Prospectors appeal Karpa Springs conviction

SPECIAL TO THE NORTHERN MINER

Almost five years after being released from jail, three Australian prospectors have lodged an appeal over their conviction for the $A6-million Karpa Springs gold fraud.

Clark Easterday and brothers Len and Dean Ireland claim that new evidence has been uncovered which proves they did not salt drill samples at Karpa Springs, about 340 km northeast of here.

State Attorney General Peter Foss is considering a petition backed by 10 supporting affidavits. It is his decision alone as to whether the case goes back to the Western Austrialian Court of Criminal Appeal.

If he authorizes a new hearing into Karpa Springs it will refresh many memories of the fraud that almost caught Noranda off guard and may have formed the template for the much bigger Bre-X fraud at Busang in Indonesia.

The Karpa Springs case started in 1990 when the prospectors reported rich gold assays from the site near the Mt. Gibson goldmine. They sold the claim, via a Kalgoorlie syndicate, to a joint venture of Noranda Mines and the Australian company Perilya Mines.

But within weeks of the $A6-million sale, check drilling revealed “a complete absence of gold,” according to a report lodged at the time by Perilya Mines. The police were called in and the prospectors charged. They were convicted in 1993 and sentenced to three and a half years in jail. All were released in 1994 after serving 13 months.

In the trial, the prosecution said it “did not know” how the salting took place but that the prospectors had the means and the motive. It was a case based entirely on circumstantial evidence. When the Bre-X fraud was exposed in 1997, it was alleged that a parallel could be found with Karpa Springs because the exact salting method was unknown and some people had an association with both cases.

In the latest Karpa Springs development, a Perth mining engineer, who was not involved in the original case, says he has a theory as to how the salting took place. He also has also postulated a new motive and offered sharp criticism of expert evidence given at the trial.

Michael McGowan says the salting took place through gold being added to the drilling grease. If he is right the prospectors could not have carried out the salting. The motive, rather than the $6-million payoff, was in share trading profits, McGowan says, and the expert evidence gave incorrect measurements for background gold in the Karpa Springs region.

The prospectors’ lawyer, Michael Ryan, says it is not a case of accusing anyone else of the salting. “We can’t say who did it because we don’t know, but it does open the door to other avenues of investigation.”

A large number of people have access to a drilling rig and the supply of equipment to that rig, providing many opportunities for materials, such as grease, to be tampered with without the rig crew’s knowledge.

Any appeal would target the strict criminal code requirement of “beyond reasonable doubt,” rather than the civil test of “balance of probabilities.” Ryan says McGowan’s theories introduce reasonable doubt.

McGowan says his argument is supported by variations in the background assays for gold in the area. The further a check hole gets from one of the alleged “discovery” holes, the lower the gold assays.

If the gold was added in the grease “down the hole,” it is possible that some of the gold was driven into underground cracks by the force of compressed air used in the reverse-circulation drilling, and this might explain the declining assays.

Evidence given at the trial indicated that the background reading for gold in an Archaean granite environment such as Karpa Springs is “less than 0.1 gram per tonne.” However, the textbook figure is actually “less than 0.003 grams per tonne.”

Because his theory turns on gold in the hole (and the potential for surplus gold to be deposited around the salted holes), McGowan says the difference is a factor of 33 times and that to use the 0.1-gram-per-tonne figure is misleading. “It’s actually more than misleading,” he says. “It’s just plain wrong.”

The police have not been asked to investigate McGowan’s theory, but officers from the Western Australia Fraud Squad have unofficially looked at his work. One told a superior that “there might be something in this.” They are now waiting for State Attorney General Foss to decide whether the case should be reopened.

— The author is the Perth bureau chief for Business Review Weekly, Australia’s national business magazine.