In early 1997 a fax arrived at Bre-X’s
Jakarta office for John Felderhof. It was from Michael De Guzman, 854 miles
away at the exploration site in Busang. It read:
"Sorry to disturb you, but our geology building got burned down last week."
The fire at the Busang camp destroyed the survey office, an administrative office and a break room.
Numerous files were lost,including drill logs and maps.
One of the investment bankers who was trying very hard to be involved with all this had
arranged to visit the site and wanted to inspect the core samples and there was a mysterious
fire that shut everything down for a while. Paul Murphy, the Indonesian Vice President for
Freeport, Bre-X's new partner, never really questioned how the fire got started.
There was so much going on at the time about the Bre-X frenzy that that
was kind of lost in the shuffle. Officially, Bre-X blamed the fire on an
electrical short circuit caused by a power surge. But John Felderhoff circulated another rumour.
The fire could in fact be someone playing dirty tricks. Earlier that evening, he'd spotted
a helicopter circling overhead. No one ever got to the bottom of how the fire started.
But those lost files? The records from all of Bre-X's gold drilling. There weren't
any copies. They were gone forever. It was amidst that chaos that Freeport sent
a small team to the site in East Kalimantan. Their job was to prove once and for all
whether Bre-X's gold really did exist. I’m Suzanne Wilton and from the BBC
World Service and CBC Podcasts, this is The Six Billion Dollar Gold Scam,
a story about the lengths people will go to in pursuit of getting rich.
And how greed can obscure the truth… This is Episode 4: Prospector of the Year.
Geologists Joe MacPhearson and Dave Potter were part of the Freeport team sent to
Busang. Their plan was to do their own drilling to verify Bre-X’s findings.
First, they flew into the nearby city of Balipakan to meet with Felderhof and De
Guzman. Joe McPherson remembers that meeting.
So we met them in the hotel that night and we were
down in the bar having a couple of drinks and Dave Potter had to get up and go back up to his room.
It was all very cordial at the time, everyone was laughing and joking, having a great time and
Potter was gone for a long time and he came back and sat down beside me and I said ‘What’s
going on?’ and he said somebody broke into my room. ‘Really did?’ Yeah he said it was really
weird because I had a pile of money sitting on the desk and they never took it.
But someone had broken into his room.
Was he concerned ?
Not at the time, retrospectively yes, because we realised they were probably looking
for notes or something and trying to figure out what our plan was and they being the unknown I
do not exactly know okay, but clearly someone broke in and it wasn’t anybody who were down there
with. It was not De Guzman, it was not Felderhof.
What do you think that they
could have been looking for?
Well they obviously were not looking for
money as Dave had 10 or 12 million Rupiah sitting on the table in plain sight and it was
not touched. He said he thought his notebook had been looked through. He had a notebook.
And how could they use that information and what might that information be important for? Well it would perhaps give them an idea
of what our plans where we would go and what part of the property we would want to
visit if we wanted to look at drill core, if we were going to make a deep dive on the labs
they would have been all in Dave’s notes to some degree and knowing Dave it was probably in a point
form. You know I need to do this, this and this. Unsettling for sure, but they shook it
off and carried on to the Busang site.
While flying over the jungle
canopy and into the camp, Joe McPherson remembers getting
a feel for the place once again. We flew in in a helicopter and
landed at the helipad and there were buildings where some of the
core was theoretically stored. Core are small cylindrical samples taken
from a mine to double check the quality and amount of gold.
It was quite a large camp with dormitory type things. A nice big
canteen for people to eat and the main house was where Felderhof and De Guzman lived
and it had a porch and it would look out over the Bre-X area down in the valley and there
were lots of chairs and couches and stuff. They would entertain all the visitors there.
John Felderhof and Michael De Guzman had made their own way from the hotel in Balikpapan
to the camp and met them on the veranda. So of course out came the beer again and it
turned into quite a session that afternoon. We sat there with them probably for about
three hours. Felderhof was very ebullient okay very excited, he was running off
showing us pictures of his beautiful house somewhere in the Hamptons I don’t know
where it was exactly but he was very excited to have us there and as the beer started to
flow and people were yakking more and more. De Guzman was very quiet through most
of this I must say and I noted that to Colin who was sitting beside me.
Colin Jones was another member of the team from Freeport who joined
McPherson and Potter at the site. Later that afternoon Colin, myself and Felderhof
got into a bit of a conversation and Felderhof came out of the blue and said, “What would you do
if you drilled holes and didn’t get any gold?” And Colin of course at that point we were very excited
and said ahhh well it must have been a mistake at the lab. We kind of laughed it off.
