Fever In The Jungle

PROSPECTORS HAVE LONG known that there was gold in East Kalimantan province. In the rolling hills and jungle seven hours by speedboat up the muddy Mahakam River from the Indonesian mining town of Samarinda, Dayak tribesmen pan for it in the streams--when they're not hunting birds and proboscis monkeys with blowguns. And in the hotel bars and seedy karaoke clubs of Samarinda, geologists from Canada, Australia and the Philippines trade tips, swap rumors and share gossip about the gold trade.

But gold fever really hit the Indonesian side of the island of Borneo when David Walsh and John Felderhof blew in. Felderhof is a chain-smoking Dutch geologist who has spent most of his life tramping around the world hoping to strike it rich. After all his years in the jungle, says a Canadian investment executive, "he's had malaria more times than some people have had sex." Walsh, Felderhof's business partner, is a 51-year-old Canadian stock promoter. He had formed a few prospecting companies in Canada with little result. In 1993 Walsh and his wife declared bankruptcy, owing nearly $60,000 on 15 credit cards. With his last $10,000, Walsh flew to Jakarta and looked up Felderhof. The Dutchman persuaded Walsh to buy an expiring land claim in an area known as Busang.

What came next caused a sensation. Felderhof discovered what he said was a vast gold field tucked under a jungle. Experts valued the find at a minimum of $25 billion. The news sparked a stampede for the stock of Walsh's company, tiny Bre-X Minerals. Everybody--Indonesian officials and businessmen, American brokerage houses, the world's biggest mining companies--angled for a piece of the action. Almost overnight, Bre-X was catapulted from anonymity into the big time. And Walsh and Felderhof morphed from down-at-the-heels prospectors into lucky tycoons. Four Bre-X officials, including Walsh, his wife and Felderhof, reportedly made $69 million selling Bre-X stock options. Walsh moved to the Bahamas; Felderhof bought a house in the Caymans.

Does it all seem a little too good to be true? Suddenly Busang and Bre-X are shrouded in a mystery as thick as the Borneo jungle. The gold, it turns out, may or may not be there. The geological samples Bre-X used to support its astounding claims may or may not have been doctored. Bre-X's chief geologist may or may not have committed suicide by jumping from a helicopter on his way to a meeting to discuss discrepancies in the samples. And the body that was retrieved four days later from the swamp, its face gnawed away by wild pigs, may or may not have been the geologist's.

Today Walsh and Felderhof are trying to rescue their shattered company after last month's stunning announcement by Freeport McMoRan, a big U.S. mining company that was to develop the find. Freeport drilled several holes to confirm Bre-X's claims--only to discover "insignificant" amounts of gold. Worse, Strathcona Minerals, an independent consultant, said there was a "strong possibility" that the size of the field had been overstated based on "invalid" samples. In two days Bre-X stock plunged by 85 percent, wiping out some $3 billion in shareholder value.

What happened? Based on the Freeport and Stathcona findings, it's almost certain that the size of the Busang claim has been overestimated. And evidence is emerging, say experts, that drilling samples from Busang may have been "salted" with gold from another source. It's an old trick in the mining business.

Walsh says he's confident that Bre-X's estimates will be confirmed. A few weeks ago he said salting the Busang samples would have been impossible because Busang's rock was not crushed at the drilling site. (It's much easier to tamper with crushed rock than with the solid cylindrical cones of stone that are first drilled out of the ground.) But The Northern Miner, an industry newspaper, says that it had a videotape that shows bags of crushed-rock samples at Busang. Last week Walsh told NEWSWEEK that Bre-X did crush core rocks at Busang, but only "waste" with little or no gold. There are other puzzles in the Bre-X story. This past January, for example, a warehouse fire at Busang destroyed mining records. "At this point, this might be the greatest hoax ever perpetrated on the public," said Ronald Mayers of the Montreal investment firm Levesque, Beaubien, Geoffrion.

The mystery could be cleared up next week. That's when Strathcona will reveal the contents of new samples taken from Busang. Under tight security, Strathcona drilled new holes next to those drilled by Bre-X and Freeport, as well as two holes in other promising areas of Busang. All 25,950 pounds of rocks were locked into a 20-foot-long metal container and flown last week to Perth, Australia, where they're being analyzed. Geologists say that the Strathcona tests will determine conclusively whether there is gold at Busang. But, says Mike Everett, a veteran geologist for P. T. Snowden IndoAsia, "the results won't necessarily tell you how much gold is there."

Nor will the results answer the questions surrounding the death of Bre-X geologist Michael de Guzman. A Filipino convert to Islam with four wives, de Guzman was the company's point man at the dig site. Three days before Freeport's no-gold announcement, de Guzman apparently jumped to his death while riding by helicopter to Busang. He was on his way to a meeting with Freeport officials to discuss their findings. According to Bre-X, de Guzman was terminally ill. He left a note saying he could no longer "handle living" with malaria and hepatitis B. "No more stomach pains, no more back pains," he wrote. But de Guzman's family in Manila, and one of his Indonesian wives, say the geologist was not depressed about his health. "He moved around the house like he was dancing," says Priscila Lilis Lionar, the wife.

De Guzman, who made about $5 million from Bre-X stock options, had a spotty work record. Australian geologists in East Kalimantan say that, at times, his geological analyses were shoddy. He kept an unusually tight lid on Busang, where he managed a group of 30 geologists, most of them fellow Filipinos. No outside experts were allowed on the site. And during the 12-month period when Busang's gold estimates were skyrocketing, no independent drilling was done to confirm the company's findings. Former colleagues laud Felderhof's geological talent. But he was also known for having "big arms"--meaning he can be very optimistic about the property he is exploring. Among the mining crowd in Samarinda and in the Smuggler's Arms bar in Jakarta, the consensus is that Bre-X has found something--but that its arms got way too big.