Gregory Chorny steps into the warmth of a Toronto restaurant on a hideously blizzardy day, sheds his black cashmere Giorgio Armani overcoat, and settles into a long examination of a sweeping Micheneresque saga in which he has been handed a small part. The saga is Bre-X Minerals Ltd. of Calgary, the company that discovered the massive gold-mine-to-be— the Busang gold properties—which spreads through acres of sprawling jungle in East Kalimantan, Indonesia. When it all started, Bre-X had a predictable enough mining plot line: small company finds ore deposit. Stock goes through roof.
Small company finds big company to mine ore deposit. Shareholders deliriously happy.
But somewhere around Chapter 2—the small-companyfinds-big-company part—the Bre-X story went into rewrite.
From there, it became wholly muddled. Small roles were taken by Indonesian functionaries, big parts by warring corporations. And dramatic roles were adopted by heretofore unheard-of Indonesian business tycoons. The closer one looks, the more confusing the Bre-X story becomes.
But not for Chorny, whose sight line is very clear. This may have to do with Chorny’s role in the tale—that of shareholder. Before Christmas, 1994, Chorny made his first investment in BreX, purchasing 10,000 shares at $1.75, a Christmas present for his kids. Chorny was already a multimillionaire. A lawyer from Timmins, Ont., who specialized in civil litigation arising from motor vehicle accidents, Chorny liked to dabble in the mining game. His first big break was the Eskay Creek gold bonanza in northwestern British Columbia, in the summer of 1989. The exploring junior, Stikine Resources Inc., hit “one heck of a hole, one heck of a hole,” as Chorny says. In that instance, the plot line obediently followed its predictable course. Vancouver-based Placer Dome Inc. bought out Stikine, once a penny stock, at $67.38 a share. “Well,” says Chorny, “that check was enough to pay the mortgage, the debt, taxes on the gain and some pretty nice working capital.”
There have been other gambits before Bre-X. In fact, Chorny, just 47, has done so well that he and his wife retired last year and moved to a country place in Aurora, north of Toronto, where they took up the game of golf. They dabbled with shares in Diamond Fields Resources, the company that stumbled on the massive Voisey’s Bay nickel find, although that was just small-time— yielding just enough profit to buy a sports car. But nothing can
match Bre-X, which had an exhilarating run up to $220 before a 10-for-one stock split. The property’s gold potential grew bigger and bigger. Chorny thinks that Busang is not 60 million ounces— the reserves the company has already stated—and not 100 million ounces—an estimate that most analysts seem comfortable with— but 400 million ounces. Maybe 500 million. That’s $230 billion worth of gold. “The size of the company,” he says, “could be absolutely mind-boggling. We’re talking an IBM. We’re talking a General Motors. That’s what we’re talking.”
Chorny’s Bre-X play eventually grew to more than two million shares. He now has about 1.2 million, an investment worth $26 million at last week’s market price. He is, as they say, underwater on part of his investment. After Christmas, he bought 200,000 shares at $24.50. Last Friday, Bre-X closed at $21.30. “I’ve gone a lot to cash, which my wife has strongly urged me to do,” he says. Then he laughs. “Her half, she says, is the cash. My half is what’s left in [Indonesian President! Suharto’s hands.”
But Chorny does not really find this very funny at all. In fact, he is hopping mad. He is leading a shareholder revolt on behalf of a group of investors who probably do not hold, collectively, much more than two per cent of Bre-X’s stock. “This voice of this little mouse is much bigger than the mouse,” he says. Chorny himself holds half of that two per cent. He has retained a U.S. legal firm to represent the group. Their target is Barrick Gold Corp. of Toronto, which, argues Chorny, pre-empted due process when it was
fhe plot thickens in the battle for Busan
announced last November that Barrick would be taking the controlling position in Busang and developing the mine. The deal appeared to eliminate any hope of a bidding war, of the formal entry of the likes of Placer Dome, which wants control of Busang as badly as Barrick does.
Ever since that terrible day in November, says Chorny, investors have been riding an emotional roller-coaster. “I’ve seen people sell an entire position on Friday and buy it back on Tuesday,” he says. And for that, he holds Barrick responsible. “Our position is that Barrick’s meddling in Bre-X’s economic interests—contractual interests—in Indonesia resulted in that state of affairs, resulted in that selling. And it wouldn’t surprise Ik me if in the end the losses of that class of people are in the
I § several billions of dollars.” Billions? “Billions.”
II And so Chorny himself is adding to the texture of the Bre11 X tale. From Baker & Botts in Houston, the law firm Chorny I “ retained to represent the shareholders, lawyer Tom Ajamie I ü has been dispatched to Jakarta. He has now been there a
month, trying to piece together the Bre-X puzzle. Back in Canada, Chorny is lobbying to get the Reform party agitated about Barrick’s manoeuvrings. Last week, he sent a letter to Indonesian plywood tycoon Mohammed (Bob) Hasan, requesting an audience. He is immensely frustrated. ‘These guys have found the biggest gold mine in human history,” he says of the Bre-X guys, CEO David Walsh and geologist John Felderhof. “It’s not [Barrick CEO] Peter Munk. It’s not any of the guys at Barrick or Placer. It’s not the Indonesian government. All the Indonesian government
did was to welcome the people of Bre-X to come into their country with open arms to explore this jungle, this desolate jungle in the middle of nowhere.”
Time grows short. The Indonesian government has said that Feb. 17 is the deadline by which Bre-X must reach an agreement with its Indonesian partner. The Indonesian partner is the aforementioned Hasan, which is why the timber billionaire has become a key character in the saga. If a deal is not struck by that date, the possibility looms that the Indonesian government will expropriate the property. Which is another reason why Chorny thinks that all shareholders who invest in developing regions had better sit up and take notice. “If the Barrick deal gets mandated or a monopoly gets mandated or if Bre-X gets expropriated, the Indonesians are going to pay a heavy price in the world of capital markets and in public opinion,” he says.
Just last week, Chorny turned down an offer to get into a new issue at bargain-basement prices, 65 cents a share for yet another mining junior hoping to strike it rich. Chorny was offered 100,000 shares. A $65,000 investment is, for Chorny, lunch money. But he would not do it. “It’s just not an acceptable risk,” he says.
Developments in Jakarta over the next week will help to determine whether Chorny ever changes his mind on this. He is now thinking of heading there himself. He appears to be about the only one in the game who has not gone. Last week, Placer CEO John Willson met with Jerry White, Hasan’s Canadian-born managing director, in the Indonesian capital. Willson is still pushing hard to have Busang auctioned. On Feb. 1, he submitted Placer’s third proposal to date. “It’s in the game. It’s on the table,” he says of his bid. ‘There’s a chance we will be in contention.” Says Willson of the environment in Jakarta: “It’s very concentrated. You can feel the competition.” He says his expectations are “higher than they’ve ever been.”
Last Friday, Hasan summoned Bre-X negotiators to his east Jakarta home. The call was unexpected, but no one turns down Bob Hasan. There followed a conference call with Bre-X’s Walsh at his Nassau home. They failed, again, to nail an agreement, to Walsh’s disappointment. One insider did say later that the “three” parties were talking. He meant Hasan, Bre-X and Barrick. That is not what Chorny wants to hear. “If there is absolutely no right whatsoever other than the whim of bureaucrats and dictators, I think situations like this will very soon be foreclosed from using our capital markets,” he says. But then he takes a different tack. “I will not accept that that’s the message Indonesia means to deliver.” He should soon know for sure. □
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