Commentary: Some new perspectives on Busang’s red flags

According to the critics of Bre-X’s gold project in Kalimantan, Indonesia, the warning signs, or “red flags,” were numerous and obvious and should have alerted those involved that the gold mineralization was not real.

In this 2-part series of articles, the author presents a contrary view to that offered by various observers and the popular press over the past five years on aspects relating to Busang. These two articles will discuss many of the supposed red flags and show that, in fact, they were neither numerous nor obvious. These articles will also discuss some of the substantial amount of positive information that should be considered as constituting “green flags.”

The negative results from the due diligence drilling by PT Freeport Indonesia in the Southeast zone early in 1997 and the gold mining activity by indigenous miners in the Central zone at Busang since 1998 establish two facts: First, that there was tampering of drill samples, and second, that there is real gold mineralization, at least in the Central zone.

Curiously, no evidence of tampering, contradictions, irregularities or any substantive issues relating to the validity of the exploration data is known to have been reported by any of Bre-X’s consultants or visitors to the site prior to Freeport’s due diligence drilling activities — this despite numerous visits to Busang by representatives of many large and respected mining and exploration companies, such as Aurora Gold, Barrick Gold (twice), CRA (twice), Cyprus Gold Australia, Echo Bay Mines, Placer Dome and Teck.

A little-publicized, but extensive and detailed, review by one of North America’s best known and respected minerals auditing groups, MRDI, was commissioned by Bre-X in October 1996 specifically to assess its work at Busang. That review stated, “our principal conclusion is that the exploration work is being done to a high standard” (Cottle and Parker, 1996).

It is difficult to reconcile this and many other positive comments with the numerous criticisms made by commentators since the salting was discovered. Is it credible to argue that all of the many professionals who worked on the Busang project, either as employees or consultants, were negligent by either not recognizing or ignoring the many obvious warning signs? These professionals included specialists in mineralogy, metallurgy, petrology, resource estimation, fatal-flaw audits, sampling and assaying.

q No visible gold mentioned in core logs? — A complaint occurring in all the legal actions currently in progress surrounds the comments of the Strathcona team (Farquharson, et al, 1997, p. 46): “. . . there is no mention of visible gold in . . . the drill logs prepared by Bre-X geologists.” This statement, however, is not supported by numerous references to visible gold in the Central zone and Southeast zone drill logs. In fact, an appendix in the same Strathcona report contains a transcription of a Bre-X drill log with reference to visible gold. References to visible gold also occur in the logs prepared by the previous owner of the property.

The author has verified visible gold in drill core from hole BRH-68 in the Central zone. At least 18 grains of gold up to 2 mm in length occur within an area of approximately 1 by 1 cm. The gold has scratches consistent with the striations caused by a rotating drill bit. The drill log for this hole records gold with the understated comment “minor visible Au specks.” A Strathcona representative acknowledged in March 2002, at a meeting of the Toronto Geological Discussion Group, that Strathcona was aware of references to visible gold in the logs. This is not easily reconcilable with its written statements to the contrary.

q Gold grain shapes and composition — obviously alluvial? — The shape and texture (“morphology”) of gold particles from Busang have been presented by commentators as being alluvial in character. Gold obtained from gravity concentrates has been described to the public as “mostly rounded with beaded outlines.” This conjures up an image of marbles or beads of gold similar to river-rounded cobbles. The quote purports to summarize the work of Roger Townend, a consulting mineralogist who produced a 22-page report in June 1996 on metallurgical samples from the Central and Southeast zones. The description quoted above, however, was never used by Townend who, out of 10 grains, identified only one grain as “beaded” and another grain as “rounded.”

Large size (more than 0.1 mm) and silver-poor chemistry are characteristics of gold grains that were used by some observers to classify the gold as being alluvial. Townend described only two grains from the Southeast zone. Both have a morphology that would not normally be considered characteristic of alluvial grains, even using the oversimplified criteria of the critics. For example, the grains from the Southeast zone are small (50 by 15 microns and 70 by 20 by 5 microns) in comparison to others from the Central zone. They also have somewhat delicately preserved features and are described as silver-rich.

