In May 1997, the editorial staff of The Northern Miner broke one of its own rules and bought an equity position in Bre-X Minerals.
Journalists normally aren’t allowed to buy shares in companies they cover, but this paper spent C$60 about 25 years ago to secure share certificates that could be framed. This, so that the newsroom never forget the Busang scandal and Graham Farquharson’s role in unearthing a sham that changed the way mining companies reported to the public.
Farquharson passed away this month in Toronto at the age of 81. He was the head of Strathcona Mineral Services, a consulting firm that audited the Busang property in Indonesia, a project that Calgary-based Bre-X Minerals claimed contained one of the world’s largest gold deposits.
The announcement by Bre-X in 1995 sent the company’s shares soaring, from a mere penny stock to a peak of C$286.50 in May 1996 on the Toronto Stock Exchange.
Strathcona’s audit however, revealed that the results were tampered with and that the only gold at Busang was the gold that Bre-X used to salt its samples. While the scandal tarnished Canada’s mining sector, it highlighted Farquharson’s credentials.
But the Timmins-born mining engineer’s credibility was well-known even before the Bre-X scandal, explains James Whyte, co-author of the book “Bre-X: Gold Today, Gone Tomorrow,” and former editor-in-chief of The Northern Miner.
The rising gold price and a relatively new flow-through share tax structure combined to bring a lot of money into the junior mining industry in the late 1980s, which led to companies being formed to take advantage of the investor interest. Too much money chased too many weak properties, Whyte said, which paved the way for the demise of many mining projects.
“Strathcona had a record of successful mine-building by that time and was brought into many projects to see if they could be turned around,” Whyte says. “It always fell to Strathcona to tell investors the bad news. That gave Graham and Strathcona immense credibility because he didn’t shrink from telling it straight.”
And when Bre-X needed to conduct an audit of its Indonesian project in 1997 after doubts were raised about the actual amount of gold in the property, it chose Strathcona, because the company knew no one would doubt the firm’s integrity.
Upon assessing the initial evidence, Farquharson didn’t think there was any gold there and according to Whyte, his team received a “scrappy” welcome when they reached Busang.