February 18, 2013
Managerial Organization Assignment
Bre-X, a tiny mining company that was based out of Calgary, Alberta, Canada, claimed to have discovered extensive gold deposits, near Borneo, in Busang, Indonesia. This sent the company’s stock skyrocketing from a penny stock, trading under $1, all the way up to $300 (CAD) per share (Business Pundit, 2009). The gold scandal was perpetrated by three key individuals from Bre-X; David Walsh (CEO), John Felderhof (a Dutch geologist and would become vice-chairman of Bre-X minerals) and Michael de Guzman (who would become Bre-X’s chief geologist). Core drilling in the Indonesian mine started in 1994 and the company struck gold, driving the company’s share price up 1000% and brought in a lot of foreign investors to the company in 1996 with talks of the potential for these mines. The talk in the mining industry was that the Busang mines continued to produce large quantities of gold and the expectations continued to rise. The company initially expected to produce 1.8 million ounces, but that number continued to grow to the point where the company was predicting the in the ballpark of 200 million ounces that would be produced with a going rate of $500USD per ounce (Alden, n.d.). Bre-X was placing gold dust into the core samples that were being pulled from the mine to give the illusion that they were of actual value than just piles of worthless rocks; this process is known as “salting (Schneider, 1997).” A series of events began to unravel the scheme that Bre-X was producing fictitious gold discoveries in the Busang mines. Larger firms expressed interest in taking over the smaller Bre-X stating that a small company like this did not have the capacity or resources to manage mines of this magnitude. There were a number of potential partnerships that were discussed by Bre-X and other mining companies. The Indonesian government became...