Course:MGMT405 2020W2/Bre-X

From UBC Wiki

Bre-X Minerals Ltd., commonly referred to as Bre-X, was a gold mining company founded in 1988 by business man, David Walsh. The Canadian-based company is infamously known for committing the largest mining scandal in history[1]. It started in December 1993 when a lone prospector, Michael De Guzman, announced that the world's largest gold deposit was located in the Borneo forest of Indonesia[1]. With the help of a credible geologist, John Felderhof, De Guzman convinced David Walsh to buy mining rights on a small property located in Busang, Indonesia.

Once drilling rights were acquired, De Guzman hired a Filipino staff whom he had total control over, and immediately commenced drilling in Busang[1]. Within the mining industry, core samples are typically split in half, with one half getting stored onsite and the other half being crushed and sent to a lab for testing[1]. After drilling began, De Guzman demanded that all crushed rock be locked up in a shed. This gave De Guzman total privacy to employ a trick called ‘salting’, where De Guzman would artificially plant gold into the ore, without anyone noticing[1]. Lab results identified profitable amounts of gold, with initial estimates hovering around 2 million ounces and peak estimates inflated to over 70 million ounces[2].

The announcement of each lab result drove stock prices higher. As momentum continued to build and excitement buzzed across Wall Street and Bay Street, independent auditors were sent to Busang to confirm the legitimacy of this gold mine. After auditors requested to see De Guzman’s core samples for examination, they were concerned that he only kept 10 centimeters of the 1 meter core[1]. De Guzman combatted their suspicions with the ‘nugget effect’, where gold is unevenly distributed throughout the mine[1]. De Guzman explained that they must crush all of the ore samples to get a precise reading of how much gold exists.

The next suspicions occurred when auditors looked at the gold through a microscope. The shape of the gold flakes did not resemble gold that would normally come from a gold mine. Because De Guzman was using panned gold from nearby rivers to salt the samples, the gold flakes appeared softer and rounder along the edges. Again, when auditors raised their concerns, De Guzman was ready with another plausible theory. He explained that volcanic pools affected the shape of the gold, which is why the gold at Busang looked different than the typical mined gold[1]. Once news broke that Bre-X passed the audit inspection, share prices jumped again[1]. For several years, De Guzman continued to outsmart analysts, auditors, scientists and investors, enabling De Guzman to turn a penny stock company into a corporation worth over $6 billion[2].

The beginning of the end for Bre-X started in August 1996 when the Indonesian government wanted a portion of this supposed gold deposit[1]. The government revoked the company's exploration permit and invited a mining company of their choice to develop the mine. This forced Bre-X to accept Freeport McMoRan as its new mining partner, with Bre-X now only owning 45% of the Busang site[1].

In the spring of 1997, De Guzman's scam quickly unfolded when Freeport McMoRan started drilling just yards away from De Guzman's drill sites, and only found trace amounts of gold[1]. When summoned back to Busang to explain himself, De Guzman knew that this was the end and reportedly jumped out of a helicopter above the Borneo rainforest. A dead corpse chewed by animals was recovered three days later. Rumours swirl that this could be another deceitful tactic by the mastermind who pulled off the world's largest mining scandal. Once news got out that Bre-X tricked the world to invest in a nonexistent gold mine, stock prices plummeted to zero[1]. As a result, billions of dollars were wiped from individual and institutional investors, including major Canadian pension plans[2].

Bre-X Minerals Ltd.
Founded May 30, 1988[3]
Founder David Walsh
Type Public
Industry Mining
Traded As ASE: BXMNF



Peek valuation $6 Billion (CAD)[2]
Peak Share Value $187[4]
Defunct November 5, 1997[5]
Fate Bankruptcy
Key People Michael De Guzman - Project Manager

John Felderhof - Chief Geologist

David Walsh - Founder and CEO

Countries of Interest Canada - Bre-X founding

Indonesia - Bre-X mining sites




David Walsh and John Felderhof meet for the first time. [3] Mr. Felderhof was working for an Australian company at the time.[3]


David Walsh founded Bre-X Minerals Ltd. a subsidiary of Bresea Resources Ltd.[6] Working from home, he and his wife are the only employees[4]


Bre-X goes public on the Alberta Stock Exchange, selling at 30 cents a share.[3] 1 million shares are available.[7] Company's main objective is to explore the Northwest Territories for diamonds,[4] this is a highly risky and speculative venture.[7]


Walsh declares personal bankruptcy from mounting debt.[7]


Topographic locator map of Borneo. Created with GMT from public domain SRTM data. For non-locator version, see Image: Borneo Topography.png.

