Glitter and greed

The unknown stock exchange analyst who described the gold stocks sector as "run on greed and fear" summed up the reasons for the mayhem caused by the Bre-X fraud in five words. Scores of fund managers and hundreds of small investors have had their fingers badly burned in the get-rich-quick scramble. It is unfortunate that many major players now find themselves shareholders in what turns out to be an empty hole in the ground. Small investors, in particular, have been hit worst.

They rushed into the market believing they were on to a sure thing, without stopping to consider the possibility of failure. There was no reason why they should. The company had risen from obscurity to be listed as one of the constituent stocks on the Toronto Stock Exchange, encouraging investors to believe they were buying into a rock solid rising star.

Now that Bre-X has filed for bankruptcy protection, there seems little chance that they will get their money back. It is a painful way to learn that speculation is a risky business. Some of the blame for this fiasco belongs to the authorities in Canada, where Bre-X Minerals is based. Independent assessments could have been made when the estimates of the extent of the find kept rising to verify the company's claims. Indonesia is likely to pay a heavy penalty for the saga. An investigation could reveal some acutely embarrassing details of top-level involvement in a fight for control of the Busang property late last year. It took the government until this week to freeze the company's operations. The government also has caused some displeasure to other mining companies operating in the country by publicly announcing that it wants a 10 percent stake in all new contracts without informing the licensees first. Mishandling the fallout from this damaging episode is likely to drive mining companies away from Indonesia.

The industry itself expects difficulty in raising money and winning exploration rights all over the world in consequence of the fraud. Small investors can only profit by learning the first lesson of the stock market. Never put money in any company without checking its credentials first. Where investment is concerned, cast-iron knowledge is more valuable than gold.

-- The South China Morning Post, Hong Kong