I want to tell you about the biggest gold mining fraud ever. A few made tens of millions and many lost their shirts – including those who invest public employee retirement dollars. It was an elaborate and intentional fraud, but in the end, no one was punished or went to jail. It was so outrageous that they even made a Hollywood movie about it. But I'll tell the real story, not the Hollywood version.
A small gold exploration company by the name of BreX minerals acquired a mining property near the Busang River in Indonesia. The great drilling results from Busang continued to come in and by 1996, the reserve estimate was raised to 60 million ounces, making Busang the biggest gold discovery in decades. There was no doubt that there would be a big commercial mining operation at the Busang site and major mining companies that specialized in the gold sector began to take serious interest. The stock market responded by bidding up the market value of BreX’s shares to amazingly high prices. Banks, Canadian public sector pension funds, large institutional investors and big gold mining companies began to invest heavily in BreX.
But Bre X was a fraud. The scam unraveled rapidly in March 1997, after it was announced that their geologist mysteriously fell to his death from a helicopter over the Indonesian jungle. BreX stock started to drop on the news. A big mining company, Freeport, announced that its own duediligence core samples from Busang showed "insignificant amounts of gold". A frenzied selloff of shares ensued and BreX share price dropped like a rock.
Even if you don’t invest in mining stocks, there are a number of important lessons for gold prospectors everywhere in this story.
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