Investors sue over mining group's Borneo gold claims

  • @dusborne
As trading in its shares was resumed yesterday in Toronto, Bre-X, the beleaguered Canadian exploration company, faced two class-action lawsuits from stockholders who are accusing it of overstating the extent of gold deposits at its much-trumpeted Busang find in the jungles of Borneo.

The value of Bre-X plunged 80 per cent in a matter of minutes last Thursday after markets got wind of reports that the Busang find may produce only a fraction of the gold initially promised by the company. On the Nasdaq market, before trading was halted, Bre-X shares fell to $1.97 from $9.41.

Two groups of Bre-X stockholders from New York and Texas are seeking unspecified damages from the company in separate class-action lawsuits. In one, investors accuse the Bre-X chairman and founder, David Walsh, and other company officials of "fraudulent and wrongful activities".

Bre-X, a tiny company that has never turned an operating profit, became the darling of investors after it boasted a scale of deposits at Busang that would have made it the biggest single gold discovery in the world this century. While it formally put the find at 71 million ounces, some sources suggested that it would come out closer to 200 million.

The bottom fell out of the company on Thursday, following news from a prospective partner, Freeport McMoRan Copper & Gold of New Orleans, that its own test drillings at Busang had turned up "only insignificant amounts of gold".

The Busang mystery has meanwhile been deepened by reports from the region of the death, apparently by suicide, of Bre-X's principal geologist at the site, Michael de Guzman.

Mr de Guzman was travelling by helicopter to Busang two weeks ago, reportedly to concede to a possible partner that the gold find was much less significant than originally thought, when he plunged 800 feet to the ground. Investigators have said Mr de Guzman was suffering from chronic hepatitis and no formal connection has been drawn between his death and the Bre-X debacle.