BUSINESS

A piece of the puzzle

New details come to light in the Bre-X fraud

JENNIFER WELLS October 20 1997
BUSINESS

A piece of the puzzle

New details come to light in the Bre-X fraud

JENNIFER WELLS October 20 1997

A piece of the puzzle

BUSINESS

New details come to light in the Bre-X fraud

Michael de Guzman was not at all happy with the drill rig being used at the Busang gold site in the fall of 1993. It was small and antiquated, and not up to the task of drilling the so-called central zone. There were breakdowns and numerous delays, frustrating the geologist de Guzman had handpicked to oversee the project, his good friend Cesar Puspos.

In early December, de Guzman himself arrived at Busang during the drilling of the fourth hole, or BRH-4. life on-site was spartan. The Australian driller hired by Calgary-based Bre-X Minerals Ltd. lost 11 kg in his nine weeks on-site. “The Indonesians were coming out with their trousers dropping off ’em,” he says of a life that consisted of prawn crackers and tea. The prospects for Busang looked dismal.

In the first week of December, samples from holes 3 and 4 were sent down the Mahakam River in Kalimantan, Puspos travelling with them. On Dec. 9, these samples were received by Indo Assay Laboratories in Balikpapan. Puspos sent a fax to Indo Assay two days later. “Please take note of the following sample numbers,” he said, “where possible visible gold was observed megascopically.”

It was on this journey that Busang turned from a frog into a prince. In his memo, Puspos was excited about samples 00264 and 00266 on the fourth hole. Sure enough, holes 3 and 4 had fabulous spikes of gold. And sure enough, the samples Puspos highlighted were spectacular, showing 16 and 17 g of gold per ton.

Now the truth is out. Not only did those samples mark the beginning of a $6-billion stock fraud, but the whole scam started off with Puspos or a co-conspirator filing down a piece of gold jewelry. In July of this year, Reinhard von Guttenberg, a geologist with Strathcona Mineral Services Ltd. in Toronto, travelled to Bre-X’s warehouse in Kalimantan to retrieve samples from those early holes. One and two were “genuine,” according to new tests. But in hole 3, laboratory tests showed that someone had laboriously scraped gold shavings from a piece of jewelry to salt the sample. When magnified, the gold looked like thin curlicues. Hole 4 was rich with the rounded alluvial

gold that ran so free in the central zone.

Last week, Bre-X released a summary of a report by Forensic Investigative Associates Inc. Strathcona’s work was its centrepiece, confirming that the gold fraud of the century started almost at the inception of the Busang project, back when Bre-X was nothing more than a stock promoter’s tout.

While Strathcona confirmed the timing of the fraud, FIA says that its work, including more than 150 interviews, proves the conspiracy was spearheaded by de Guzman, chief geologist with Bre-X, and Puspos, and then extended to more junior Bre-X employees, including Puspos’s brother, Manny. That it was never a one-man scam came as no surprise: Puspos controlled the flow of samples from Busang to Indo Assay, and

Puspos answered to de Guzman. FIA, which will be billing Bre-X in excess of $2 million for its work, says it found no evidence that Bre-X chairman David Walsh was either “involved in or had knowledge of any of the illegal activities.” A list of BreX insiders and independent contractors were similarly exonerated. The participation of Bre-X geologist John Felderhof, said FIA, “is still an open question.”

Tom Ajamie, the Houston lawyer who has spent months in Indonesia gathering information to support a multibillion-dollar class-action lawsuit against Bre-X, says the FIA summary shows not only that Bre-X was involved in criminal conduct, “but that it was a criminal business from the beginning.”

The true value of the 430page report will not be known until it is released in its entirety. That Bre-X has not done so yet is especially disconcerting for Joe Groia, the Toronto lawyer who represents Felderhof. ‘We don’t consider there to be any open questions about John’s involvement,” he said of his client. “If FIA wants to know the answer to, Was John involved?’ all they have to do is call me up. I’d be glad to tell them he wasn’t.” Felderhof did not co-operate with FLA “The ‘open question’ simply arises from John’s refusal to co-operate,” says Groia, who adds that his client would not participate because of Bre-X’s refusal to supply him with the completed report, and “because we had some concerns about how they had conducted themselves in their investigations.” He would not elaborate.

FIA does not say how it concluded that de Guzman’s fall from a helicopter in March was a suicide, and that the body retrieved from the jungle was his. ‘We believe he killed himself when faced with the prospect of having to be exposed for salting Bre-X samples,” said the investigators. One of de Guzman’s sisters in Manila says the family has not decided whether to pursue DNA tests of tissue samples.

Last week, the fallen gold-exploration company delivered the FIA report to the RCMP’s Bre-X task force, which promptly handed it over, unopened, to Alberta’s attorney general. Saicf RCMP spokeswoman Deleen Schoff: ‘We wanted to ensure our investigation maintained its integrity.” For the RCMP, the Bre-X scandal is still an open file.

JENNIFER WELLS