The Militant(logo) 
    Vol.61/No.24           June 23, 1997 
 
 
Bre-X Gold Swindle Sinks Pension Funds  

BY MIKE BARKER
VANCOUVER, British Columbia -What was touted as one of the biggest gold finds in history became one of history's greatest swindles when on May 4 Strathcona Mineral Services confirmed that the Bre-X mine site in Busang, Indonesia, contained insignificant amounts of gold. Strathcona also determined that the test samples Bre-X used to prove there was gold at the site had been tampered with.

Bre-X, a mining company based in Calgary, Canada, acquired the Busang site in early 1993. Prior to that its shares sold on the Calgary stock market for as low as two cents.

Over the next three years, Bre-X's estimate of the amount of gold on the site grew to 71 million ounces - worth US$25 billion at prevailing gold prices. In May of 1996 the value of Bre-X shares reached Can$201.75 (US$145.26), after which they were split at ten for one. A few months later, the split shares peaked at over $28.00.

As the estimates grew and share prices expanded, major players in Canadian mining and leading Canadian financial institutions were drawn into the frenzy. Bre-X was endorsed by mining analysts from the ten largest brokerage firms in Canada including Nesbitt Burns, owned by Canada's third largest bank - the Bank of Montreal. Brokerage firms receive a commission for acting as an intermediary in the purchase and sale of shares and profits from financing the purchase of shares. Trading in the Bre-X shares resulted in an estimated $116 million windfall for Canadian brokerage firms.

In April of last year, Canada's premier stock exchange in Toronto allowed Bre-X onto the exchange. Eight months later, the TSE waived its one-year listing requirement and added Bre-X to its TSE 300 index of top companies. Immediately, millions of dollars began to pour into Bre-X shares from Canadian pension funds, as most of them automatically invest in the companies on the TSE 300 index. Many mutual funds also tie their investments to the TSE 300 and began to buy Bre-X.

The Indonesian rulers decided to get in on the act. Early this year, they forced a deal that reduced the Bre-X share of the Busang mine to 45 percent, gave Indonesian investors a 40 percent share, and provided 15 percent for the U.S. resource giant Freeport-McMoRan Copper & Gold Inc.

Until Freeport became involved, the billions of dollars in trading on Bre-X shares was based solely on the word of Bre-X regarding the amount of gold in the Busang deposit. Then on March 26 the bubble burst. Freeport announced that its own tests indicated almost no gold at the Busang site.

The next day Bre-X shares dropped from $15.50 to $2.69 a share. Bre-X's paper value dropped $2.8 billion. This helped to propel the TSE 300 index to a massive 191 point drop - the largest one-day fall since the 1987 stock market crash.

The final nail in the Bre-X coffin was driven in May 4 when Strathcona confirmed that virtually no gold existed at the Busang site. The following morning Bre-X shares fell from $3.23 to $0.085. Many wealthy investors lost millions and some were ruined in the Bre-X collapse, including one Vancouver area investor who killed himself after losing a reported $3 million.

The fallout also hit at the savings and pension plans of tens of thousands of working people. The Ontario Teachers' Pension Plan suffered a loss of $100 million, while the Ontario Municipal Employees Retirement Board lost $45 million. The Caisse de depot, which manages the pension funds of public sector workers in Quebec, lost $70 million. The Globe and Mail reported that "a full tally undoubtedly would include almost every public pension plan in the country and many large private ones."

For that sector of the Canadian ruling class involved in mining, the Bre-X scandal has been a disaster. Mining is one of the most important means by which Canadian imperialism profits from the labor of toilers in the semi-colonial world. Canadian imperialism has invested $6.4 billion in Indonesia, most of it in oil, gas, and mining. The Bre-X fiasco has spooked investors and dried up the ability of the approximately 100 Canadian junior mining companies operating in Indonesia to raise new capital for further exploration.

On the day following the Bre-X collapse, major U.S. dailies, including the Wall Street Journal, the New York Times, and the Washington Post, used the scandal to warn of the risks of investing in Canada. The New York Times listed a number of Canadian mining ventures that have failed under suspicious circumstances, causing the loss of millions of dollars for U.S. investors.

Major figures within the Canadian ruling class have responded by downplaying the Bre-X fiasco. Peter Munk, the chair of Barrick Gold, called Bre-X a "single deviant member" among Canadian mining companies. Prime Minister Jean Chrétien dismissed the event, saying, "There's always unfortunately bad apples in any sector."

Mike Barker is a member of the Hospital Employees Union.  
 
 
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