The Bre-X Fraud

Duncan McDowall is a professor of history at Carleton University and the
author of Quick to the Frontier: Canada’s Royal Bank.

It was more exciting than the Stanley Cup playoffs. It was a “stock on
steroids.” It was Bre–X, the Calgary mining “junior” with a
golden hole in the Borneo ground, whose stock skyrocketed an astonishing
315 percent in 1996. Bre–X was also as Canadian as the Stanley Cup;
Canadians have long treated junior mining companies as a kind of
national lottery, a penny stock ticket on a possible millionaire’s
future.

Globe and Mail reporters Douglas Goold and Andrew Willis have pieced
together the Bre–X drama with all the staid professionalism that
Canadians have come to expect from their “national newspaper.” The
Globe was one of the first to sniff the rottenness of Bre–X. Their
book, which fleshes out the tale in convincing detail, features solid
writing and good illustrations (but no index). The immediate villain is
Michael de Guzman, the philandering site geologist whose “radical”
theory that high concentrations of gold occurred in extinct volcanic
cores sparked the whole frenzy around Bre–X’s Busang discovery.
Unfortunately, de Guzman’s genius lay less in his innovative geology
than in his crafty salting of Busang samples—adding pinches of
alluvial gold to Bre–X’s drilling cores. By purchasing US$21,000
worth of gold across the counter at the local store, de Guzman triggered
a billion dollar gold rush in the stock exchange. At the peak of the
stampede, Bre–X was said to have cornered 8 percent of the world’s
potential gold supply. In such circumstances, greed conquered all.
Suicide, the authors plausibly argue, was de Guzman’s only way out.

Goold and Willis conclude that the Indonesian fraud differed from past
stock swindles only in its “size and audacity.” Betting on distant
El Dorados, it seems, is in our national nature. It is astonishing,
though, that virtually every possible check on the stampede toward
Bre–X—the financial press, regulators, and stock brokers—succumbed
to its phony allure, leaving individual investors unprotected from their
intrinsic greed.

This book compares well with Diane Francis’s Bre–X: The Inside
Story (1997), but lacks its competitor’s breadth of technical and
business detail.