Felderhof asked this?
Felderhof asked this.
And at this point you had not done any of the drills?
No this was the first day, we hadn’t even unpacked our bags.
And did that trigger you at all?
We wondered why he would ask that but again
we kind of know it's probably, we’ll have to check the lab, it's a screw up in the lab as that
does happen. But it was just a very, very strange question to ask. We both commented to each other
later that that was kind of a weird question.
Dave had notified Felderhof and De Guzman that
we were going to do twin holes. Now the twin hole is basically, this is their drill hole and
we would come in and drill another hole ourselves right beside it and that's a commonly accepted
procedure for any due diligence, you always twin a number of representative holes.
Did they seem resistant to that idea?
No, not resistant, just not
super cooperative either. The Jungle is surprisingly
quiet believe it or not. The only bad part of the jungle is that it's
so hot, it's hot. You walk outside and you’re just covered in sweat, so you're constantly
wet and everything you touch seems to have a thorn and the mosquitoes are unbelievable.
This was Dave Potter’s second trip to Busang. As Freeport’s Head Geologist he’d gone out there
a few weeks before the deal was made to check out the site… not drilling… just to look around.
The camp was on the side of a hill and it kind of went into a valley and they had a nice camp. You
see that’s the other thing exploration geologists like to get out far far away from anybody as
no one comes to see what you're doing. Dave Potter had a lot of geological
experience… and he was sceptical about the amount of gold in Busang.
But he was prepared to be proved wrong.
You know I went out with a clean slate and
I thought okay Freeport has got involved in this thing. I am a little leery but okay
they’re going to be our partners. Let's you know fold them into the embrace here and
try real hard to make them part of the team, our team. I tried real hard to make us part
of their team. I even had some hats made that were half half Bre-X and Freeport, FCX
trying to get everyone to be part of it. On Dave Potter’s first trip he’d
found a well run and busy camp.
But this visit was different.
How do I try and explain this? It just got kind of quiet. Before it was a lot of
activity a lot of people running around and when we got out there to do the work it kind of got
quiet just there weren't quite as many of the higher ups around and you had to look for the main
guys. I mean they were hard to find. And I started to speak to some of the young geologists out there
who gave us a lot of information and a lot of help. And then you know you start getting this,
it sounds silly but you start to get kind of a creepy feeling something just isn’t right. That’s
when things started getting interesting for us. And then… a red flag.
I wanted to look at some of the core that was in the sheds there. I was a little disappointed
because there wasn’t a lot of core. I was somewhat surprised they did not have more examples of
what they were drilling because they just drilled thousands of metres of rock and I was surprised
there was not more core available to look at. Standard practice is that you keep 50% of the core
drilled. The US Securities Exchange Commission, the SEC, who help prevent fraud, require
it, in case there's a question over results. Normally you keep what we would call
a skeleton which is maybe eight to 10 inch whole core and the surprising thing
with what they were doing was they ground it all up to assay which is not normal practice.
I questioned that a little bit. I had been told by both De Guzman and some of the geologists that
the gold was so touchy that they had to ensure that they got all of it by grinding up the
entire core but they assured me it was okay because they took pictures and they described the
rock and I was again a little hesitant as you run into problems with the SEC if you do that
Dave Potter went to visit the lab in the city of Samarinda, 200 miles or 300 kilometres through
dense jungle from Busang, where Bre-X were sending the crushed rock samples to be tested for gold.
What he found there made him even more concerned.
The lab guy at the lab was a good lab man. A good honest man ran a good business and he
commented to me. He said it's kind of funny here, we get these cores in plastic bags and when we
dump it into the crusher to be crushed up they make us wash the bags out and I started talking
to him about, well they grind up all the core and he said I don’t know why they want to do that
and we started talking back and forth and that feeling got worse, that tense feeling because I
think the lab guy at the lab was trying to tell me that something was funny too but he did not
want to break up the client confidentiality thing that he had with Bre-X and he did not want to be
pointing fingers but he was a little uneasy about the whole thing as well. He kind of looked at me
and said ‘Maybe you want to check this Dave’. Joe MacPherson was also running
into difficulties in other areas. The team looking after data management I wouldn’t
say they were resisting my questions but they were not openly saying oh here is this kind
of thing. So that made me start to wonder why they are not just giving this to me. When I say
this I mean geology logs, laboratory analytical results, geotechnical portions of the geology,
anything that had to do with the geology and understanding the gold deposit.
And then another red flag… Then we went out to the field with I think
it was myself, Colin, Potter, Felderhof for sure and I think De Guzman in the main zone the
south east zone, they had basically cleared off all the trees and exposed the outcropping rocks
and had done some sampling which you normally do in any kind of exploration project. So we asked
Felderhof what you get out of these trenches.
