Bre-X: Dead Man’S Story?

By Alfred Lenarciak

Between 1994 and 1997, Canadian-based Bre-X Minerals sponsored and enthusiastically promoted listings on the TSX and NASDAQ by JPMorgan, Lehman, BMO, Scotia as well as others, who were exploring for gold on the Busang property on the Indonesian island of Borneo. Their efforts bore the discovery of a lifetime: a mammoth deposit speculated to contain over 200 million ounces of easily extractable gold. The companys stock exploded from 25 cents to $270, giving them a valuation of over $6 billion. Major mining companies like Barrick, Placer Dome and Freeport McMoran started competing to develop the largest gold deposit ever discovered. In early 1997, Suharto and his Indonesian government took control of the deposit, by force, and commissioned Freeport to build a mega mine. In the ensuing months, due diligence revealed that the deposit was a gigantic hoax! There was no gold in Busang. The principals of Bre-X were accused (but never convicted) of salting (adding gold) the samples before sending them to the labs. Michael de Guzman, a Filipino geologist who served as the project manager, infamously jumped from a helicopter into the abyss of Borneos jungle. Minorca Resources of Toronto were the financial partners of the Haji Saykerani group of companies who owned Busang. Alfred Lenarciak was the chairman of Minorca at the time. In a strange twist of fate, in February of 2012, Alfred had a chance encounter in Rome, Italy with a man named Akiro Guzzo, who shared with him an amazing story on the life and death of Michael de Guzman: is this really a dead mans story?

• Language: English
• Publisher: AuthorHouse
• Release date: Jan 17, 2014
• ISBN: 9781491847862

Alfred Lenarciak

Alfred Lenarciak è nato in Polonia nel 1950 ed è emigrato in Canada nel 1974. Lauree in ingegneria e finanza sono state gli strumenti che gli hanno permesso di investire e lavorare in tutto il mondo per un periodo di trent’anni. Nell’ultimo decennio, Alfred si è dato allo sviluppo delle proprietà della famiglia di sua moglie nel Sud Italia studiando anche la storia della regione. A sessant’anni ha deciso di smettere di lavorare per dedicarsi a pubblicare racconti basati sulle sue esperienze di vita. Attualmente risiede a Nassau, nelle Bahamas, con la moglie Barbara. Il loro figlio Max, assieme alla moglie Xenia, vive a Toronto. Alfred predilige lo studio della storia e il suo libro appena uscito, La profezia dell’Aquila di Napoleone, è un romanzo storico. Prima ha pubblicato: Bre-X, Storia dell’Uomo Morto, La rivincita dei soldi, Strada verso la libertà. Il 30 maggio 2015 ha ricevuto il Diploma di Merito diventando Cavaliere di San Silvestro Papa. Alfred può essere contattato: www.alfredlenarciak.com

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© 2014 ALFRED LENARCIAK. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

Published by AuthorHouse 12/21/2013

ISBN: 978-1-4918-4788-6 (sc)

ISBN: 978-1-4918-4787-9 (hc)

ISBN: 978-1-4918-4786-2 (e)

Library of Congress Control Number: 2013923473

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Contents

Dead Man’s Story

I   Toronto. Ten years after Bre-X

II   Napoli, Italy

III   Minorca’s Busang deal

IV   Indonesia’s Busang

V   Akiro Guzzo

VI   The story of Mike de Guzman

VII   The other Mike de Guzman

VIII   Confession in Lugano

IX   Creating a mega deposit

X   End of Busang and de Guzman

XI   The death of Michael de Guzman?

About The Author

Dead Man’s Story

D ead Man’s Story is the definitive inside look into the biggest mining fraud in history, Bre-X Minerals. Although no one was ever held responsible, there are countless theories as to who dun it. Alfred Lenarciak was in the middle of the build-up from meeting everyone from Indonesia’s President Suharto to the landowner, Haji Syakarani and then the unraveling of the scandal. And now, ten years later, Alfred discloses the who and how this was accomplished. I found the book an entertaining page turner that leaves the reader with more one question, was it fact or fiction?

