Bre-X Scandal: A History Timeline
This infographic documents the rise and fall of Bre-X.
From initial private offerings at 30 cents a share, Bre-X stock climbed to more than $250 on the open market. Near the peak of Bre-X share prices, major banks and media were on board:
- It was touted by media and banks as the “richest gold deposit ever”
- In December 1996, Lehman Brothers Inc. strongly recommended a buy on “the gold discovery of the century.”
- Major mining companies such as Barrick Gold, Placer Dome, and Freeport-McMoRan Copper & Gold, among other top producers, fought an epic battle to get a piece of Bre-X’s Busang deposit.
- Indonesia’s Suharto regime managed to grab 40% of the deposit for Indonesian interests.
- Fidelity Investments, Invesco Funds Group, and other mutual-fund companies piled into the stock.
- J.P. Morgan bankers talked up Busang in a conference call in which Bre-X’s top geologist predicted the deposit might contain a staggering 200 million oz of gold, worth over $240 billion in 2014 prices. Morgan declined to comment.
- Egizio Bianchini, stock broker and one of Canada’s top gold analysts, said “What most people are now realizing is that Bre-X has made one of the great gold discoveries of our generation.”
1989: David Walsh founded Bre-X Minerals Ltd. in 1989 as a subsidiary of Bresea Resources Ltd.
1993: Walsh followed the advice of geologist John Felderhof and bought a property in the middle of a jungle near the Busang River in Borneo, Indonesia.
1994: Initial drill results were encouraging, and the drill program was ramped up.
1994: However, it was the project manager, Michael de Guzman, who was filing gold from his wedding ring and mixing the flakes in with the crushed core samples.
De Guzman used realistic ratios of gold to rock to not set off alarm bells, and to keep project going forward.
Over the next 2.5 years, de Guzman would buy $61k of panned gold from locals to use in salting.
Independent auditors that were sent in by large institutional investors found that the panned gold had rounded edges, but de Guzman explained it was because of “volcanic pool” theory.
De Guzman, Felderhoff and Walsh sell off a small portion of their options for $100 million
1996: Bre-X hits a snag with the Indonesian government, who claimed that Bre-X was not playing by the “rules” of the country. Bre-X’s exploration permits are revoked.
1997: January fire at Busang destroys many of the sample records.
1997: After many major miners express interest in Bre-X, eventually a joint venture is reached that gives Indonesia 40% share, Bre-X 45%, and Freeport McMoRan a 15% share of interests.
1997: Freeport begins due diligence on deposit and starts to twin holes that were already drilled.
1997: Freeport reports “minor amounts of gold” in some holes, but not much else.
1997: On his way to meet the Freeport due diligence team, de Guzman mysteriously falls to his death 600 ft from a helicopter. Police rule it a suicide.
1997: Shares of Bre-X crash.
1997: Report confirms that there is no gold at Busang, and samples were tampered with.
Why Gold is Money: A Periodic Perspective
Gold has been used as money for millennia. People often attribute this to beauty, but there are basic physical properties for why gold is money.
Why Gold is Money
The economist John Maynard Keynes famously called gold a “barbarous relic”, suggesting that its usefulness as money is an artifact of the past. In an era filled with cashless transactions and hundreds of cryptocurrencies, this statement seems truer today than in Keynes’ time.
However, gold also possesses elemental properties that has made it an ideal metal for money throughout history.
Sanat Kumar, a chemical engineer from Columbia University, broke down the periodic table to show why gold has been used as a monetary metal for thousands of years.
The Periodic Table
The periodic table organizes 118 elements in rows by increasing atomic number (periods) and columns (groups) with similar electron configurations.
Just as in today’s animation, let’s apply the process of elimination to the periodic table to see why gold is money:
- Gases and Liquids
Noble gases (such as argon and helium), as well as elements such as hydrogen, nitrogen, oxygen, fluorine and chlorine are gaseous at room temperature and standard pressure. Meanwhile, mercury and bromine are liquids. As a form of money, these are implausible and impractical.
- Lanthanides and Actinides
Next, lanthanides and actinides are both generally elements that can decay and become radioactive. If you were to carry these around in your pocket they could irradiate or poison you.
- Alkali and Alkaline-Earth Metals
Alkali and alkaline earth metals are located on the left-hand side of the periodic table, and are highly reactive at standard pressure and room temperature. Some can even burst into flames.
- Transition, Post Transition Metals, and Metalloids
There are about 30 elements that are solid, nonflammable, and nontoxic. For an element to be used as money it needs to be rare, but not too rare. Nickel and copper, for example, are found throughout the Earth’s crust in relative abundance.
- Super Rare and Synthetic Elements
Osmium only exists in the Earth’s crust from meteorites. Meanwhile, synthetic elements such as rutherfordium and nihonium must be created in a laboratory.
Once the above elements are eliminated, there are only five precious metals left: platinum, palladium, rhodium, silver and gold. People have used silver as money, but it tarnishes over time. Rhodium and palladium are more recent discoveries, with limited historical uses.
Platinum and gold are the remaining elements. Platinum’s extremely high melting point would require a furnace of the Gods to melt back in ancient times, making it impractical. This leaves us with gold. It melts at a lower temperature and is malleable, making it easy to work with.
Gold as Money
Gold does not dissipate into the atmosphere, it does not burst into flames, and it does not poison or irradiate the holder. It is rare enough to make it difficult to overproduce and malleable to mint into coins, bars, and bricks. Civilizations have consistently used gold as a material of value.
Perhaps modern societies would be well-served by looking at the properties of gold, to see why it has served as money for millennia, especially when someone’s wealth could disappear in a click.
Animation: How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.
How Billionaires are Preparing for the Next Bear Market
No one likes to lose money, even if you have billions to spare.
It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.
To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.
Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.
Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.
While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.
The King of Uncorrelated Assets
What kind of asset classes can be used for this kind of purpose?
While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.
The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.
Here are some of the reasons billionaires turn towards an allocation in gold:
- Gold has acted as a store of value for thousands of years
- Gold can lower the volatility of a portfolio
- Gold can act as a hedge against inflation in some scenarios
- Gold is a traditional safe haven asset that investors flock to when the market goes astray
To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.
The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.
With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.
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