LETTER TO THE EDITOR — Protecting investors should be the top priority

For most investors, the world of junior mining companies is akin to the Twilight Zone, where it becomes virtually impossible to differentiate between reality and fiction. In the past year alone, we’ve seen cases that have strained the credibility of not only the Canadian mining industry but of our financial community. How many more examples do we need before action is taken, lest we allow our financial markets to be destroyed by fraudsters or well-meaning but incompetent promoters?

First we had Timbuktu, a company run by a man who was twice charged by the U.S. Securities and Exchange Commission. The company managed to get by the investment bankers’ due diligence and salt assays of a drill program in Mali.

That episode was followed by the Cartaway Resources fiasco in which a well-known mining figure visually estimated the mineral content of a drill core and created a $700-million frenzy that vanished when the real assays became known.

Those are nothing, however, when compared to the $3-billion market capitalization that vaporized, in one day, from the stock price of Bre-X Minerals when the company let it be known that its data had been subject to an intense amount of paranormal activity.

The storyline is still evolving, but it is widely believed that the chief geologist may have been overcome with guilt when he jumped from a flying helicopter.

The primary responsibility for the company lies squarely in the lap of management. David Walsh may, in the end, profess ignorance of geology, mining and Indonesian politics, but that cannot be the case for John Felderhof, the company’s senior vice-president, and other directors. Busang was a discovery too good to be true, and the company did not take the necessary elementary precautions to guard against the natural and human errors that followed. In its search for glory, Bre-X simply did not want to hear the bad news. Yet the signs were out there for people who cared to look.

* A previous company drilled numerous holes on what is now the Southeast zone, and received negative results. Bre-X, on the other hand, couldn’t find a site without gold.

* The gold was said to be in clusters, hence the use of whole-core analysis.

The assays, however, contained hundreds of feet of material grading in the range of 2 to 4 grams. Wouldn’t it stand to reason that if one only used half the core, then, on a statistical basis, one would end up with the same results? The major difference is that some core would be left over for check-assays.

* When Bre-X hired an outside consulting firm to calculate its reserves, the company did not see fit to have its entire technical operation audited.

As we look through the market carnage that these companies have created, it becomes quite clear that, as an industry, we will need a higher level of scrutiny and disclosure if we are to regain investor confidence.

The practice by large, well-established mining companies of contracting independent technical advisers to audit all phases of engineering reserve preparation needs to become standard for junior companies as well, something that has already happened in Australia. Such a move may not prevent all episodes of fraud, but it will protect the public against inept, deficient or hubris-prone management.

Pierre Lassonde, President

Franco-Nevada Mining, Toronto, Ont.