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The Bre-X case and the film Gold: The story behind the biggest mining fraud

April 22, 2021

um homem visto por trás em frente a uma floresta tropical

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

A great recommendation for those who like mining and cinema, Gold is 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 it's very informative and based on a true story, many aspects of the film are adapted, so not every plot is true. So, in today's text, we'll talk about the history of the Bre-X case, linked to the events presented in the film.

The Bre-X Case and the Gold Film

The story of the Bre-X case takes place in the mid-1990s when a hitherto unknown company, 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 based in Reno, Nevada - USA, under the name Washoe Mining Inc. in honour of Washoe County, located in Reno.

Mapa da localização da suposta descoberta de ouro de Bre-X em Bornéu, Indonésia. Fonte: History vs Hollywood

Warehouse location

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

O geólogo John Felderhof que inspirou, em parte, o personagem Michael Acosta. Fonte: History vs Hollywood

Characters: Inspiration or real life?

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

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, sharing his idea with geologist John Felderhof. In order for the project to be credible, they needed an investor who wasn't afraid of risk and was also willing to bet on the research project. This is how businessman David Walsh came into the picture.

O geólogo David Walsh à esquerda. À direita, Matthew McConaughey como Kenny Wells.
O geólogo David Walsh que inspirou o personagem Kenny Wells de Matthew McConaughey. Fonte: History vs Hollywood
Michael de Guzman, em destaque, e à esquerda John Felderhof. Fonte: Calvary Herald.

As a result of the negotiations with Walsh, Guzman and Felderford obtained an initial investment of 80,000 dollars, and began taking samples for testing. After preparing the samples by grinding them, Guzman "salted" them before sending them to the laboratories to be analysed.

Adulteration of samples

In fiction, the samples were adulterated by adding alluvial gold, bought from prospectors in the region. In reality, the procedure was similar, except that initially the salting was done with gold taken from Guzman's wedding ring. In fact, during the course of the film, the idea that Acosta was married wasn't even conveyed to the viewers. There are reports that Michael de Guzman had at least four wives throughout Asia, who appeared after his death in 1997.

The amount of gold added to the samples was done in a certain proportion, so that it didn't attract the attention of the laboratories. So the samples were analysed and the results were positive, causing the company's humble shares to skyrocket on Australia's Alberta Stock Exchange.

 

Stock Exchange

The results released allowed the value of the company's shares to rise more and more. Thus, from 1996 to 1997, the estimated resources of the deposit rose 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 stock market crash 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 to investigate through a Due Diligence. Due diligence is a process that involves studying, analysing and evaluating information in detail. In this way, tests were carried out on the drill cores, finding insignificant amounts of gold.

On 26 March 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 around 3 billion dollars.

Bre-X case speculation

The story, both in the film and in the news, gives rise to some speculation about the facts. The biggest speculation is about Guzman's death. After the Freeport audit, the suspicions generated about the contents of the samples led to a request for a meeting with Guzman, who was taken by an Indonesian government helicopter and disappeared.

According to reports of his disappearance, it is believed that he jumped out of the helicopter, which only had the pilot. In the film, he was taken by the country's army, from where he disappeared, leaving it up to the viewer to interpret whether his escape was facilitated or whether he was thrown from the helicopter. In general, it was concluded that he jumped from 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 recognise. What actually happened is a mystery.

 

Is Guzman alive?

There is speculation that Guzman 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 had received a money order for 25,000 dollars in his name from a Citibank branch in Brazil, further reinforcing this speculation. Guzman could be living in anonymity anywhere in the world with the money he received from selling shares before the scandal.

 

Plotted fraud?

Another speculation addressed in the film is Kenny Wells' knowledge of the fraud. SPOILER ALERT! He receives a cheque for 82 million dollars after the events mentioned above. Furthermore, 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.

Matthew McConaughey e Edgar Ramirez no filme Gold – Ouro e Cobiça. Fonte: Revista Cine TV

Genius or foolishness?

The film leaves us wondering about Kenny Wells. 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 stood: a fool for having been duped into betting all his money on this impressive discovery, or a genius for having taken part, masterminding the entire fraud and getting away with it. The interpretation of the events is up to everyone, either through the film or the investigations carried out into the case.

International Codes

The Bre-X case changed the course of resource and reserve declarations in mining. It can be seen as an example of the lack of control in the sampling and QA/QC of a project, which consequently led to the adjustment of codes in order to avoid fraud such as the Bre-X case, the Poseidon case (Nickel, 1970s, Australia), among others.

QA/QC stands for Quality Assurance and Quality Control, in other words, Quality Control and Quality Assurance. As such, it can be applied at various stages in mineral research and exploration, such as sampling, chemical analysis, databases, geological modelling and the estimation of resources and reserves.

The JORC and 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 their financial markets. The establishment of standards for the presentation of resources and reserves, as well as the need for it to be carried out by competent, qualified and certified professionals in recognised international geoscientific communities, is a requirement aimed at preventing new frauds from occurring.

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