Bre-X: The Gold Scam So Big They’re Making a Movie About It
by Jason Simpkins, Outsider Club An exotic location, an enigmatic villain, overzealous Wall Street investors, a $ 1 billion fraud, a mysterious fire, death-by-helicopter… The Bre-X story has everything. No wonder they’re making it into a movie. “It’s a very exciting story,” Stefan Muchel a financial analyst with Gravitas Corporate Services in Toronto, told Stockhouse. “There are movies that were made before that don’t have as much action and intrigue.”Muchel says the movie will cost $14 million to make, be directed by Scott Rosenfelt, and feature a cast of A-list actors. We’ll have to wait and see what kind of artistic license the filmmakers take, but the story goes something like this… How Bre-X Went Bust In 1989, a small-time investor named David Walsh founds Bre-X Minerals Ltd in Calgary, Canada. It’s hardly profitable until 1993, when Walsh meets geologist John Felderhof. Felderhof convinces Walsh to buy a property in the middle of the Indonesian jungle, near the Busang River. Soon thereafter, the manager in charge of the Busang project, Michael de Guzman, reports to have found approximately 2 million troy ounces of gold. As he continues to probe the territory, the estimates grow wildly – from 2 million, to 10 million, to 30 million, to 60 million, and eventually 200 million troy ounces (more than 6,000 tons). Bre-X’s stock soars along with the estimates. Once worth just pennies, it shoots to $280 per share. The company is now worth $4.4 billion. Wall Street gushes over the stock, with Lehman Bros calling Busang “the gold discovery of the century.” (Who ever knew Lehman to miss a call so badly?) Guzman, Felderhoff and Walsh each sell off just a small portion of their options for huge, $100 million fortunes. However, in 1997,the Indonesian government stepped in. Insisting that Bre-X was too small a company to handle such a huge project, it stuck a deal to bring in Freeport-McMoRan Copper & Gold to run the mine. But instead of finding gold, what Freeport uncovered was a massive fraud. In doing its own due-dilligence the company found hardly any gold at all. So they summoned Guzman to the site to explain his findings and assist with the search. Guzman borded a helicopter to the site, but when it landed he wasn’t onboard. The Indonesion army found what are believed to be his remains the next day, located deep in jungle. They’re badly decomposed and ravaged by wild animals. His death is ruled a suicide. Further investigations reveal that Guzman had filed gold flakes off of his wedding ring and salted them into the core samples he produced. When his ring wore down, he’d bought gold locals panned from the river. He’d also set fire to his office burning all the records therein. Bre-X stock collapsed, incinerating more than $1 billion in capital. Walsh denied knowing anything about the fraud and moved to the Bahamas where he died of a heart attack two years later. And Felderhof fled to the Cayman Islands, which has no extradition agreement with Canada for white collar crimes. There are even some who believe Guzman is still alive, having faked his death. After all, the only thing to identify him were some teeth and a thumb print. Angry investors filed a class action lawsuit, but that was put to rest last year when an Ontario judge dismissed the case. “This was one of the great frauds perpetrated in North America,” said Paul Pape, a Toronto lawyer for investors in the case. “And nobody was convicted of it, and nobody paid any money.” At least we’re getting a movie out of it.