The use of the term “beaded” appears to be unprecedented in the geological literature and has a meaning that can only be gleaned by reference to the actual microphotograph of the grain. The grain appears nearly identical to gold found in outcropping hard-rock carbonate base-metal veins from the Wau district of Papua New Guinea.

q What do gold grain shapes prove? — Gold grain morphologies are poor indicators of origin, unless the samples can be compared to a control group (for example, to the Freeport samples) and an adequate number of representative grains are studied. Rounded and sub-rounded forms are common in hard-rock gold deposits, and crystalline forms are common in alluvial deposits. Even spheres of gold from hard-rock gold deposits have been noted. All the Busang gold grains examined by the various mineralogists had been through various forms of crushing and grinding, which is known to modify original morphologies into rounded shapes.

Rounding of gold grains also occurs as a result of the chemical effects found in tropical areas as a result of supergene or oxidation processes. Gold may be extremely mobile, particularly in geological environments affected by tropical weathering, and is capable of being dissolved and re-precipitated into different morphologies. The popular, though uninformed, view of gold being a “noble metal” (that is, chemically inert) may be true in the jeweler’s shop. In many geological environments, however, its shape and composition may undergo distinct changes in response to processes such as oxidation and leaching.

q The foreign gold: locally purchased? — A key conclusion of the forensic investigation completed in October 1997 by Forensic Investigative Associates (Forensic Investigative Associates, 1997) was that alluvial gold was purchased from a local Dayak and used by Bre-X employees for the salting. One definitive method for distinguishing the origin of different gold grains is geochemical fingerprinting. Gold was purchased by the author from the tukang mas (gold dealer) who had a small shop near the main Busang camp. The fingerprint is quite different from the gold in Southeast zone gravity concentrates. This demonstrates that there is no substance to the belief that the gold used for salting was purchased locally.

q Do gold-rich rims only occur in alluvial grains? — Gold grains with gold-rich rims surrounding more silver-rich cores were mentioned in the Townend study. These descriptions of the grains have been cited as indications of an alluvial origin. Gold-rich rims may occur on alluvial gold grains because silver may be dissolved from the original outer rims. Rims of purer gold, known as secondary gold, may also grow on the outer edge of the alluvial grains. This rimming, however, also occurs in grains from hard-rock environments affected by oxidation and weathering, as has been documented in a diverse range of hard-rock geological settings, including Papua New Guinea, Ghana, Gabon, Brazil, Mali, the U.S. and Australia. Gold has long been recognized as a mobile metal capabl
e of dissolution, transport in solution and deposition away from its original location with a morphology and composition different from its original state.

q Secondary gold and marcasite: is this impossible? — Some commentators regard oxidation as an implausible explanation of gold grain features, such as gold-rich rimming. These commentators suggest that, if the presence of secondary gold is due to oxidation, then there should not be any marcasite in the same samples because marcasite, in an oxidizing environment, “disappears” (Forensic Investigative Associates, 1997, p. 84) by conversion to oxide minerals. The point is made that, as the Bre-X samples containing the secondary gold also contained marcasite, oxidation cannot have occurred within the samples and cannot provide, therefore, a reasonable explanation for the presence of the gold-rich rims.

If true, any implications of marcasite occurring with secondary gold that had formed in tropical environments would, at best, be on the subtle end of the scale of warning signs. Marcasite, however, does not necessarily disappear with oxidation and may occur with secondary gold. This supposed contradiction has no foundation, because marcasite may be associated with the oxidation of ore deposits. Its coexistence with secondary coarse gold, and other minerals of supergene origin, is well-documented in the scientific literature.

q Comparison of Kelian with Busang: invalid? — The style of gold mineralization found at Busang was compared by Bre-X geologists to the Kelian gold mine (about 150 km southwest of Busang). Observers have concluded that this was an invalid comparison, as the two sites have few similarities. In contrast, numerous independent studies stressed, in reports prepared for Bre-X, the similarity of Busang with Kelian. MRDI, Normet and Kilborn were all familiar with Kelian.

One legal action cites several features of Kelian that seemingly undermine the comparison:

q Kelian has no gravity plant;

q Kelian has gold that is mainly micron-sized; and,

q Kelian has gold that is predominantly “refractory.”

