Lawyers cast net wider in Bre-X suit

More than 20 Canadian and U.S. law firms, all with pending lawsuits against disgraced Bre-X Minerals, are joining forces on a class action filed in Texas.

The suit names all the usual suspects — Bre-X, affiliated company Bresea Resources, consulting firm SNC Lavalin and its mining subsidiary, Kilborn-SNC Lavalin — and several of Bre-X’s directors. But it also names investment houses Nesbitt Burns, Lehman Brothers and J.P. Morgan, alleging that the firms’ involvement with Bre-X gave unwarranted credibility to the company’s false claims of a gold deposit at Busang in Indonesia.

The suit alleges that Nesbitt Burns, the brokerage subsidiary of the Bank of Montreal, provided favorable analytical reports on Bre-X but was fully aware that the company’s resource estimates had not been independently verified.

The suit’s complaint against Lehman Brothers alleges the New York-based brokerage house released similar favorable reports even while it was in possession of information, alleged to be from Barrick Gold (ABX-T), that indicated that results of assays on Busang core samples had returned insignificant gold values.

J.P. Morgan, which acted as financial advisor to Bre-X during negotiations with potential joint-Venture partners, is alleged to have provided a measure of respectability that Bre-X would not otherwise have had in the market.

In another development, John Felderhof, Bre-X’s former vice-Chairman, released a 5-page statement through his lawyers in Texas stating that he was unaware of any tampering with the Busang samples. He listed 12 of his actions (including his holding Bre-X stock and exercising Bre-X options), which, in his view, indicated he was unaware of the fraud that was taking place in Indonesia, insisting that he was “not alerted to, or even suspicious of tampering, until after Strathcona [Mineral Services] produced its interim report.”

(Since the report was released in May 1997, more than a month after Freeport-McMoRan Copper and Gold [fcx-N] and Strathcona presented evidence of tampering to Bre-X management, the contention seems unusual. Felderhof was on the site in April and might reasonably have wondered just why Strathcona was doing all that drilling.)

Felderhof further muddied the waters by reiterating earlier comparisons he had made between Busang and the Kelian mine, about 100 km away. He argued that crushing whole cores, rather than splitting and reserving half, was an acceptable practice, which was also followed at Kelian. That assertion had already been denied by Alan Roberts, Kelian’s mine manager, in an April interview with The Northern Miner.