And John says oh we didn’t get any gold but
we got lots of silver and I thought okay geology 101 here. Gold is basically what we call
immobile. It does not move very far but Silver will. Silver will actually move over time because
of weathering processes so if anything you would expect the gold to still be present in those
trenches. Colin and I looked at each other and our lights started to go on at that point
and we said this does not make any sense. By this time you're starting to get a pretty
good inkling that something is not right here. Yeah something is not right.
Joe McPherson and Colin Jones knew that if there was any gold, they should
have seen evidence of it in the trenches. The Freeport team persevered
with their due diligence. To check Bre-X’s results, Dave Potter made every
effort to match where and how he was drilling so his drill core would be identical to Bre-X’s.
I like to call drill rigs geologists lie detectors because do you really think we know what's going
on 300 metres below the ground? We like to think we do and we get all excited about it but
at the end of the day its that drill rig that tells you whether you have it or not and
our drill rigs and we use the same drill rigs that the Bre-X people were using they drilled
those holes we were getting the right rocks. Same holes, same rocks.
Different results.
Dave Potter sent the drilled core to the
same lab in Samarinda, used by Bre-X. The first results were not good.
No traces of gold were found. We started going oh, what’s going on here? So
we changed a few of the drill hole locations. We actually took a drill and set it like three or
four feet away from an existing hole and drilled right beside it to make sure we had not missed
something but doing a scissor hole that one came back dead and while all this was going on things
got harder and harder to get done at the camp. People started disappearing.
De Guzman disappeared. After these poor results from Samarinda,
Dave Potter sent the final drill samples to Freeport’s own assay lab in Jakarta.
This would be the clincher. As the drill results were being
tested back in Jakarta the 1997 Prospectors and Developers Association
convention was being held back in Canada. This is the mining industry's annual
gathering and John Felderhof was due to receive the Prospector of the year award.
The CEO of Bre-X, David Walsh joined John Felderhof and Michael De Guzman, plus his group
of Filipino geologists who’d flown in from Busang. The Bre-X three should have been feeling bullish.
Bre-X’s Vice President Bryan Coates remembers De Guzman and Felderhof introducing
their gold discovery, this year they were being crowned as kings.
1997 was more a coronation with the transaction that had occurred so they were
rockstars. That's the way I would describe it. He and John were riding high though at that point.
But, though again they were rock stars they had discovered and they were amongst their peers.
They were hitting it out of the park right from day one so pretty amazing so that’s
why they had the status they had amongst a convention of explorers and promoters.
How colourful was Michael De Guzman?
He had an aura around him and Felderhof and the
rest of the team had sold it that this guy was really smart and high IQ leave him in his bubble
so he can think about his whole aspect there Don’t disturb him and again it's like an athlete a
successful athlete if you let them, You live with their quirks because they’re talented in certain
things so you say don’t mess up the recipe. Joe McPherson had also made his
way out of the jungle and back to Canada,to attend the conference.
He was anxiously awaiting the results from the last round of core samples.
He tried to remain professional.
Walsh was there with all his sons and all
the investors, it was a big deal. Everyone was back slapping and congratulating and all
that kind of stuff. I was trying to stay in the background and they kept trying to drag me in.
So I was there mixing with them but trying to keep my distance as well as there is a six-billion
dollar price tag hanging out there on the shares and that so I just kept my distance and I was
cordial and I met them a couple of times. One time I met De Guzman in the Royal
York hotel, which is the meeting place, they have a mezzanine level and it has
a railing around it. I came out of the elevator one evening. I think it was Monday
night and there was de Guzman and he had his head down and he was leaning over the railing
and he looked very unhappy so I went over to him and said, “Hey Michael what are you
doing? Are you feeling alright?” He says, “Yeah, yeah I just got a lot on my mind.” And
I just walked away and did not hang around. On the Monday after chatting to De
Guzman on the mezzanine, Joe McPherson decided to go back to his hotel room.
I guess around 5.30pm I got a call from Jakarta and it was a geologist who looks after
all the analytical results and she is a very smart lady but she is very timid and on the
phone she said, “Pa Joe, Pa Joe I am really sorry.” And I said, “Why are you sorry? Well
the assays came back and there’s no gold.” So I am sitting on the side of my bed in a
room at the Royal York and I am holding a 6 billion dollar secret in my hand.
WOW. I had to go down stairs to get the fax. In
those days it was fax and I got the fax and looked at it and said holy shit and then I
said I don’t think I am going back down to the Prospector of the Year Award so I bailed.
