Real story of gold, greed proves stranger than fiction
It’s often been said that the story of Calgary’s Bre-X Minerals had all the makings of a Hollywood script: gold, love, betrayal and an enduring mystery. Two decades after the stock-market darling was declared a colossal hoax, the mining firm’s tale is finally getting the celluloid treatment — though loosely based on true events. In Tinseltown’s take, called Gold, the producers swap in Reno, Nev., for Calgary, and Matthew McConaughey for executive David Walsh. But whatever embellishments the scriptwriters added, they needn’t have bothered. The true story behind Bre-X — a $3-billion swindle that ruined countless lives — remains an epic tale of deceit, greed and ruin.
“A lot of people ended up losing a lot of money — their life savings, in many cases,” says Jaana Woiceshyn, assistant professor in strategy and global management at the University of Calgary’s Haskayne School of Business. “It was a spectacular fraud and a warning example for investors and anyone contemplating trying to become rich that way. In Canada, it remains probably the biggest businessrelated fraud we’ve seen.”
The Bre-X story is largely one of three men: charismatic promoter David Walsh, swashbuckling prospector John Felderhof and Michael de Guzman, a trusted geologist with a secret life.
Montreal-born Walsh went from high school to an investment desk at a small trust company. By 1982, he was making a six-figure salary as head of institutional equity sales for an Ontario brokerage, which transferred him to Calgary.
Eventually, he decided to strike out on his own, forming Bresea Resources. In 1989, BreX hit the capital markets and began trading on the Alberta Stock Exchange at 30 cents per share.
The junior exploration company scoured for gold in Quebec and took part in a diamond rush in the Northwest Territories, but the effort amounted to little. Now in his late 40s, Walsh was bankrupt and saddled with $60,000 in credit card debt. But he was no quitter. Looking for anything that could help his companies’ fortunes, Walsh contacted in 1993 an acquaintance he’d met 10 years earlier in Australia.
That man was John Felderhof. Felderhof was a boy when his family moved to Canada from the Netherlands in the early 1950s. Athletic, bright and fearless, he gravitated toward geology in university. His taste for adventure eventually drew him to Africa, Australia and Asia.
In his late 20s, Felderhof struck pay dirt when he co-discovered the massive Ok Tedi copper-gold deposit in Papua New Guinea. For a geologist so young, it was a coup. Stock options in a junior mining company also made him a paper millionaire during the 1980s. His future looked bright.
But in 1987, stock markets crashed and his paper fortune dwindled. Good work dried up. What he still possessed, however, was his reputation, his intuition and zero fear of the jungle.
All he needed was a break — and along came Walsh.
“I want to put some romance into both companies (Bre-X and Bresea) ASAP,” Walsh wrote Felderhof in 1993. “We have a great speculative stock market going in Canada now.”
Felderhof, who’d spent years working in Indonesia’s jungles, had some prospects, including a property on the island of Borneo.
The site, now infamous in Bre-X lore, became known as Busang.
Given its geology and location relative to two other gold deposits on the resource-rich island, Felderhof believed in its potential. Soon, Walsh did as well.
As the Calgarian set about raising capital at home, Felderhof assembled a team that included a number of Filipino geologists. They were led by exploration manager Michael de Guzman.
De Guzman was born in Manila on Valentine’s Day, 1956. His father was a geologist and he followed in his footsteps. By 1977, a large mining company hired him out of school and, within a decade, promoted him to head up its geology department.
De Guzman was viewed as a good employee and generous manager. A devout Catholic, his life revolved around work and family.
(It only emerged many years later that de Guzman was juggling four wives and families when he died, none of which knew about the others.)
In the late 1980s, when rising gold prices lured many Filipino geologists to Indonesia, de Guzman also headed for the swampy forests of what was dubbed the Pacific Rim of Fire.
In 1992, de Guzman and his longtime colleague, Felderhof, were prospecting for an Australian firm in the remote area of Busang.
After de Guzman reported back that he’d found a few flecks of gold during a brief investigation of the area, it was felt the area showed promise.
When Walsh contacted Felderhof looking for something to lift Bre-X’s fortunes, this was the place they decided to stake their hopes.