John R. Ing

I

M arch 1, 2009. On a bone chillingly cold afternoon I landed at Toronto International Airport. Waiting for a limo, I saw the thermometer indicating an outside temperature of -8, but for me it felt more like -15C. I could understand why my driver, dressed in a colorful Sikh turban, didn’t get out of the car, choosing instead to open the car trunk for my luggage.

Good afternoon, sir, he greeted me. Did you have a good flight? And from where are you coming to our city?

I just came from Italy, I answered politely.

Just visiting? he continued to ask, looking at me in the rearview mirror.

Not really, many years ago I used to have a business here, so I came to see some of my old friends, I answered

That’s good, because the whole city is packed. Today began PDAC, the famous Toronto mining convention.

I know and that’s exactly the purpose of my visit here, I interrupted him.

Oh, I see, but I never had a client from Italy come to PDAC, usually they coming here for the fashion week, he said, looking at me again.

Oh, maybe, however I did spend a large part of my life investing in mining ventures. By the way, please drive me to Marriott hotel, on the Bay. I tried to cut short this conversation.

Traffic was very heavy, and I was forced to listen to my driver complain about the weather, cost of gasoline and of course about traffic. Finally I arrived at my hotel.

I hadn’t been back for many years, so I was interested to see how the mining industry was doing.

For some two decades now, the first week of March has been dedicated to PDAC—the Prospectors and Developers Association of Canada’s annual convention—the global meeting place of the mining industry.

Toronto is a kind of Mecca for mining companies from all over the world. You’re not a real mining company if you don’t come here at least once—but typically everyone comes annually. The Toronto Stock Exchange proudly lists over 1,500 natural resources companies, ranging from thousands to billions of dollars in market cap, who themselves raise billions of dollars in debt and equity form the capital markets.

Over the last few years, business had been booming; commodity prices have been going sky-high, driving bankers to work around the clock in order to meet the demand for capital. For example, the TSX climbed over 15,000 and the real estate skyrocketed.

For the very right to buy a condominium in some prime locations, prospective buyers had to wake up early and stand in line to put in an offer. Luxury retail spots became tremendously crowded and Porsches started looking pedestrian. Soaring buildings of glass and steel seemed to be sprouting out of the ground in every direction. Everywhere I look, I see new shops, hotels, restaurants, the theatre district, an opera house and every hospital is named after some mining mogul: Munk, McEwen, Schulich.

The next day, I rose early and was awed by how few people were out walking on a crisp Monday morning as I walked down an almost empty Bay Street. At the corner of King and York streets, I stared up at the black office tower next to the Toronto Stock Exchange, where my office used to be a decade ago. The TSE doesn’t have a trading floor anymore—all trades are electronic now, every investment dealer has his own trading room and financial news is displayed on huge billboards.

Yet, looking around I could see pretty ominous signs of the changing times. Shops have big Sale signs in the windows; Moishe’s Steak House looks boarded up and even my favorite cigar store is gone.

*     *     *

On this trip back it was too cold to walk—so I headed back to the Marriott for a cup of coffee and to read my newspapers. The Globe and The National Post have bearish headlines; statisticians say that this is only a deep recession but it feels like a depression; another car plant is closing down in Mississauga—laying-off thousands of workers. Hotels are suffering through their lowest occupancies on record; even the banks are firing staff. Around the world these headlines aren’t new, but I expected Canada to do better than the States or Europe: we’re always told that the Canadian banking system is resilient and that the government is on better financial footing than any other country in the G7.

The Financial Post is running a special issue on PDAC—but the front page runs a headline stating how the mining industry is in bad shape. I scan the quotations for the stock prices of the important mining companies—especially those of my friends; everything is in free-fall, just like it was after the collapse of Bre-X.

Can I get you a fresh cup of coffee? the fire red hair waitress asked me in a French Canadian accent.

Pourquoi-pas? S’il vous plait, I answered.

