The Bre-X Case and the movie Gold: The story behind the biggest mining fraud

The Bre-X Case and the movie Gold: The story behind the biggest mining fraud

The film Gold, translated as Gold and Greed, is a 2016 production inspired by the story of the mining company Bre-X. The Bre-X case is considered the largest fraud in the history of mining, being the starting point for the consolidation of international conducts for the declaration of mineral resources and reserves.

A great recommendation for those who like mining and cinema, Gold brings a plot based on the discovery of the largest gold deposit, in Busang, Indonesia, in the mid-90s. In Search of Eldorado, the partnership between the character Kenny Wells, played by Matthew McConaughey, and Michael Acosta, played by Édgar Ramírez, shows the journey through a mineral research camp in search of a gold deposit. Although very informative and based on a true story, many aspects adopted in the film are adapted, so that not every plot is true. Thus, in today's text, we will talk about the history of the Bre-X case, linked to the events presented in the film.

Bre-X Case and the Gold Film

The story of the Bre-X case takes place in the mid-1990s when a company, previously unknown, Bre-X Minerals Ltda, based in Calgary, Canada, begins mineral exploration work on the island of Borneo, in Busang. In the film, the story takes place in the late 1980s and, for legal reasons as well as to make the plot more interesting, the company is headquartered in Reno, Nevada – USA, with the name Washoe Mining Inc., in honor of Washoe County, located in Reno.

Depot Location

The alleged gold discovery actually took place in a remote region of the Busang forest, belonging to the island of Borneo. The research was carried out in this region, both in real life and portrayed in fiction.

Map of the location of the alleged Bre-X gold discovery in Borneo, Indonesia. Source: History vs HollywoodMap of the location of the alleged Bre-X gold discovery in Borneo, Indonesia. Source: History vs HollywoodMap of the location of the alleged Bre-X gold discovery in Borneo, Indonesia. Source: History vs HollywoodMap of the location of the alleged Bre-X gold discovery in Borneo, Indonesia. Source: History vs Hollywood
Map of the location of the alleged Bre-X gold discovery in Borneo, Indonesia. Source: History vs Hollywood

Characters: Inspiration or real life?

Matthew McConaughey's character, Kenny Wells, was inspired by Canadian businessman David Walsh, owner of a bankrupt company, as portrayed in the film. Edgar Ramírez's character, Michael Acosta, is mainly inspired by the Filipino geologist Michael de Guzman. However, Acosta's character is the composite of two real-life people: Michael de Guzman and John Felderhof, a Dutch geologist.

Geologist John Felderhof, who partly inspired the character Michael Acosta. Source: History vs HollywoodGeologist John Felderhof, who partly inspired the character Michael Acosta. Source: History vs HollywoodGeologist John Felderhof, who partly inspired the character Michael Acosta. Source: History vs HollywoodGeologist John Felderhof, who partly inspired the character Michael Acosta. Source: History vs Hollywood
Geologist John Felderhof, who partly inspired the character Michael Acosta. Source: History vs Hollywood

According to the true story, Michael de Guzman was a geologist who wanted to convince the world of the presence of gold on the island of Borneo by sharing his idea with geologist John Felderhof. For the project to be credible, they needed an investor who was not afraid of risk, and who was also willing to bet on the research project. Thus, businessman David Walsh enters the scene.

Geologist David Walsh who inspired Matthew McConaughey's character Kenny Wells. Source: History vs HollywoodGeologist David Walsh who inspired Matthew McConaughey's character Kenny Wells. Source: History vs HollywoodGeologist David Walsh who inspired Matthew McConaughey's character Kenny Wells. Source: History vs HollywoodGeologist David Walsh who inspired Matthew McConaughey's character Kenny Wells. Source: History vs Hollywood

As a result of the negotiation with Walsh, Guzman and Felderford get the initial investment of 80 thousand dollars, where they begin to take samples for testing. After the preparation of the samples, through grinding, the "salting" took place on the part of Guzman, before they were sent to the laboratories for analysis.

Michael de Guzman, pictured, and John Felderhof, left. Source: Calvary Herald.Michael de Guzman, pictured, and John Felderhof, left. Source: Calvary Herald.Michael de Guzman, pictured, and John Felderhof, left. Source: Calvary Herald.Michael de Guzman, pictured, and John Felderhof, left. Source: Calvary Herald.
Michael de Guzman, pictured, and John Felderhof, left. Source: Calvary Herald.

Tampering with samples

In fiction, the adulteration of the samples occurred through the addition of alluvial gold, purchased from miners in the region. In reality, the procedure was similar, with the detail that, initially, the salting was performed with gold taken from Guzman's wedding ring. In fact, throughout the film, the idea that Acosta was married was not even passed on to viewers. There are reports that Michael de Guzman had at least four wives across Asia, who appeared after his death in 1997.