Walsh contacts a geologist he met 10 years ago, John Felderhof, then spends his last $10,000 on a trip to Indonesia to visit him.[7] Following Felderhof's advice, Walsh purchased a property in the middle of a jungle near the Busang River in Borneo, Indonesia.[6] By divesting Bre-X from North American ventures, Walsh scraps together $150,000 US to explore and claim the stake.[7]

Michael De Guzman reports that Bre-X struck gold on holes 3 and 4 at the site.[7] The first stake costs Walsh $80,000, and Bre-X tells investors that the site may contain 1 million ounces of gold.[3] By the end of the year, issued stock goes from 20 cents to 70 cents a share. [7]


Initial drilling results are noted as encouraging, and operations ramp up. Michael De Guzman, the project manager, files gold flakes from his wedding ring to mix into crushed core samples.[6] Over the next two and a half years, De Guzman purchases $61,000 worth of panned gold from locals to use in the salting of rock cores.[6]


Bre-X informs shareholders they have uncovered another deposit, with 2.7 million ounces of gold.[3] Analysts believe it could hold 30 million ounces.[3] Mr. Felderhof, however, says the site could possess 45 million ounces and could be one of the largest gold ore bodies in the world.[3] He states that the site "has the potential of becoming one of the world's greatest gold ore bodies".[4] Shares trade at $59.[3]


Mr. Felderhof tells shareholders at Bre-X's annual meeting that Busang holds at least 30 million ounces of gold, and is quoted in saying "I think it's 30 million plus, plus, plus, plus."[4] Early in the year, new shares are traded at $28.50 after a ten to one split,[3] the share previously topped out at $187.[4]

The Indonesian government revokes Bre-X's exploration permits, claiming Bre-X is not playing by the rules of the country.[6] Local businessman Yusuf Merukh claims he has a 40 percent interest in the site.[4] Bre-X signs a strategic alliance with an Indonesian company controlled by Sigit Harjojudanto, the Indonesian President's son, where the company gets a 10 percent stake in the site, $1 million US a month for 40 months, and contracts to supply the mine.[4]

The Indonesian government directs Bre-X to make a deal with Barrick Gold Corp. to develop the properties.[3] Barrick gets majority control of the development company, and the Indonesian government not so subtly suggests the parties consider giving the government a 10 percent claim.[4]


The deal with Barrick Gold Corp. falls apart, and a new deal with Freeport McMoRan Copper & Gold Inc. of New Orleans is made.[3] This is helped along by Indonesian President Suharto's close friend Mohammed (Bob) Hasan.[4] The Indonesian government gains shares in the new deal.[3] Bre-X receives the largest ownership stake at 45 percent, Mr. Hasan receives 30 percent, and the remaining 25 percent is divided between Freeport and the Indonesian government.[4]

A fire destroys many of the core sample records.[6] It's rumoured De Guzman sets the buildings on fire to cover up any evidence of core sample manipulation.[1]

Freeport McMoRan begins due diligence sampling on deposits on site, creating twin holes where previous core samples were taken.[6] They find minor traces of gold, but no large amounts as previously claimed.[6]

While travelling to Busang, De Guzman disappears from a helicopter,[3] reportedly falling to his death from 600ft. His body is found four days later.[4] Relatives later claim that he told them he was haunted by evil spirits.[4]

Freeport concludes their findings, and state they had found insignificant amounts of gold at the Busang site.[4] Bre-X omits that the estimates may have been overexaggerated.[4] The shares of Bre-X tumble to nothing,[6] falling down to $2.50 a share, $3 billion in value is wiped away in minutes.[4]

