The new movie “Gold” starring Matthew McConaughey has all the key elements of a hit Hollywood drama: a rags-to-riches treasure hunt story complete with lies, deception and a possible fake suicide. Incredibly, the movie is based on a story that’s all-too-true for investors who were duped into one of the biggest scams in mining history.
“Gold” is based on the story of the rise and fall of Canadian mining company Bre-X.
The Exposition
Back in 1993, Filipino prospector Michael de Guzman convinced geologist John Felderhof and Canadian businessman David Walsh he had struck gold in the jungles of Borneo.
Rising Action
After hearing the tall tales, Walsh invested $80,000 on behalf of Bre-X to finance de Guzman’s operation. When de Guzman’s core samples came up empty, he used a process called “salting” to spike the samples with gold he filed off his wedding band. De Guzman duped the labs that tested the samples, which verified roughly 3 oz of gold per ton of rock.
The Climax
Once news of the gold strike hit Wall Street, shares of Bre-X exploded.
In the following years, de Guzman would continue to salt samples with gold he bought from locals. He even fooled an independent auditor.
By 1996, shares of the former penny stock were approaching CAD $300/share, and Bre-X’s market cap had reached CAD $6 billion. Around that time, de Guzman, Felderhof and Walsh cashed out a small portion of their stock options for around $100 million.
Falling Action
However, the Indonesian government soon began looking into Bre-X’s operations and suggested that a larger company, such as Barrick Gold Corporation (USA) ABX 1.78% or Freeport-McMoRan Inc FCX 2.66% should step in and help run the Bre-X mine. Freeport-McMoRan eventually negotiated a deal to run the mine, with Bre-X maintaining a 45 percent share.
Freeport-McMoRan soon began drilling the site and finding no gold whatsoever. On a helicopter flight out to the site, de Guzman disappeared from the back of the chopper. Authorities discovered his body in the jungle below days later, reportedly badly eaten by wildlife. De Guzman’s apparent suicide didn’t satisfy conspiracy theorists, who point out how easy it would be to get access to a dead body in Indonesia.
Legacy
Without any legitimate gold on its property, Bre-X stock soon went to zero. Walsh denied…
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