The amount of gold added to the samples was carried out in a certain proportion, so that it did not attract the attention of the laboratories. Thus, the samples were analyzed and the results were positive, causing the company's humble shares to explode on the Alberta Stock Exchange, in Australia.

Stock Exchange

The results released allowed the value of the company's shares to increase more and more. Thus, from 1996 to 1997, the estimated resources of the deposit went from 39 million ounces to 71 million ounces of gold. As the analyses proved these statements, investors felt safe and the shares reached high values.

The collapse of the stock market and the discovery of fraud

In March 1997, the fraud was discovered when Freeport MacMoRan, which owned 15% of the deposit, sent a technical team for investigation through a Due Diligence. Due Diligence is a process that involves the study, analysis, and detailed evaluation of information. In this way, tests were conducted on the drill cores, finding negligible amounts of gold.

On March 26, 1997, the biggest gold fraud was exposed, leading to the company's bankruptcy and the loss of the value of its shares on the stock exchange. It is estimated that the scandal cost investors about 3 billion dollars.

Speculations of the Bre-X Case

The story, both in the film and in the news, brings some speculation about the facts. The biggest speculation is about Guzman's death. After Freeport's audit, suspicions about the contents of the samples led to a meeting with Guzman being requested. Thus, he was taken by an Indonesian government helicopter, where he disappeared.

According to news reports about his disappearance, it is believed that he jumped from the helicopter, which had only the pilot. In the film, he was taken by the country's army, from where he disappeared, leaving the interpretation up to the viewer, whether his escape was facilitated or if he was thrown from the helicopter. Generally speaking, it was concluded that he jumped out of the helicopter and died, because days later, Guzman's body was found in a decomposed state, and mostly eaten by animals, making it difficult to recognize. What actually happened is a mystery.

Is Guzman alive?

It is speculated that Guzmán is still alive somewhere in the world. In 2005, one of Guzman's wives declared in an interview with The Strait Times of Malaysia, that she received a payment order of 25 thousand dollars in his name from a Citibank branch in Brazil, further reinforcing this speculation. Guzman may be living in anonymity anywhere in the world with the money he received from the stock sale, before the scandal.

Engineered fraud?

Another speculation addressed in the film is regarding the knowledge of the fraud on the part of Kenny Wells, who denied being aware of the fraud. SPOILER ALERT! He receives a check for 82 million dollars after the aforementioned events occur. In addition, one interpretation of this fact is that Acosta wanted to show how much he valued his friendship with Kenny.

In reality, Walsh denied knowing about the fraud and moved to the Bahamas, where he died two years later of a heart attack. John Felderhof, who is not portrayed in the film, was the only one held responsible, but was nevertheless acquitted. He lived in the Cayman Islands until his death in 2019.

Speculation that the fraud was a plan hatched by Walsh, Felderhof and Guzman was based on their sale of 100 million shares before the scandal came to light.

Genius or foolishness?

Matthew McConaughey and Edgar Ramirez in the film Gold. Source: Cine TV MagazineMatthew McConaughey and Edgar Ramirez in the film Gold. Source: Cine TV MagazineMatthew McConaughey and Edgar Ramirez in the film Gold. Source: Cine TV MagazineMatthew McConaughey and Edgar Ramirez in the film Gold. Source: Cine TV Magazine
Matthew McConaughey and Edgar Ramirez in the film Gold. Source: Cine TV Magazine

The film leaves us with a question about Kenny Wells. Was he a fool or a genius? After the discovery of the fraud, the geologist was not held responsible for what happened, denying any involvement in the scheme to manipulate the results.

The question is where Wells standed: a fool for having been deceived, who bet all his chips on this impressive discovery, or a genius for having participated, plotted the whole fraud and coming out unscathed. The interpretation of the events is up to each one, whether through the film or the investigations carried out on the case.

 

International Codes

The Bre-X Case changed the course of the declarations of resources and reserves in mining. It can be taken as an example of the lack of control in the sampling and QA/QC of an enterprise, consequently generating the adequacy of the codes in order to avoid fraud such as the Bre-X case, the Poseidon case (Nickel, 70s, Australia), among others.

QA/QC stands for Quality Assurance and Quality Control, in other words, Quality Control and Assurance. Thus, it can be applied in several stages in mineral research and mineral exploration, such as sampling, chemical analysis, database, geological modeling, and the estimation of resources and reserves.

The JORC, CRIRSCO codes, among others, as well as the new CBRR Guide in Brazil, were the evolution of good practices in line with the government rules of each country and its financial markets. The establishment of standards for the presentation of resources and reserves, as well as the need to be carried out by competent, qualified and certified professionals in recognized international geoscientific communities, is a requirement that aims to prevent the occurrence of new frauds.

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