Yet, in the early days of the venture, nothing was assured. And when costly exploration efforts turned up little to get excited about, there were fears the Canadians might pull out.
De Guzman, who was leading Bre-X’s efforts at the site as the company’s exploration manager, begged Felderhof for more time. Before long, Busang ’s results began improving.
“We almost closed the property,” de Guzman told Fortune Magazine in 1997, not long before everything collapsed in scandal.
“In December 1993, John said ‘Close the property,’ and then we made the hit.”
From that point, it’s believed drilled core samples pulled from the ground were salted with shavings from jewelry and panned gold.
The world, however, was none the wiser.
Eventually, Busang was billed as the biggest gold deposit on Earth. Bre-X’s value on the Toronto Stock Exchange ballooned to $6 billion. Walsh, Felderhof and de Guzman were on top of the world.
Indeed, they were the rock stars of the mining world. Their Calgary headquarters attracted the world’s financial press. Everyone wanted a piece of their success — and some were willing to sink their life savings into it to do so.
Former business journalist Stephen Ewart, who covered the rise and fall of Bre-X for the Calgary Herald, recalls the near-euphoria on the streets of Calgary as the tiny local company shot to stardom and investors clamoured to get a piece of the action.
“This was before social media, and yet it was the topic of all conversations. You wouldn’t believe how much it captivated the attention of the city and the country and even the world at that point,” he says. “There just looked to be so much money to be made.”
But the good times were shortlived.
Beginning in the fall of 1996, the company was staggered by a series of stock-jolting controversies.
It ranged from questions over its ownership of Busang to a forced partnership with the Indonesian government’s hand-picked suitor, U.S. mining giant Freeport-McMoRan, and a confidante of thenpresident Suharto. But the worst was yet to come. Freeport’s independent drilling tests in early 1997 failed to match Bre-X’s grand results. The finding came as company executives gathered in Toronto to see Felderhof named Canada’s Prospector of the Year.
De Guzman, who was in Toronto and courting an exotic dancer at the time, was summoned back to Indonesia to explain the discrepancy between the Bre-X and Freeport results. He didn’t survive the trip. On March 18, 1997, de Guzman arrived in Balikpapan, a seaport city on the island of Borneo, where the helicopter used by Bre-X was to take him the next day to the mining camp.
That night, he went to a local karaoke restaurant and crooned a handful of hits, including My Way. He appeared to be in a good mood.
Early the next morning he asked a colleague to fetch him some new clothes. His old ones were soaked, he explained, because he fell asleep in the tub after consuming a bottle of cough syrup.
“It was my impression that he was trying to commit suicide that night,” a Bre-X metallurgist later told investigators in a statement.
Hours later, de Guzman boarded the Alouette III helicopter bound for Busang. Freeport officials were eagerly awaiting his arrival.
Twenty minutes into the flight, the pilot heard a pop and a bang.
The door to the chopper was open and de Guzman was gone.
In the helicopter, police found a shopping bag with two handwritten notes. In one of them, de Guzman indicated he killed himself to escape the suffering of hepatitis B.
“God bless you all. No more stomach pains!! No more back pains!!” it said.
It took authorities five days to find de Guzman’s remains. By the time they did, heat, bugs and animals had left little to help identify the corpse.
A lump on the left shoulder was key to making the ID.
But the state of the body led skeptics — and some family members — to speculate it wasn’t de Guzman at all.
Soon, conspiracy theories flourished: Was he murdered? Did he escape with a vast fortune? Is he still alive?
Years later, the stories persist, including occasional “sightings” of de Guzman.
“I personally believe de Guzman is alive and well and living somewhere in the Philippines,” says Joseph Groia, the Toronto-based lawyer who successfully defended Felderhof against charges of insider trading years later.
“I believe (de Guzman) had a plan to find a dead body, buy it, dump it out of a helicopter in a place where it was going to be severely mutilated, and then move on with his life,” Groia says.
Indonesian police, however, ruled de Guzman’s death a suicide.
But even before authorities found the corpse, Bre-X was fatally wounded.