Additional investigation by Strathcona Mineral Services Ltd., hired by Bre-X to investigate, concludes that there was widespread tampering at mining sites. They claim it is the biggest fraud in the history of mining.[3] Lawsuits are issued, and the RCMP investigates but lay no charges.[4] RCMP state that it is impossible to gather enough evidence to lay criminal charges against anyone.[8]


David Walsh dies of a brain aneurysm at his home in the Bahamas.[4]


The Ontario Securities Commission (OSC) files 8 counts against Mr. Felderhof,[4] 4 counts of insider trading, and 4 counts of authorizing misleading news releases.[8] As both Walsh and De Guzman are dead, he is the only Bre-X official ever charged.[4]


Mr. Felderhof's trial begins.[4]


Trial is halted, the OSC moves to remove the judge, the bid fails.[4]


Mr. Felderhof's trial resumes.[4]


Trial concludes, with ruling presented following year.[4]


Mr. Felderhof is acquitted of all charges of insider trading and other securities charges.[8] Justice Peter Hyrn ruled that, "[Mr. Felderhof] was not involved in the salting [of the core samples]".[8]


In the wake of the announcement that there was an insignificant amount of gold found in samples drilled by Freeport McMoRan, the facade that was Bre-X began to crumble. Investors sold Bre-X shares at a remarkable rate which caused the TSX computers to crash multiple times in one day. The stock was delisted by the TSX, NASDAQ, and all other exchanges.[9] Some Institutional investors lost tens of million of dollars, and many individuals lost their life savings. A total of approximately $3 billion was lost by investors around the globe.[10] Some specific Canadian victims of the Bre-X scandal include the Ontario Teacher's Pension Plan and the Quebec Public Sector Pension Fund. These two pension funds lost a combined total of $150 million.[2] Bre-X inevitably went bankrupt on November 5, 1997, although a few of their legitimate subsidiaries continued on until 2003.[11] A number of lawsuits were filed by angry investors, however, the attempts to regain some of their losses proved to be fruitless. With very little money to payout any of the lawsuits, a small settlement was reached in which $5.2 million is to be paid and divided among investors.[10] A very low amount considering the magnitude of the losses. This payout was so insignificant in fact, that it was all donated to charity instead of being divided among the investors.[12] This finally brought more than a decade worth of court battles to a rather unsatisfying end in 2013. There were also no criminal charges faced by any of the parties involved.[13] The RCMP received a lot of criticism over this decision. People felt that they were inadequately equipped to handle such complicated cases, and the Canadian laws left a lot to be desired. The credibility of the Canadian mining industries was heavily tarnished in the aftermath of this scandal.[14]

As a result of this mining fraud, Canada developed robust regulations to mitigate the risk of something like this happening again.[2] With the hope of improving transparency in regards to mining operations, National Instrument (NI) 43-101 was implemented. This is a set of guidelines that details the specific reporting standards for transmitting technical information through any medium. It applies to Canadian companies as well as their foreign subsidiaries.[15] One of the most important aspects of NI 43-101 is establishing liability by appointing a "qualified" person to vouch for a report[16]. In order to be traded on the Canadian stock exchanges, mining companies must report to these standards. This was a crucial step for Canadian regulators to gain some authority over geological endeavours.

Pop Culture

Matthew McConaughey played Kenny Wells in the film Gold (2016)

2016 Movie "Gold" is loosely based on the real story of Bre-X, staring Matthew McConaughey.[17]

A mini documentary was produced by the tv show Masterminds, highlighting the rise and fall of Bre-X, and following the actions of Michael de Guzman.[1]

History TV's show "Turning Points of History" dedicated and episode to the Bre-X Scandal, taking an in-depth look at the complex story and colourful cast. The episode called "Jungle Fever: The Bre-X Scandal".[18]

Key Players

Michael De Guzman (Project Manager)

