Thursday, March 27, 1997

Busang Gold Find Has a Dramatic Twist

Andreas Harsono
American Reporter Correspondent
Jakarta, Indonesia

Andreas Harsono
American Reporter Correspondent

VANCOUVER -- The Hong Kong-based Far Eastern Economic Review once
profiled the Filipino geologist; they called Michael De Guzman a "golden
boy" after his spectacular find of a huge, multibillion dollar gold
deposit in Busang, a village deep inside the Kalimantan rain forest.
De Guzman's boss David Walsh, the chief executive officer of the
Calgary-based Bre-X Minerals Ltd., recalled him as having a "near-genius
IQ," while colleague geologist John Felderhof praised him as a brilliant
and a true professional.
De Guzman had his own judgment about himself. He decided to end
his life. And rather than taking sleeping pill or something less painful,
he tragically chose to jump from a helicopter that was flying to the
Busang site, around 300 kilometers northwest of Samarinda, the capital of
East Kalimantan, on the morning of Wednesday March 19.
"It was a great shock," said Felderhof, who immediately flew back
to Indonesia from his visit to Canada, saying that he was deeply
distraught over the loss of his colleague. He was unsure of the exact
reasons for de Guzman's death.
Two witnesses inside the helicopter said they just felt a gush of
wind that went by their heads. They turned around and de Guzman was gone
from the rear left side of the helicopter.
Police said that the pilot and the engineer of the helicopter,
which was hired by Bre-X, had seen de Guzman writing a letter and putting
it in a bag along with his Rolex watch and a gold-plated bracelet just
before he fell from the helicopter.
The note also said how de Guzman's wife, who lives in the
Philippines, should divide his belongings between his two daughters and
other relatives, adding that he had had "giving up" on life because of
The tragic death is not the only blow to Bre-X executives like
The following day an Indonesian newspaper, the Jakarta-based
Harian Ekonomi Neraca, instead of headlining the dramatic suicide, broke
the news that Freeport-McMoran Copper & Gold Inc. is harboring doubts that
Bre-X found as much gold as it says it did at Busang. Freeport, reports
say, has not found gold in quantities that were described in Bre-X assays,
and records were destroyed in a fire jtoi make comparisons of essay
results even more difficult.
The Indonesian government last month recruited the New
Orleans-based Freeport to develop the mine, giving it a 15-percent
ownership stake and shrinking Bre-X's share to 45 percent. The Indonesian
government and an investment firm controlled by Indonesian President
Suharto respectively own the rest 30 and 10 percent.
The Neraca daily quoted the Freeport official as saying that the
find was less than 10 million ounces, which is in sharp contrast to
Bre-X's claim last year that it had found at least 70.95 million ounces
of gold.
The Bre-X claim would mean that the Busang deposit is worth around
US$230 billion at today's price.
"Possibly," one official says, "the deposits are not as large as
had been reported. In fact it is possible that the deposits are not worth
mining," the anonymous official said.
In this modern era of information technology, the statement just
need minutes before reaching the whole world. About $US3 billion of market
value vanished as soon as stock exchanges throughout Canada began to open
on Friday and the stock fell to just 20 percent of its opening quote,
then in the $200 range.
A brief report of the story was flashed to North America by Bridge
News, a St. Louis-based wire service formerly known as Knight-Ridder
Financial News. The Jakarta bureau of the Agence France-Presse as well as
other news agencies also quoted the report and spread it worldwide.
In a market where prices are keyed to the idea that Busang is one
of the great gold discoveries of history, this was incendiary. Mining
analysts had earlier compared the Busang find to the legendary Klondike or
Witwatersrand gold mines in South Africa a century ago.
The Busang deposits even managed to pit various powerful figures
like former Canadian premier Brian Mulroney, U.S. ex-president George
Bush, and Indonesian President Suharto as well as his children against
each other in a high profile business struggle to control the future
output of Busang.
A small Canadian town saw hundreds of its residents become
millionaires after their Bre-X shares rose more than 3,000 percent. Some
of them even moved to New Zealand to avoid paying Canadian taxes.
But the Neraca news report might not have traveled so far so fast
without the help of Internet chat groups in which computer junkies swap
market news and rumors.
Before dawn on Friday, someone posted the Bridge News report on
the Internet. Five minutes later the trading on the Toronto Stock Exchange
opened, Bre-X was down US$0.9. Exchange officials called time out at the
