The golden bandwagon full of fools, blog 13

“A lie can be so colossal that no one would believe that someone could have the impudence to distort the truth so infamously”. So said Adolf Hitler in Mein Kampf (see Wikipedia). This propoganda technique can be as effective for fraudsters as for evil politicians, particularly when it feeds into an existing narrative and a bandwagon starts rolling. Pyramid schemes are the most obvious example.
Bre-X was perhaps the biggest fraud in mining history. It showed that when a huge bandwagon starts to roll, only a strong man or woman can resist its inexorable progress.
I remember my then-boss declaring at a mining conference in Perth, Australia, that the levels of gold reported from drill holes in the Busang forest (Bre-X) were akin to the fables of the English unicorn; there is no reason why a unicorn could not exist, but the fact is they don’t, and never would.
This somewhat obscure statement brought people to their feet and he had to leave the stage with the angry shouts and jeers of the rolling bandwagon ringing in his ears.
To understand why his words were so unpopular you have to remember that the bandwagon had been rolling for two years by then. The share price of Bre-X had gone from a few cents to around CAN$285 and the total market capitalisation of the company was over CAN$6 billion.
George Bush Snr had been employed to negotiate deals with Suharto, the Indonesian president. The biggest American mining company Freeport-McMoRan was in the process of selling off assets in order to raise the money to buy Bre-X outright.
Everybody had their own theory about how such gold concentrations could occur; academic reputations had been made over night; hundreds of millions of dollars had been raised by investors and given to exploration companies so they could chase through the jungles of South East Asia looking for similar geology.
But then, when Freeport McMoRan geologists re-drilled many of the original Bre-X holes, (for purposes of due dilligence) they found no gold whatsoever. As they waited in the jungle for Bre-X’s Chief Geologist (De Guzman) to arrive, word came that he had commited suicide by jumping out of a helicopter.
Further analysis showed that the bonanza gold grades had come from drill core salted with shaved jewelery (amongst other things). There was no more gold at Busang than the soil in your back garden.
And then the recriminations began, a hunt for the guilty and punishment of the innocent. And it turned out that everybody had had their doubts about Bre-X from the very start. The tale of the English unicorn was widely attributed to several different sources, none of them my then-boss.
“…some of the world’s most sophisticated analysts and executives had been sucked in by a deception so simple, a child could have conceived it.”
– financial commentator Steve Maich, writing in Maclean’s, June 13, 2005

A footnote:
An acquaintance worked as an exploration geologist at Busang and had recommended his company sell the exploration blocks where Bre-X found the bonanza gold grades. He was dismissed with immediate effect.
For the next few years he had difficulty finding a job, but then when the fraud emerged he developed an aura of divinity. Like he was some kind of prophet who had wandered the wilderness clutching truth to his breast.
As he remarked, “The insanity switched it’s focus.”