Bre-X release adds fuel to rumor mill

Rumors, of course, fly better in a vacuum.

Shares of Bre-X Minerals (bxm-t) took a wild ride on April 23, as rumors about the company’s Busang gold project in Kalimantan, Indonesia, proliferated thanks to the dearth of information surrounding the fate of the project. As steel-shod consulting firm Strathcona Mineral Services continues to work on its technical audit of Bre-X’s drilling and sampling at Busang, those working the rumor mill turned the crank to produce some of the wildest tales heard yet about Busang.

The fun started after Bre-X released further results from its own holes, drilled in January and February of this year — before potential Busang partner Freeport-McMoRan Copper & Gold (fcx-n) started its own drill investigations, which turned up “insignificant” concentrations of gold, and before Strathcona was engaged for its technical audit. The company’s release stated that the results had not been included in the last Kilborn resource calculation, but all the drill holes were on infill sections that would have been covered by Kilborn’s “inferred” resource category.

The release let Bre-X open at $2.60 on the Toronto Stock Exchange, where it quickly gained ground, rising to around $3 as word spread. Then, in late afternoon, stories started to circulate that Freeport’s chief executive officer, James Moffett, had resigned. The street took this as a sign that the head of Freeport had been disgraced by the company’s failure to find the gold at Busang. In short order, the stock ran up to $5.75, even reaching $5.88 in U.S. trading. Then someone checked the story; Freeport confirmed that Moffett was still in charge, and the rally petered out. Bre-X still closed at $3.62, up $1.22 from the previous day’s close.

A report in the Calgary Sun quoted a source as saying that Bre-X had released both Barrick Gold (abx-t) and Placer Dome (pdg-t) from confidentiality agreements the companies had signed during their negotiations with Bre-X in late 1996 and early 1997.

Hugh Leggatt of Placer Dome said the company had no comment about test results at Busang: “We’re just not in a position to say anything.” Vincent Borg of Barrick had a similar reaction, saying, “What we’ve said in the past is that we would co-operate with any authorites investigating the matter.”

The Sun’s source said the results of tests Barrick and Placer Dome had performed on samples from Busang would vindicate Bre-X. Since neither company drilled on site, and since both have only acknowledged receiving crushed samples provided by Bre-X, the suggestion appears to have had little merit.

Rumors also circulated that Strathcona could release its report as early as April 24, but at presstime the consulting company was being tight-lipped about its project and there was no sign that early results were forthcoming.

A report in The Financial Post said that officials from the Busang joint venture had confirmed that Freeport had drilled its test holes using NQ size drill bits, yielding core 48 mm in diameter, whereas Bre-X had used HQ bits, which provide 63-mm cores. Geologists interviewed for the report dismissed speculation that the smaller core size was the reason Freeport’s twin holes had not matched earlier results from holes Bre-X had drilled in the same place.

The geologists said the smaller cores would make for less representative samples but that the test holes should still have detected some gold. In fact, the likelihood of detecting a representative amount of gold in an individual sample depends not on the core diameter, but on the sample mass — meaning that a 750-gram sample portion taken from a 2-metre interval of NQ core will be just as representative as a 750-gram portion taken from a 2-metre interval of HQ.

For that matter, even if Freeport had taken 10-gram fire assay samples from the smallest sizes of core, there were enough samples taken that a large number of “hits” should have occurred if any gold had been present. Similarly, theories on how Freeport could have missed the gold are becoming stranger and stranger, including the suggestion that someone managed to switch barren core for the core Freeport actually drilled; it is now clear that the switcher would have to have known that Freeport was drilling with NQ and not HQ core, and would also have had to find a barren hole with similar geology to the original. Such a switch would be a far more daunting task than salting even thousands of bags of core or crushed rock.

There have still been no answers from Bre-X on written technical questions submitted by The Northern Miner in an April 11 fax message to the company.