Bre-X was a popular group of big companies found in Canada. Being among the famous companies, Bre-X Minerals Limited, based in a town called Calgary, got involved in a big scandal in the gold mining sector. This happened in 1993 when the company bought land in Indonesia near Busang River. The land, heavy laden with resources, harbors over two million ounces of pure gold. According to records, these estimates continued to rise in the entire period of early and the mid-1990s and were predicted to culminate to over two hindered a million ounces in 1997. As a result, “…the company’s stock price, which was just a small and penny stock soared to great extent” (Danielson, 1998, p.64). For instance, in1996, its stock prices were at a peak of $286.50 each on the Stock Exchange market in Toronto with an accumulated capitalization exceeding CAD $6 billion. The biggest mining scandal, ever witnessed in Canadian history was unraveled when a Canadian independent company carried out investigations and found very little or no gold in the described areas. Investigations found that all the samples, previously presented for examinations, suffered falsification by the Bre-X team of consultants. As a result, the company ended up collapsing with all of its shares becoming worthless. Among the many gold mining scandals, the Bre-X Minerals Limited issue passes for the worst mining scandal ever witnessed. As a result, I am privileged, as a financial analyst, to address the issue of Bre-X’s gold prospects specifically how various investigations can help determine the value of Bre-X’s prospects.
Investigating Management and Directors
Carrying out thorough investigations on all of the Bre-X Minerals Limited management team and the directors can be of greater essence in helping to determine the total value of the company’s prospects in gold. The billions of dollars that were lost through the fraud must have ended up in the pockets of the management team and the director pockets. Among the individuals in the management positions during the scandal period is “John Felderhof, the vice president, a chief geologist, and vice-chairperson of the company’s board of directors. David Wash was the chief executive employee in the company and the chairperson of the Bre-X board of directors. Jeannet Walsh too was the corporate secretary of the company” (Will, 1997, p.3) A vigorous investigation of their wealth can help determine the entire gold prospects of the company as they might have used the scandal to accumulate their wealth. Rumors have it that Michael de Guzman; the main figure in the fraud might be alive despite the claims of his suicide in March 1997. This should be ascertained by carrying out extensive research and investigation on the rumors. If this main suspect of the scandal is alive and arrested, it can help a great deal in determining the gold prospects of the company. The relationship between the company and other entities can help as well.
Investigating the Company’s Relationship with Other Entities
Investigating the entire organization’s relationships with different entities will be of paramount importance in determining the worth of the gold prospects acquired by the Bre-X company. The company’s relationship with Breese Resources limited commonly referred to as Bresea between 1994 and 1997 calls for a thorough investigation. Wells (I998) states, “Thousands of organizations and individuals lost billions of dollars mostly Americans and Canadians when the Busang truth was eventually revealed” (p.73).
The other parties and companies that liaised with the Bre-X company during the scandal period are worth investigating as they might have accumulated quite a fortune from the events of the scandal. Some companies like Bresea for instance, which is a hoarding company in Canada, have approximately 23 % of the Bre-X company and hence should be thoroughly investigated.
Investigating the Organization and its Industry
Carrying out a thorough investigation overall organization and the mining industry will be of great importance in determining the value of the Bre-X Minerals Limited gold prospects. It will unravel the motive behind the planning of the scandal. The company was well organized and it has a management team and a team of directors. Some of the top management team also served as members of the board. The investigations of the mining industry will help in determining the amount of money accumulated to form the sale of the gold and the company’s shares. It will also help in unraveling the distribution of money as payments to the various people and organizations involved in the entire operations during the scandal period.
Investigating the Financial Results and Operating Characteristics
Rudenno (2009) states, “A financial result of any company depicts a lot about its operations and revenues acquired during a certain period” (p.108). Investigating the financial results will provide very useful and entailed information that will help in determining the past cash flows within the company. Financial statements also provide disclose detailed information concerning the company’s resources and how they were acquired and utilized. This will help in determining the worthiness of all the resources and billions of dollars acquired during the scandal period. It will show who the main benefiters from the scandal were as they will show how the money gained from the sale of shares was utilized.
The Perpetrators’ Motivations to Commit the Fraud
The main perpetrators in the biggest mining scandal to have ever happened in the Canadian history were motivated by a number of factors. According to history, the company established in 1989 by David Walsh was not able to make huge profits for a long time. At the beginning of 1993, the company founder, with the advice of a geologist named John Felderhof, purchased a land in the center of a jungle in Indonesia. The desire for the founders and the management team desire and urge to increase the company’s profit pushed them to come up with this notorious fraud in bid to increase the profit and revenues of the company. The laxity of the stock market provided loopholes for the perpetrators to sell company shares worth billions of money, as there were no strict laws aimed at ensuring the all the proceedings gotten from the sale of shares were used properly. The laxity of the government and other concerned bodies in determining the truth of the experiment carried in the gold mining site also motivated the scandal perpetrators to instigate and continue with the fraud as it took a lot of time for the people to a learn that the experiments were fake. The perpetrators were greedy and wanted to increase their wealth at the expense of other investors. The desire to be rich in a very short time also motivated the perpetrators to engage in the scandal.
Reference List
Danielson, V. (1998). Bre-X: Gold Today, Gone Tomorrow. Toronto: Northern Miner Pr Ltd. Print.
Rudenno, V. (2009).The Mining Valuation Handbook: Mining and Energy Valuation for Investors and Management. Elsternwick: Wright books Publishers. Print.
Wells, J. (I998). Fever: The Dark Mystery of the Bre-X Gold Rush. Canada: Penguin Books Ltd. Print.
Will, A. (1997).The Bre-X Fraud. Ontario: McClelland & Stewart. Print.