Michael De Guzman was a Filipino geologist and project manager at Bre-X's gold mine in Busang.[10] Before this, he had an unremarkable career chasing gold along fault lines in Southeast Asia.[19] In his youth, De Guzman had hopes of playing on the Philippines national basketball team. This all changed when both his knee and his dreams were shattered by a group of thugs.[19] In spite of this, the desire to be in the spotlight was still intact.[20] De Guzman believed this could be achieved by striking it rich in the gold industry. This obsession to succeed and the weight of repeated failure caused severe mental distress and delusion.[20] De Guzman would slit the throats of chickens and splatter the blood on the mining equipment to appease the ghosts in the hills.[20] He would also ask workers to pray for the earth to show gold.[20] Along with these strange traditions, De Guzman had many theories about where the best places to find gold were. These theories were often based on some truth, yet were difficult to believe. For example, De Guzman believed that he would find pools of gold within ancient inert volcanos. An opportunity for De Guzman to be in the spotlight arose when John Felderhof, who De Guzman had worked with on a previous venture[21], invited him to drill samples at the Busang mine in Borneo. This marks the beginning of De Guzman's fraudulent master plan.

De Guzman was the epicenter of the Bre-X scandal. When taking core samples in Busang, De Guzman used a technique known as salting. He originally filed gold from his wedding ring, but once that supply ran out, De Guzman turned towards locals panning for gold in nearby rivers[6]. Over a span of two and a half years, De Guzman spent $61,000 on panned gold to keep up with the speed of drilling so he could continue sprinkling gold flakes throughout the ore samples.[6] De Guzman was careful, and meticulously measured the gold flakes he added to ensure the ratios would not raise suspicion.[6] The desire to be in the spotlight was too great; and once he started, it was too late to go back. Without De Guzman, John Felderhof or David Walsh would have been unable to execute this level of deception.

This fraud could not be hidden forever. While De Guzman was in Toronto, the mining company Freeport McMoRan found discrepancies between their samples and those taken by Bre-X.[3] De Guzman was called back to Busang to provide an explanation. Knowing the jig was up, De Guzman leapt from the helicopter to his death while on route to Busang.[20] Leaving behind a suicide claiming his body was wracked by hepatitis B and he could no longer live with the lies.[19] When his body was found, Indonesian police ruled it a suicide.[6] However, the police do not allow De Guzman's family to see his body as it was severely disfigured.[20]

This is not the end of De Guzman's story. Many theories regarding De Guzman's alleged death have arisen throughout the years. The first theory is that De Guzman is still alive and he faked his death. He could have bribed corrupt Indonesian officials and faked his death. This is compelling because the body was unrecognizable and quickly cremated without confirmation of dental records.[19] The finger print analysis was also ruled inconclusive and the family was not allowed to see the body. De Guzman's widow, Genie De Guzman, also reported that she receives a $25k money order each year from an anonymous sender. She was quoted saying, "I never believed he was dead".[19] Another theory believes that De Guzman had died falling from the helicopter, however, it was not suicide. This theory argues that De Guzman was used as a scapegoat because all of the lies could easily be traced back to him.[19] The path seems too clear and without De Guzman's testimony it would be difficult to convict other Bre-X officials. They could easily argue that they had no reason to doubt the reports they received from De Guzman.

John Felderhof (Chief Geologist)

John Felderhof was born in the Netherlands and moved to Nova Scotia as a teenager. In 1993, Felderhof became the chief geologist at Bre-X. Felderhof was the only Bre-X official that was ever charged for illegal insider trading or fraud.[3]

It could be argued that John Felderhof had some sort of knowledge of the fraud. His close relationship and prior work with Michael De Guzman being the strongest argument. He also sold $84 million dollars worth of stock, while his business partner David Walsh sold only $35 million.[19] Next, Felderhof was at his home in the Cayman Islands when news of the fraud came out.[2] The Cayman Islands conveniently does not have an extradition treaty with Canada. Meaning he would not be forced to return to Canada even if he was charged of a crime. This was a smart decision as the Ontario Securities Commission (OSC) charged him with eight charges including; insider trading and making false statements. However, even if Felderhof did have knowledge of the fraud, it was De Guzman who was running the show in Busang.

After the Bre-X scandal, Felderhof lived on various tropical islands. The first of which was the Cayman Islands, but later he chose a simple village life in the Philippines.[22] When looking to start new ventures, potential partners rejected Felderhof not wanting to associate with someone who was linked to the Bre-X scandal. John Felderhof was reported dead at age 79 by his lawyer in 2019.

