Page 117 - Introduction to Mineral Exploration

100 C.J. MOON & M.K.G. WHATELEY

a strong positive correlation of value with Amongst these was a prospect called Busang
decreasing distance from major deposits, in the that had been investigated by drilling in 1988
latter case, the Voisey’s Bay nickel deposit. and 1989, following its discovery by regional
The reader should note the impact of explora- reconnaissance. The prospect was considered
tion fads. When the Bre-X frenzy (discussed in to report erratic and spotty gold. Following
detail below) was at its height the number of Felderhof’s recommendation, Bre-X managed
transactions of gold properties in Indonesia to raise $C80,100 to buy an option on the cen-
increased in number and value by a factor of 20 tral 15,060 ha claim at Busang. The first two
(Ward & Lawrence 1998). Even large companies holes in the central block were barren but the
can be sucked into paying a premium for prop- third hole was reported to contain assays of up
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erties, particularly when the property has a to 6.6 g t Au.
large resource. A good example is the Voisey’s In order to fund further exploration, Bre-X
Bay nickel deposit which was bought in 1996 sold shares through a Toronto-based broker and
by Inco for $C4.3 billion from junior company by May 1994 had raised $C5.4M. Spectacular
Diamond Fields Resources after a bidding war drill intersections were then announced and a
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with Inco’s great rival Falconbridge (McNish resource of 10.3 Mt at 2.9 g t Au for the Cen-
1999). In 2002 Inco was forced to take a $C1.55 tral Zone in the beginning of 1995. However,
billion write off of the value of the project these announcements were eclipsed by the
which should eventually come into production discovery of the Southeast zone and two sensa-
in 2006. tional intersections in October 1995 of 301 m
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grading 4.4 g t Au and 137 m grading 5.7 g t .
These results and the announcement by Walsh
5.4 THE BRE- X MINERALS SAGA and Felderhof that the resources were of the
order of 30–40 million ounces of gold drove the
The events surrounding the rise and fall of share price to $C286 per share and a company
Bre-X Minerals Ltd provide a good example of value of over $C6 billion (Fig. 5.21). Bre-X then
some the pitfalls surrounding mineral explora- hired a respected Canadian-based firm of con-
tion and the need to audit data and information sultants to calculate the resource and they con-
at every stage. Good accounts can be found firmed Bre-X’s estimate based on the core logs
in popular books by Goold and Willis (1997) and assays provided by Bre-X of 47M oz of gold
and Wells (1999), as well as a more technical and an in situ value of $C16 billion.
summary in Hefferman (1998). It was at this stage that Indonesian polit-
The company was founded in 1989 by David icians became involved, both in the confirma-
Walsh, a stock trader in Calgary, Alberta, to tion of Bre-X’s exploration licence for the
explore for diamonds in the wake of the Southeast zone and the business of finding a
Diamet discovery (Chapter 17.2). In 1993, after major mining company partner to develop the
being personally bankrupted, he spent some deposit. After a number of offers from two
of his last $C10,000 on a visit to Jakarta, major Canadian companies, Bre-X decided
Indonesia, to meet an exploration geologist, after pressure from the Indonesian government
John Felderhof, whom he knew to be active in over the licence renewal to enter a joint ven-
gold exploration. Felderhof, who was a mem- ture. The partners were to be the Indonesian
ber of the team that had discovered the Ok government (10%), companies of Mohammed
Tedi deposit for Kennecott Copper in 1968, pro- Hasan (an Indonesian friend of President
moted a theory that gold in the Indonesian Suharto) with 20%, and Freeport McMoRan, an
province of Kalimantan was related to volcanic American company that runs the Grasberg
diatremes. This was plausible as the area mine in Indonesia with 15%. As part of the
included significant gold deposits at Mount deal Freeport was to invest $US400 million and
Mouro and Kelian. Felderhof and a Filipino immediately began a program to confirm the
geologist, Michael de Guzman, were hired by validity of the resource data, a process known
a Scottish-based company, Waverley Mining as due diligence. Freeport drilled seven holes at
Finance, to investigate some properties that Busang in an attempt to confirm Bre-X’s drill-
they had bought from Australian companies. ing results, both by drilling four holes, collared