company's request "to ensure that investors trade on equal information,"
said a market manager.
Despite a trading halt of more than 3.5 hours to let the market
settle down and hear the company's reassurances, Bre-X slid to US$10.7 --
its lowest point since April 1996 -- and closed at US$11.4, down US$1.7,
on the Toronto Stock Exchange.
At its lowest price, it had fallen about US$600 million since the
world learned of de Guzman's mysteriousand final flight. Also hammered
were Bre-X's parent companies, Bresea Resources Ltd. and Minorca Resources
Ltd., which have small indirect stakes in the Kalimantan discovery.
"Absolute insanity. Just insanity" said Toronto mining promoter
Stan Hawkins, a Bre-X shareholder and former Bresea director who said he
had heard "all sorts of different rumors that de Guzman was murdered and
the assays are all wrong and that's why he jumped off the helicopter, or
whatever. Certainly there's no question about theassays: They're
golden, no pun intended."
While stockholders were still selling their shares, dozens of
rescuers and colleagues combed the Kalimantan thick rain forest, trying to
find de Guzman's body. A world apart, both Canadian and Indonesian
newspapers put the rescue effort and the stock hysteria on their front
Rescuers finally found de Guzman's body on Sunday, face down in a
swamp, 150 meters to the west of the estimated impact point in Manamang, a
village north of Muarakaman, dozens of kilometers from Busang.
Observers cannot seem to help but speculate that de Guzman had
made his tragic decision after finding out that the years of effort in his
exploration work, which had begun on a shoestring in 1986, was about to
reward him with a huge embarrassment.
"How could a geologist whose pictur was printed on glossy magazines
around the world withstand such a humiliation?" asked an observer, adding
that de Guzman's income ad risen dramatically since the find and made him
a multimillionaire with assets of $4.8 million.
B.N. Wahyu, head of the Indonesian Mining Association, complained
that the secrecy surrounding the Busang find meant he could not get a map
of the site from Bre-X until March, even though the association had
lobbied the mining ministry here for a fair deal for the company.
Both Felderhof and Walsh angrily denied the report. A Freeport
spokesman in Jakarta also denied the report, saying that the American is
still drilling and cross-examining the deposit in Kalimantan.
Without explicitly referring to the Neraca newspaper, Walsh said
in a statement that he is considering legal action against "certain
parties and publications due to the erosion of share value which resulted
from these reports."
In an apparent bid to calm down investors, Walsh said, "When te
first ounce of gold is poured at Busang, I'm sure the naysayers will
complain about the color."
Felderhof, who is the Bre-X chief geologist, also said that he is
going to have a meeting with Freeport executives to discuss their
continuing preliminary work on the deposit, adding that he is expecting to
be present when Busang's long-delayed Contract of Workpermit is issued by
the Indonesian government two weeks from now.
Bre-X says it attributes its figure to consultants from Kilborn
SNC-Lavalin Inc., a Toronto-based engineering firm, and Kilborn stands
behind it.
Paul Semple, a vice-president in Vancouver, said the firm had "no
reason to believe that there is any reason to retract that. If there is
other information out there, we just haven't seen it," he said.
Norman Keevil, chief executive of Vancouver-based Teck Corp.,
which failed in an effort to negotiate its way into the Busang project,
said Kilborn's people are "reputable engineers" who would not likely be
wrong about such a bonanza.
"We've seen the reports and the Kilborn study. It's hard to believe
that there is anything materially different than what we have seen. This
[newspaper story] is probably just speculation, but I'm as curious as you
"If Freeport has begun drilling on the site," Keevil said, "it
couldn't have been much more than three weeks ago, so I don't know how
much data they could even have out of it yet."
Mohamad Cholid, the deputy editor of Neraca, said that his
newspaper got the leaked information from two different sources. The first
came from an official of Freeport and the second came from a source at the
Ministry of Mine and Energy.
"I was told that President Suharto himself has also gotten reports
about the Freeport finding," Cholid said, explaining that his newspaper
headlined the report after "carefully checking and rechecking" the
sensitive data in a normal editing procedure.
"I times like these," quipped the senior journalist. "Public
companies are always vulnerable to reports like this one. The public
doesn't know for sure which one is correct -- our sources or Bre-X
geologists. They want to play it safely. Now we have to just wait and

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