You don’t look French, she replied, sounding surprised.

Of course, I answered. I lived in Montreal for twenty-five years.

My conversation with the waitress was cut short by a loud, Hey Alfred! I can’t believe you’re here!

I looked at the two guys standing in front of me. I recognized one, but I didn’t remember his name.

Hey, he continued, what’s with the long face—I’m Doug, used to be at Yorkton—remember? Yorkton doesn’t exist anymore, but I’m still straggling around these parts. What else would I do? Maybe one day I will find Busang! At this statement, they burst out laughing.

Are you alone? asks Doug, Can we join you for a cup of coffee?

Oh, please. Coffee is awful, but you guys drink Tim Horton’s brand here so this one should be very good.

Don’t put us down like that, Doug said. Of course, for you who are living in the castle in Italy, drinking the best wine from your own production and playing golf on your own golf course, the Italian cappuccino is much better than Tim Horton’s blend.

Mademoiselle, I asked as the waitress headed towards us, please bring a coffee for the gentlemen and a cappuccino for me.

"Bien-sur, she answered with cinnamon or chocolate?"

No, no, I answered, just a cappuccino will be fine.

Hey Doug, I looked back. We haven’t seen each other in years but it looks like you’re pretty up to date on me.

Alfred, he said, every time I talk to friends, your name always comes up. You are a real model for all of us, because you are the master of timing and a straight shooter. When it came to the Bre-X story, you were the only one who was always crystal clear, despite being right in the middle of it. We, on the other hand were analyzing that from outside, following the trend from over enthusiastic to a deadly negative. You know, Alfred, you should write a book about that one day.

I was in the plane with Ken from Vancouver and he told me that you were coming to PDAC. That’s good news! I told him, it can only mean, the bottom is near.

You might be right Doug, I replied. I came to see what opportunities are here.

Ken told me that you could be looking for a listed shell. Let’s do some business together? I have a deal to show you, clean, tight and at the right price.

Doug, I said, "your coffee is here and my, almost cappuccino as well. Merci beaucoup, I said to the waitress, smiling. Doug, I continued I’m not sure yet what kind of involvement, if any, I’m in for but please give me your business card."

Perfect, he answered. Swing by our booth at PDAC floor, very easy to find, number 2550!

I definitely will, I said. Doug’s partner didn’t speak a word at the table until the handshake.

I’m Ron, he said. I am so glad to finally meet you. I was an associate analyst at Nesbitt Burns during Bre-X, and I always had a pretty bad impression of you.

Wow! I said. So, that how Nesbitt people described me, indeed.

*     *     *

Back in my suite, I pored over commodity indices; nickel, copper, zinc—all were at historic lows. Suddenly my friend Joe and his nickel mine in Sudbury came to mind. I wondered how they could possibly be making money at this price. The answer, it turned out, was pretty harsh; the mine closed down and the stock was trading for less than a nickel. It reminded me of Ken and David’s nickel mine in the Philippines, which used to trade at $5 and now looked like it was hanging on to 7 cents for dear life.

There was always, however, a bright spot in all of the gloom—gold. The price of gold had moved from $270 an ounce at the end of 2001, hitting $1,000 at the beginning of 2008 and was now trading at over $1,200. Aside from extravaganza, gold repositioned its role as a safe haven in these perilous times. I remembered Peter Bernstein’s book, Power of Gold in which he stated, . . . It’s never been clear if we have gold—or gold has us. In reality, so very little gold has been extracted in human history. Only 161,000 tons—hardly enough to fill two Olympic size swimming pools—and more than half of that, has been mined since WWII. The world’s richest deposits are fast being depleted and new discoveries are extremely rare. So the potential of 200 millions ounces or 6,500 tons of gold announced in Bre-X Busang’s deposit did blow the minds of many people.

Since 2007, demand outstripped production by 59% and generated a record $53 billion yearly in worldwide sales. India alone consumed 770 tons of gold in that year; about 20% of the global market—more than double that of China (362 tons) or USA at 278 tons.