Do you remember how you felt at that moment? I was shocked. I was in a state of shock.
But there you are in Toronto and John Felderhof is about to give a speech as prospector of
the year and you're holding this secret. Did you tell anyone?
No, I couldn't. You know how many people’s lives I would have ruined at
that time. It was not good and I was in a very very difficult position but I talked to Dan and
I said look I am not going to say another word I am going to get the hell out of here and
he said yeah that’s right just get out, go. Dave Potter was the first person to receive
these negative results from Freeport’s lab and while Joe was reeling from the news, Dave was
already on a flight from Busang to Jakarta. The first person I had to speak to was Jim
Bob and I gotta tell you that was one of the hardest telephone calls I have ever made in
my life. There was always the potential that this was real and we were sitting on one of
the largest gold deposits the world had ever found and Freeport was involved for a pretty
good percentage of it and Jim Bob was I think he was hoping against hope that it was real I
agonised for about an hour before finally picked the phone up that night. It was about 2.00am in
the morning and I called him up and said, “Well Jim Bob there's nothing, there’s nothing there.”
And I have got to give the man credit he said, “Are you sure Potter?” And I said, “Yes sir, I
am sure.” And he hung up and that was it. After that call, Jim Bob
went looking for answers. He started asking questions
which would be kind of like having a five tonne boulder drop on your
head having Jim Bob come and talk to you. Freeport’s reputation and his own was on the line,
not to mention the lives of all the investors. He needed to speak to Bre-X’s CEO David
Walsh, so he picked up the phone. Over at the Prospectors Convention, a litigation
lawyer named Alan Lenczer happened to be in David Walsh’s hotel room with John Felderhof when the
call came in from a furious Jim Bob Moffet. While we were sitting there the most astonishing
thing happened, the phone rings and David picks it up because its his suite and I can only hear
one side of the conversation but Jim Bob Moffat was calling and from what I could ascertain
he was telling David that Freeport Mcmoran, which was his company had drilled some holes
adjacent to the holes that Bre-X had drilled and they had recovered core they had taken
the core to the assay lab and there was no gold and it was David’s reaction, which really
stunned me because he said “What, what are you talking about of course, this is impossible.”
In the Bre-X tapes Jim Bob Moffat recalls this phone call with David Walsh to Richard Behar,
who was writing an article for Fortune Magazine. When you called Bre-X you spoke to
David. Did you speak to him right away? Yes, yes I wouldn’t sit around
with something like that. I know but you said you could not
get anyone out there from Bre-X. Well guess what, guess where they all were? The
night of the damn phone call all of their senior people were in Toronto because John Felderhof and
David Walsh were receiving the prospector of the year award, even De Guzman was there.
Yes I spoke to them that week. They left the job site and left all these young
Filipinos out there. We had nobody in charge, we were out there sitting
on this god damn pancake. I told David I said we have got a problem here
and I am talking to a guy here who starts a conversation with I don’t know anything
about this technical stuff I am just the money raiser and Felderhof just keeps saying
you guys must be confused. I said we may be confused. I am not going to tell you anymore
over the telephone. I am asking you to get somebody out here who can go over this data
with us so you can understand the problem. The conversation went on for a little while and
David said we’ll check this out right away, I’ll get back to you and put the phone down and turned
to John and said where is De Guzman where is he? Get him back here as fast as you can.
Then it was Dave Potter’s turn to speak with Walsh and Felderhof.
I called them up and wanted to talk to them. This was the night they gave their acceptance
speech for that award, which I thought was kind of ironic and I said you guys need to get back out
here and explain why we can’t find any of the gold that you claim you have. His first comment was
kind of a rude thing, he was caught up in the moment of the awards so he was riding high at that
point in time and he wasn’t really focusing too much on what we were talking to him and he just
kept saying that can’t be I don’t believe it. As Felderhof walked to the award podium to the
theme music from Raiders of the Lost Ark, in front of a room full of promoters, investors and
developers, all oblivious to the drama unfolding, Michael De Guzman was found partying
hard in one of Toronto’s strip joints. Walsh and Felderhof wasted no time
instructing De Guzman that he had to go back to Busang to meet with Dave Potter and
answer why Freeport couldn’t find any gold.
So confident of Busang’s gold, Felderhof and
Walsh tried to dismiss these early results. They never entirely trusted Freeport anyway
and suspected they’d try to drive down the price of Bre-X by discrediting their sampling.
Over in Busang Dave Potter had just blown up a $6 billion dollar company and he was anxiously
waiting. Waiting for De Guzman to return.
