“Have you ever dreamed of striking gold? We’re not talking about the garden-variety treasure chest filled with gold coins—no, that’s too mundane. We’re talking about the literal, physical act of striking gold buried deep underground in the thick jungles of Busang, Indonesia. Poised to start mining the world’s largest gold resource, we want to offer YOU this once-in-a-lifetime opportunity to invest with us and share in the riches. Are you in?”
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If you scoff at this, good for you. Tens of thousands of people, along with scores of institutional investors, bought into the story hook, line, and sinker. They poured millions of dollars into the Toronto Stock Exchange and NASDAQ to buy up as many shares of Bre-X as they could. Many had never heard of this small Canadian mining company before, but they weren’t worried—they simply wanted in! The Bre-X craze knew no bounds, just like the estimates of the untapped gold resource in Busang which ballooned from an initial report of 2 million ounces in 1992 to a staggering 200 million ounces in 1997.
Not wanting to be left out and denied a share of the unimaginable wealth within their own borders, the Indonesian government muscled in, forcing a marriage of convenience between Bre-X and Freeport-McMoran Inc. on February 17, 1997. Freeport-McMoran, a large American mining company with deep pockets and resources, began drilling right away but found little trace of gold. To make matters worse, soon a mysterious death grabbed the headline. On March 19, the company’s exploration manager, Michael de Guzman, allegedly committed suicide by jumping from a helicopter over the Indonesian jungle. Several days later, Freeport-McMoran released a damning report disputing the existence of any substantial gold deposits in Busang. Bre-X stock plummeted, losing more than 90% of its peak market value. The final curtain dropped on May 4. Strathcona Mineral Services Ltd., a mining consultant brought in by Bre-X, released its independent analysis confirming what everyone had already come to suspect: there was no gold in Busang. Bre-X had orchestrated a colossal fraud by “salting” their drilled samples with gold flakes. The supposed world’s largest gold mine was nothing but a scam.
Bre-X filed for bankruptcy later that year. The other two alleged masterminds, David Walsh (founder and CEO of the company) and John Felderhof (vice president of exploration), never spent a day in jail. Individual and institutional investors were the ultimate losers, watching their dream of riches turn to fool’s gold.
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We all know the proverb, “If it sounds too good to be true, it probably is.” Yet time and time again, we ignore the warning sign and fall for glittering promises.
When will we learn our lesson?