I remember when, a few years ago, we visited a relatively prosperous state of India called Kerala, which has only 3% of India’s population, but 10% of the country’s gold market. The road from the airport to Cochin was lined with billboards showing women adorned in gold jewelry with the slogans, "Gold equals good fortune". It is ironic that this road’s name was Mahatma Ghandi Street and Kerela had the only democratically elected Marxist government in the world. Our hosts, Alice and Anthony, were smiling, saying this is nothing strange, as it has been like that ever since Roman times. They exchanged gold coins for pepper, cardamom and cinnamon. The Portuguese, Dutch and English colonizers soon followed.

During our time there we were invited for the wedding of a wealthy local family. This was a Christian, not a Hindu ceremony but the bride had more gold on her than many gold shops on Young Street in Toronto.

Since 1717 when Isaac Newton, the English master of the mint, first standardized the price of gold, its luster has not only endured, passing through revolutions, two world wars, the Great Depression, many recessions but has even grown stronger.

The Toronto convention was named P.D.A.C., which stands for Prospectors and Developers Associations of Canada, but in reality it is like Kerela’s gold bazar. Hundreds of individual prospectors and smaller mining companies present their work progress to investors in order to attract their attention and try to raise some money for continuing exploration. Everybody’s dream is to find a mother lot or some kind of Busang. After all, the big producers have only one desire; to replace every ounce of mined gold with a new one and at the cheapest possible cost. Managers swim in the water like big sharks, looking to find which small fish is ready to be swallowed. Thinking about business as a natural instinct, it is clear that the biggest and the strongest will swallow the smallest and weakest sooner or later.

*     *     *

I didn’t go to the opening cocktail party of the convention at Royal York Sunday evening. I knew there would be a lot of people who knew me and I didn’t want to spend my whole time explaining what I was doing there. On Monday morning, I went to the Royal York for breakfast with a group from Vancouver.

Just as the hostess asked me, Who is your party? I felt a big strong hand on my shoulder.

Hey, Alfred, son of a gun! You look so rich. We have a great uranium project in Saskatchewan. Come with us and invest.

Herman, I said, at least you should say good morning before asking for money.

He didn’t listen to my remarks, showing me his presentation with a business card.

On the way to my table I received at least a dozen business cards with the same sales pitch promoting their stocks, which are, according to them, so undervalued.

My table was full, seven people. I recognized five of them, but two others were new. Ken began the meeting.

"Hello, Alfred, nice to see you again. Of course, you remember David, Joe, Adrian and John, but George and Mark are new in our team. Hey guys, Alfred is the man who lives in Italy, in the big castle. Look at his Armani suit and Versace tie."

Ken, I said, "please don’t exaggerate. My, or rather my wife’s castle is not that big. The suit is Gianfranco Ferre and the tie is Bulgari." Ken laughed loudly.

I beg your pardon for my mistake, but you know that we all want to live like you.

Ken, I said, in order to succeed in the mining business, first you have to discover a deposit and after, build a mine. But how you expect to do that when at this table sitting are five lawyers, three accountants, and not one geologist or engineer? They were all laughing now.

Alfred, Ken continued, "you see how far you are living from Bay Street? Today, mining starts and finishes with the lawyers. We have new rules and regulations; the NI-43101, QP, etc. The Bre-X scam changed the industry. Half of our time and money is now going to administration."

Oh, I said, If this is the situation, I am confident that gold will go to $2,000 per ounce, because the chance of new discovery will diminish considerably. Gold discovery cannot be done virtually in your computer.

The waiter was embarrassed because there was no place on the table for the plates. The lawyers could not eat without their laptops in front of them.

Ken was turning his briefcase upside down.

What are you searching for? David asked. You lost something?

Oh yes, Ken answered, my P.D.A.C. pass. I am sure that the girl took it.

Which girl? David asked again.

You know, the girl in the strip club, when she was dancing on our table. Everybody laughed loudly.

