“Not guilty” is the verdict of Mr. Justice Peter Hryn who ruled in favour of the last remaining member of the BRE-X gang, geologist John Felderhof. Felderhof was accused of eight counts of insider trading and issuing false press releases, before the collapse of Bre-X following news that assays from the Busang gold project had been falsified.
On July 31, Judge Hryn told a Toronto courtroom, “I find Felderhof has proven he took reasonable care.” To expand his thoughts, the judge issued a 600-page opinion.
Felderhof was one of a triumvirate whose names headlined glowing reports in the mid-1990s, thanks to their optimism that the Busang project in Indonesia might contain a staggering 200 million oz of gold. It didn’t.
The potential of the deposit evaporated after BARRICK GOLD examined it and FREEPORT MCMORAN did its due diligence. Neither company believed the property contained such vast amounts of gold. Neither wanted to enter a joint venture with Bre-X.
The end came quickly in 1997. A fire at Busang destroyed the geology records. Michael De Guzman, another geologist who played a pivotal role at Busang, disappeared from a helicopter over the Indonesian jungle. David Walsh, founder of Bre-X, died of a brain aneurism the next year at his home in the Bahamas.
Walsh’s expertise was never mining or mineral development. His talent lay in separating investors from their money. And thousands of wannabe millionaires poured money into the Bre-X coffers as the resource numbers escalated. Shares in the company were trading at a mere $0.30 when Walsh founded the company in 1988. The value of the company soared to over $6 billion before the salting was exposed and share value plummeted to zilch.
Great shades of WINDFALL MINES, Viola MacMillan’s pet project of the 1960s. Her property was adjacent to the magnificent Kidd Creek copper-zinc discovery at Timmins, Ontario, but alas was worthless. Both Windfall and Bre-X left in their wake thousands of angry investors who suddenly lost everything and have no hope of ever getting it back.
Part of Felderhof’s problem was that he did get rich. In 1999 the Ontario Securities Commission laid four charges alleging that, based on insider information, he made $84 million or more on the sale of his Bre-X shares. The commission also laid four charges based on the fact that Felderhof signed off on press releases overstating the resources at Busang.
One of Canadian mining’s most hotly debated stories has ended with Judge Hryn’s ruling. The 20-year saga of Bre-X, optimism, dreams and loss has wrapped up. Rightly or wrongly, Felderhof has gotten off scott-free, except for his legal fees, which he should be able to easily afford.