Waverley suspends Bre-X action

After a series of scandals, the Canadian gold explorer may not be worth suing

Edinburgh-based Waverley Mining Finance has put on hold legal action against Canadian gold explorer Bre-X, the firm at the centre of potentially the biggest precious metals scandal for decades.

Last week, Bre-X shocked the industry with news that its Busang deposit in Indonesia, billed as the world's biggest, may have hugely overstated reserves said to be worth $25bn (nearly pounds 15.5bn).

Waverley's 49 per cent-owned Australian offshoot Montague Gold has been considering action for months over suspicions it was conned out of rights at Busang in 1993.

Now, however, it plans to let the dust settle to see whether it is worth claiming damages at all.

This weekend, in a thickening plot worthy of a Wilbur Smith novel, the protagonists were still arguing over the field.

The murky tale has already drawn in former US president George Bush, ex-Canadian premier Brian Mulroney, Indonesian President Suharto, Bre- X founder David Walsh and the mysterious helicopter death of the company's chief geologist.

Mr Walsh, a chain-smoking former bankrupt and penny share promoter, bought the rights to Busang from Montague for just $180,000 in mid-1993 and handed over another $7.1m last year.

The deal was brokered by Dutch Canadian geologist John Felderhof, now Bre-X's senior vice-president for exploration but then a consultant to Montague.

Months later, Bre-X announced the first of a series of gold finds that sparked one of the most remarkable bull runs ever.

"It would appear more than coincidental that they bought Busang for buttons, then suddenly find a field worth billions," one Waverley source said.

"If it turns out not, there's no point suing men of straw."

From mere cents, Bre-X stock roared to C$250 on the Toronto market, creating instant millionaires in the Canadian outback town of St Paul.

Only last month Bre-X, then worth more than C$6bn, confirmed reserves of at least 70 million ounces of gold and speculated about 200 million ounces in all.

The prospect had already set multinational mouths watering. Last month US mining giant Freeport-McMoran saw off Canadian rivals Placer Dome and Barrick Gold to secure a $1.4bn joint venture.

The bitter battle, played out since last November, had involved lobbying by Messrs Bush and Mulroney and set members of the Suharto clan at each others' throats.

The fairy tale all but ended last Wednesday. In turn, Freeport McMoran said its own test results showed "insignificant deposits", Mr Walsh admitted the "strong possibility" of overstatement and then backtracked, saying tampering with samples was "physically impossible".

Some of the truth may have already gone to the grave. Rumours about Bre- X started a week ago after its chief geologist Michael de Guzman fell out of a helicopter. Indonesian officials called it suicide, a claim his family denies. Meanwhile Bre-X shares crashed to C$3.50 and St Paul remains in shock.

Waverley shares, now standing at 65p, have risen strongly this month on the back of talk of compensation.