On March 21, an Indonesian newspaper suggested the Busang gold find may not be the giant it was claimed. Bre-X denied the report, but the company’s shares fell.
Soon, the overseas turmoil flooded Bre-X’s Calgary headquarters. On March 26, Strathcona Minerals, an independent consultant, found gold estimates may have been overstated. Bre-X partner Freeport-McMoRan then revealed the results of its initial tests. The next day, investors fled the stock.
Bre-X’s ignoble end came a couple of months later when Strathcona’s probe produced a damning report that declared there was no gold at Busang. It found “the magnitude of the tampering with core samples that we believe occurred … is without precedent in the history of the world anywhere.”
Investors, who were still hoping for a shred of hope, were shattered.
“At first it was disbelief that this could happen,” former journalist Ewart recalls.
“At some point you could begin to see that there could potentially be a swindle there, but I think it took a while. I think people couldn’t get their heads around the fact that something could get this big without some checks and balances kicking in.”
Walsh said he was devastated by the findings. A $2.5-million private investigation he commissioned using Bre-X funds ultimately exonerated him of involvement in the fraud.
The report by Forensic Investigative Associates Inc. instead pointed an accusing finger at de Guzman and several of his Filipino colleagues who worked at the alleged gold deposit in Indonesia.
Walsh spent his final months steadfastly proclaiming his innocence.
“I am wiser and obviously more cynical — 4 1/2 years of hard work and the pot at the end of the rainbow is a bucket of slop,” Walsh said in 1997.
He died of an aneurysm the next year at his home in the Bahamas; his will stated that his only possessions were US$7,500 in household goods and a truck.
RCMP spent months sifting through the ashes of the scheme, but in 1999 announced that they couldn’t gather enough evidence to lay any criminal charges in the history-making fraud.
Felderhof, who maintained his innocence and belief that there was gold at Busang, fought a seven-year legal battle against the Ontario Securities Commission.
Though the OSC never accused him of tampering with the gold, it argued that “red flags” warning the massive find was a hoax should have been obvious to the senior geologist.
The commission claimed Felderhof allowed false or misleading news releases to be issued to the investing public.
It also alleged he sold $84-million worth of stock while having information not disclosed to the investing public.
But while a judge found in his 2007 decision that “tampering at Bre-X was unprecedented,” it was also ruled that there were no red flags that should have been apparent to Felderhof.
“I am satisfied on a balance of probabilities that Felderhof has proven that he took all reasonable care,” the judge concluded.
The ruling did not remove the stain from Felderhof, however. The man who lived to prospect never returned to the work he loved, not even as a consultant.
“John’s been unable to get a job in the industry,” says Groia, his lawyer.
“I’ve tried a few times to connect him with people who might have had a need for someone with his skills. The reality is, John is never going to be employed again in the business.”
Today, the 77-year-old lives quietly and modestly in the Philippines, Groia adds.
“He is by no means a wealthy man. I think it’s fair to say he leads a hardscrabble existence.”
Groia — who maintains that de Guzman was the mastermind behind the salting scam — says Felderhof was scapegoated by securities officials, who needed to prosecute someone to satisfy the public’s desire for retribution in the case.
“It was very clear to me that they went after John because they had to go after somebody,” Groia says.
Felderhof has rarely spoken about Bre-X in recent years.
In an interview with the Northern Miner in 2012, Felderhof said he finally figured out how the salting was done, but wouldn’t point any fingers at a potential culprit. He reiterated for the reporter his long-standing belief that de Guzman had nothing to do with it, contrary to his lawyer’s assertions.
“I know what it’s like to be accused,” he told the publication. “It’s easy to accuse and destroy a person’s life, but I have no proof, so I won’t accuse them.”
Twenty years later, there is little left to remind Calgarians of the scandal beyond the new movie.
The red-brick building in Hillhurst — once the proud HQ of the $6-billion company — has long been stripped of any Bre-X vestiges, including its prominent gold sign.
Today, the company largely exists as a cautionary tale for business students, investors, the mining industry and police that sometimes the pot at the end of the rainbow really is nothing more than a bucket of slop.