BARRICK and INDONESIA SCANDAL, mid-1990s

A great story of shady business in big mining...
In the mid-90s the small or "junior" exploration group Bre-X, founded by a desperate, bankrupt Canadian investor, laid claim to a large tract of Indonesian land called Busang. Bre-X studies initially took samples that indicated moderate amounts of gold in the subsurface. This sparked enough mild interest to prompt a business deal offer. (Junior exploration firms like Bre-X often rely on partnerships with established, hefty companies like Barrick who can come in and make the mine happen.) In 1993 Bre-X offered Barrick 14% of the small company for $500,000. Barrick refused this and the subsequent offer that upped the anty to a majority stake in Bre-X. No deal.

Bre-X continued exploring and soon discovered what they believed to be a massive deposit in a fault zone adjacent to their Busang property. Bre-X quickly got the permit to explore further and two years after the failed Barrick deal they were quoting 10 million ounces in the new area with analysts predicting up to 40 million ounces. Stock prices blew up and in May 1996 Bre-X returned to the bargaining table, this time offering a 25% share in the company for $2 billion.

** A note here to educate on the speculative nature of mining companies' worth: Bre-X's meteoric rise in stock value had nothing to do with a tangible output into the marketplace; rather it was pure magic money, the result of Wall Street's snowball-effect enthusiasm (aka the optimistic predictions of 27-year-old analysts in 44th floor Manhattan cubes). **

Suddenly the Busang prospective mine was big-time and the alpha dogs came back to the kill ready to throw down. Barrick swooped in quick, but not for Bre-X. Instead, they took the political approach, smelling weakness in the somewhat corrupt, nepotistically insular Indonesian government. Barrick put to work its recently established advisory panel whose member list read like the NBA All-Star team.

Soon former President George HW Bush had sent Indonesian President Suharto a letter describing Barrick's capabilities and intentions with regards to Busang. Immediately prior to this, former Canadian Prime Minister Brian Mulroney (currently listed on Barrick's board) sent a similar letter to Indonesia's Minister of Mines and Energy. Although Barrick already had an office with an operating staff in Jakarta, they hired a son of an Indonesian minister to head the firm in Indonesia.

These are all obvious, legal, and standard strong-arm practices employed in any country, and especially fruitful in a nation susceptible to such manipulation. Ultimately, the Barrick - Bre-X agreement insisted upon by the Indonesian government never happened and, as other parties got involved and public sentiment shifted in favor of Bre-X, Barrick fell out of the picture.

The story gets juicier, though without Barrick's involvement. Another major mining firm, Freeport, signed an agreement with Bre-X and conducted their own tests in Busang prior to breaking ground on production. Turns out the Bre-X samples, now since destroyed, had been laced with outside gold; Freeport's studies indicated only trace amounts. On his way to discuss the divergent samples, a top dog with Bre-X disappeared out of a helipcopter. First reports said he fell out, though the case closed with suicide as the culprit since the man was suffering from hepatitis B and a suicide note apparently backed this up. Needless to say, Bre-X imploded and the founder ended up bankrupt yet again.