNC Lavalin of Montreal for the resource estimate of the Busang gold deposit.  However, the estimate was made using the bogus Bre-X assay data from the drilling.  Their resource estimate totaled 3 million troy ounces. The last Kilborn estimate in February 1997 was 71 million troy ounces.  Felderhof and Guzman had stated publically that the potential for the deposit was 200 million troy ounces of gold.

The first bad news occurred when Barrick was allowed to assay small core samples from the deposit.  They did two rounds of assaying with negative result and in early 1997 withdrew their pursuit of an agreement.  Neither Barrick or Bre-X released this condemning information to the public.

Guzman made his deposit too big!  The government of Indonesia decided that the gold was too much for people of Indonesia not that have the substantial share of the deposit.  "People of Indonesia" means the corrupt leaders on the country.  Suharto managed to grab 40% of the Busang deposit.

The share price started at $0.28 to a high of $286 before its collapse on March 27,  1997.  The market cap was about $6 billion, not bad for a worthless company.



Graph of Bre-X stock price (Source Jeff Desjardins, January 23, 2015, See Link below)



The Visual Capitalist Link---Source of the Bre-X Graph

The end of the Bre-X fraud came when the government forced an agreement on Bre-X to have Freeport acquire an interest in the project.  Freeport would also be the company to develop and mine the deposit.  The next step was for Freeport to do their own drilling at Busang.  They quickly conducted a due diligence drilling a Busang, including "twin" core holes of the Bre-X drill holes.  The first hole was only two meters from the best Bre-X drill hole.  The assays were totally negative.  The drilling was the almost the end of the story.

Guzman flew back from the high-times at the PDAC exploration meeting in Toronto to meet with the Freeport geologists.  However, Felderhof flew to his home in the Cayman Islands.

Guzman never made it to the meeting because he "jumped" out a helicopter about 250 meters above the jungle of Borneo.  His body was recovered a few days later, partially decayed and eaten by animals.  Later, autopsies confirmed that it was Guzman.  It has never been resolved if it was suicide or murder.

Walsh and Felderhof claimed no knowledge of any wronging.  Bre-X hired Strathcona, a well respected consulting firm from Canada, to conduct another drilling program.  The first public indication that this program also revealed negative results was announced by Bre-X on March 27, 1997.  The release said that there was "strong possibility [that the reserves were] overstated because of invalid samples and assaying of those samples."  The same day Bre-X's share price fell by 83%.

On April 4th, Bre-X released the following news release.



Does anyone know where a copy of this report can be obtained?

After years of litigation no one was ever punished of fined because of the fraud.  Guzman was dead, Walsh died of a stroke on June 4, 1998, and Felderhof spent most of his money defending against numerous lawsuits.  He now leads a modest life in the Philippines.

As a result of this fraud, Canada and other countries created new regulations regarding mineral resource and reserve reporting.  These are known as NI 43-101 Technical Reports.

There are several good books on the Bre-X saga.  A good reading list can be found on Wikipedia.

A well written and comprehensive book on Bre-X and the Busang gold scam is by Jennifer Wells, "The Dark Mystery of the Bre-X Gold Rush Fever," published in 1997 Viking.  It is out of print but used copies are available on the web.

The movie "Gold" was a bit of a disappointment, but entertaining to watch especially for a geologist.  Matthew McConaughey plays the role of David Walsh.  Edgar Ramirez plays the combined part of Felderhof and Guzman.  The movie has an interesting ending.

Screen shots from the trailer from the movie.

This blog gives "Gold" 3 out of 5 rock picks.



Truth is stranger than fiction, but it is because fiction is obliged to stick to possibilities; truth isn't.  Mark Twain