"Last night we went to the ‘For Your Eyes Only’, with friends and the girls were very friendly. So looks like they took my pass."

I can’t believe that this strip club still exists, I said. That was the famous club where Mike de Guzman went to marry many of the strip girls. That was his preferred club.

Oh, really? Ken asked. We didn’t know that, but you knew everything about this Bre-X story. You should write a book, so at least the new generation could understand that period.

There is nothing to understand, I said. The whole industry masterminded the biggest exploration fraud in history and nobody saw anything and nobody is guilty. Ken, you are the lawyer. Tell me how that is possible.

Alfred, Ken said. "Look, Enron, Stanford, the banks and Madoff. This guy, Madoff, took $50 billion and he is still waiting for his trial in a Manhattan penthouse. His wife needs $100 million because as a housewife, she deserves it! Bre-X guys were the small town crooks in this scenario."

We had a good Canadian breakfast but the real purpose of the meeting was to restructure the newly—acquired listed shell company.

Alfred, David said, we need you to be leader again, nothing will work without you.

Oh, listen, gentlemen, I said, look at my badge—Alfred Lenarciak, Investor, that is who I am.

Yeah, David answered. Yes, but we want you to be the chairman. You always were a chairman so please serve for at least a few years for a good startup.

*     *     *

P.D.A.C. is in the new south convention building, very impressive and big, like everything in Toronto. From the immense lobby to the main entrance I had to climb the mechanical stairways like at the airport. The place was crowded with visitors, and as I was just showing my badge to a guard, I saw one man heading my direction from the crowd of people.

Hey, who do I see here, the man who saved my career, how are you? Alfred!

It was Ted Rivers, with his broad smile and sharp eyes. The group stopped the conversation.

Ted continued, My friends, I repeat. This gentleman saved my career when I was VP and Head Analyst at Scotia McLeod, during the Bre-X saga. Alfred was chairman of Minorca Resources, the other company involved in Busang, but not in exploration, rather financing. I was the only analyst in this town who believed in Alfred’s concerns. Hey, Alfred, you look so good. Life treated you well and are you still investing in mining?

Ted, I said, it’s nice to see you again. Do you believe that I can find some value here for an investor?

No question, Ted answered confidently. You’re absolutely right. Let’s have lunch tomorrow and I will give you an overview of the situation. I am now an independent consultant.

Great, I answered. 1:00p.m. in the main restaurant at the Intercontinental.

I was passing across hundreds of booths in the convention hall trying to avoid many people. It was so stunning to see the similarities in the promotional approach at every company.

The booths were almost exactly the same and everybody had the same story.

‘We have a great discovery. We are almost near production, but we need more time and investment.’

Some of the companies have been like that since eternity. Lots of guys just refuse to go into retirement, telling the same story over and over—the same maps, reports, rocks, drill cores; even the same greasy spots on their polyester ties. The industry not only needs new regulations and lawyers, but also new blood of geologists, engineers and managers.

Suddenly, Tom did call me from Vancouver.

Alfred, I am in Vancouver airport, just landed from Jakarta. I will go home, sleep a few hours and see you in Toronto tomorrow. How is the show? he asked. Did you meet with everybody?

Not yet, I answered. Just started. There are lots of people here.

Oh, Alfred, he said. Did you see John?

Not yet, I answered. You mean John Ing?

Oh, no. John Felderhoff, he laughed. "He is a free man now, so he should be in the show. That’s his place. Ten years ago he was the king there.

Tom I said, when I see him I will give him your best regards.

Alfred, Tom continued, you have the regards from Ahmad Yani and he asked when you will be in Jakarta.

Tom, Tom, I wanted to end the conversation, Please go to bed and come here tomorrow, then you will see lots of people.

Looking at the conference program, I immediately noticed the presentation of the new Indonesian Mining Law by Bambang Setiawan, the Director General of the Mining Department. I remembered him from ten years ago, so I thought I should probably check out his presentation.

Even Harry Greenfield, a famous lawyer