These features, if true, would be incompatible with the good gravity response and coarse gold nature of the Busang samples that were evident before the tampering was discovered. However, each of the above descriptions of Kelian is incorrect. In actuality:

q the gravity plant (retro-fitted several years after production started) at Kelian is well-known and large;

q the gold content is dominated by coarse gold grains; and,

q the gold is not predominantly refractory.

All of these facts are readily available from public sources (for example, www.keliangold.com; www.knelson.com). Like Busang, visible gold was rarely identified in drill core at Kelian even at grades of more than 25 grams per tonne. Kelian proved that, although coarse gold may be significant in a deposit, it may be difficult to identify in drill core and may be underestimated at the exploration stage.

It appears that the criticisms of the Busang-Kelian comparison are based on a preproduction understanding of Kelian that is quite different from what is now known. It is often the case that the geological understanding after mines commence is different from that which existed in the exploration phase.

q Continuity of the mineralization: anomalous? — The way in which the gold grades varied in different directions within the mineralization was investigated in 1995 and 1996 by three specialist consulting companies. Each of these had been provided with the drill hole data and had the specialist skills to undertake this type of analysis. The basic tool used by resource evaluators to investigate the continuity of grade is the “variogram,” which graphically illustrates the spatial variation of gold grades in different directions.

Variograms from the Central and Southeast zones are typical of hard-rock gold mineralization. To an informed observer who examined this type of analysis, there would be no grounds to suspect that the underlying data were anything but real.

q No outside scrutiny? — After the event, criticism was levelled at Bre-X that few visitors were allowed on-site and that little opportunity existed for outside scrutiny. The fact is that discoverers of mineral deposits are not usually in a rush to share their knowledge with competitors. How fair is it to accuse Bre-X of restricting access to outsiders when visits to Busang were actually numerous and included some of the world’s leading gold mining companies? Even geologists who had worked at Kelian visited Busang.

q The need for external reviews — In addition to visits by exploration and mining companies, an independent minerals auditing group, MRDI, was engaged in October 1996 to review the project. The detailed scope of work went to the heart of the mineralization. Reference to the details and conclusions of this review has, curiously, either been muted or ignored. Paradoxically, some observers made the criticism that a review should have been commissioned by Bre-X, without realizing it had already taken place late in 1996.

MRDI’s scope of work involved a site visit and review of the following:

– geological setting and ore controls;

– assaying procedures;

– genetic model for ore occurrence;

– check and duplicate assaying;

– exploration programs (including drilling and trenching);

– core weight recovery;

– locations of holes and pits;

– sampling conditions;

– sample collection;

– density determinations;

– sample preparation procedures;

– geological mapping;

– geological interpretation on sections and plans;

– logging procedures;

– ore and gangue mineralogy;

– adequacy of exploration drill hole spacing to support resource classification;

– potential to add to reserves through additional exploration; and

– adequacy of exploration data to support mine design

It is hard to conceive of a more suitable checklist to identify some, if not all, of the supposed red flags. The results of this review, as well as other issues, will be discussed in the next article.

References:

Cottle, J.W. and Parker, H.M., 1996: Mineral Resources Development Inc. (MRDI), 1996: Busang Project Review — Final Report. December 1996.

Farquharson, G., Thalenhorst, H. and Von Guttenberg, R., 1997: Busang Project — technical audit for Bre-X Minerals Ltd. Strathcona Mineral Services Ltd., Toronto, Canada. Interim Report.

Forensic Investigative Associates, 1997: FIA Interim Report of Investigation into Tampering with Bre-X Minerals Ltd. Busang Core Samples.

Townend, R., 1996: Preparation of 8 polished sections and mineragraphic examination of 4 head samples and 4 gravity conc TBE sinks, 15 June 1996. Report to Normet.

— The author is a principal of geological consulting firm Hellman & Schofield, in Eastwood, N.S.W., Australia. He has been retained by lawyers acting for the defense of John Felderhof, Bre-X’s former general manager in Indonesia. He can be reached by e-mail at plh@hellscho.com.au

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