David Walsh (Founder and CEO)

David Walsh, in his basement office in 1996, the engineer of the “Canadian gold mining stock of the century.”  PHOTO BY POSTMEDIA ARCHIVES

David Walsh was the founder and CEO of Bre-X.[19] He made close to $35 million dollars selling his Bre-X stock before the truth was revealed. It is generally believed that Walsh was acting in good faith. He truly believed, when telling investors they had struck gold, that he was telling the truth. Walsh vigorously maintained that there was a vast amount of gold in Busang, even after evidence showed there were only insignificant amounts.[2] Another reason it is believed that Walsh was not a part of the scheme is the fact that he was in Bre-X's Calgary office when Graham Farqueharson published his report.[23]

After Bre-X declared bankruptcy, David Walsh took his money, moved to the Bahamas, and denied any part in the fraud.[19] Only two years later, on June 5, 1998, Walsh died of a brain aneurysm at age 52.[2] His death was not a shock as Walsh was a heavy smoker and drinker.[2]


  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 "Masterminds - Fools Gold (Bre-X Crime Documentary)". January 26, 2020. |first= missing |last= (help)
  2. 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Fernando, Jason (October 12, 2020). "Bre-X Minerals Ltd". Investopedia. Cite error: Invalid <ref> tag; name ":6" defined multiple times with different content
  3. 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 3.12 3.13 3.14 3.15 3.16 Waldie, Paul (July 30, 2007). "The rise and fall of Bre-X". ProQuest.
  4. 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 Waldie, Paul (July 30, 2007). "The rise and fall of Bre-X". The Globe and Mail.
  5. "Bre-X Minerals Ltd., In Bankruptcy". Deloitte. November 28, 2020. Retrieved March 19, 2021.
  6. 6.00 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 6.11 6.12 "Bre-X Scandal: A history timeline". January 25, 2015. |first= missing |last= (help)
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 Seskus, Tony (January 27, 2017). "TIMELINE: The Bre-X Files: The rise and fall of a junior Canadian mining company". Republic of Mining.
  8. 8.0 8.1 8.2 8.3 "Felderhof acquitted on Bre-X securities charges". CBC. July 31, 2007. |first= missing |last= (help)
  9. "Bre-X Collapses".
  10. 10.0 10.1 10.2 "Bre-X court battles come to an end". Retrieved March 16, 2021. Cite error: Invalid <ref> tag; name ":2" defined multiple times with different content
  11. "​BRE-X MINERALS LTD., IN BANKRUPTCY". Retrieved March 16, 2021. zero width space character in |title= at position 1 (help)
  12. "Great frauds in history: the Bre-X gold-mining scandal".
  13. "Bre-X - companies that have filed for bankruptcy in canada".
  14. "Felderhof acquitted on Bre-X securities charges".
  15. "National Instrument 43-101 — Standards of Disclosure for Mineral Projects (NI 43-101)".
  16. Kuepper, Justin (January 26, 2021). "National Instrument NI 43-101 Report of Canada". The Balance. Retrieved March 19, 2021.
  17. "Bre-X: The real story and scandal that inspired the movie Gold". Calgary Herald. January 30, 2017. |first= missing |last= (help)
  18. Findlay, Peter (2017). "Jungle Fever: The Bre-X Scandal". Vimeo.
  19. 19.0 19.1 19.2 19.3 19.4 19.5 19.6 19.7 19.8 Maich, Steve (June 7, 2006). "Bre-X Geologist Mike de Guzman Rumoured to be Alive". The Canadian Encyclopedia.
  20. 20.0 20.1 20.2 20.3 20.4 20.5 Wells, Jennifer (August 18, 1997). "Controversy over a corpse fuels the Bre-X scandal".
  21. Waldie, Paul (July 30, 2017). "The rise and fall of Bre-X". The Globe and Mail.
  22. "Former Bre-X chief geologist John Felderhof dies in the Philippines". CBC. October 28, 2019.
  23. Sinclair, Stewart (March 18, 2005). "Geologist at centre of Bre-X scandal makes first appearance at trial". The Globe and Mail.