Hoax of the century

Hoax of the century

What Canada's Bre-X Minerals Ltd. has claimed over the past
year to be the largest gold find of the century could turn into
the hoax of the century. International investors, including many
major mutual funds, and the Indonesian government, were obviously
stunned by Bre-X's admission Wednesday that the potential gold
resources at its Busang mine might be much smaller than the 71
million ounces it claimed. Bre-X's market capitalization tumbled
from US$4.3 billion on March 25 to a mere $420 million on March
27.

Though a complete audit of the Busang mine, including the
drilling of more core samples, will take four more weeks to
complete, the preliminary results of the audit and tests by
Freeport-McMoRan Copper & Gold Inc. and independent Canadian
mining consultant Strathcona Mineral Services Ltd. have seriously
damaged the credibility of the Busang gold find.

Bre-X's shareholders, including such major mutual funds as
Fidelity, Prudential Insurance, London Life Insurance and Mutual
Asset could lose what could have been a US$10 billion slice of
the treasure. What is even more devastating is that international
confidence in Indonesia's mineral resource prospects might be
adversely affected.

It is hard to understand why the calculations for Bre-X's
Busang gold discovery done by independent analysts SNC-Lavalin
Group.Inc. of Canada, through its Indonesian subsidiary PT
Kilborn Pakar Rekayasa, differed widely from those made by
Strathcona and Freeport. SNC-Lavalin insisted Wednesday its
calculations of Busang's gold resources were prudent and
reasonable. But it conceded the calculations were dependent on
the validity of samples and the assaying of those samples. This
raised the question as to whether the samples tested by SNC-
Lavalin could had been tampered with because SNC-Lavalin itself
did not drill or take samples as Freeport and Strathcona have
done.

Since many international stock exchanges have been listing
small mineral prospecting companies which have yet to produce,
there must have been established and accepted sample preparations
and fire assay procedures which should have been followed.
Otherwise the prospectors have a carte blanche to swindle capital
market investors.

It also looked strange that two of the world's largest gold
mining companies -- Barrick Gold Corp. and Placer Dome Inc. --
which had until early February scrambled to get the Busang gold
mine from Bre-X, simply forgot to verify the findings. It might
now be a blessing in disguise that Placer Dome's US$5 billion
merger offer to Bre-X was turned down.

The Ontario Securities Commission and the Toronto Stock
Exchange, which have traded Bre-X shares since last April, had
apparently always been satisfied with the information Bre-X fed
to them.

Freeport, which owns 15 percent of the joint venture which
will develop the Busang gold mine, and Strathcona Mineral
Services need to work harder to complete their final audits. The
sooner the controversy over the Busang gold find is clarified the
better for all parties concerned -- the investors, the Toronto
Stock Exchange, which has been a major source of funding for
small gold prospectors around the world, and especially for
Indonesia.

The longer doubt lingers the more damaging it will be for
Indonesia's reputation as a country known for its immense
geological potential. Hundreds of other mining companies which
are exploring and preparing to prospect for gold in Indonesia may
also be penalized by the market. The Busang scandal could make it
harder for them to raise funds from financial and capital
markets.