Bre-X’s credibility undermined as suspicions mount — Assay lab’s results are only as good as the samples it receives

A month ago, it was reputed to be sitting on the largest gold find of the century, but the ground is now shaking beneath Bre-X Minerals (BXM-T), operator of the Busang gold project in eastern Kalimantan, Indonesia.

Due diligence investigations by Freeport McMoRan Copper & Gold (FCX-N) and a technical audit by respected consulting firm Strathcona Mineral Services have uncovered evidence that the drill program at the Busang deposit may be invalid and that the deposit may have substantially less gold than had been estimated — that, in the worst case, it may have no economic mineralization at all.

Freeport, which had started its field work by drilling four twin holes — holes collared about 1.5 metres from earlier Bre-X holes, and aimed in the same orientation — found that core samples carried “insignificant” concentrations of gold; over lengths comparable to mineralized intersections in the Bre-X holes, assays never exceeded 0.06 gram per tonne.

When the results were made public on March 27, Bre-X shares fell a drastic $13 on the Toronto Stock Exchange and speculation that Bre-X was not an elephant but, rather, a giant pillar of salt, began to take over the market.

Bre-X disclosed on March 26 that it had been advised by Strathcona Mineral Services, which it had retained in the previous week, that “there appears to be a strong possibility that the potential gold resources has been overstated, because of invalid samples and assaying of those samples” (T.N.M., March 31/97). Freeport added its own release, saying analyses of cores from its confirmatory holes had, up to that time, indicated “insignificant amounts of gold.”

Bre-X’s mineral resource consultants, Kilborn SNC Lavalin, issued a statement clarifying that it had been retained only to perform resource calculations based on data supplied by Bre-X, and that the calculations depended “on the validity of samples and assaying.” That an established mining consultancy such as Kilborn felt obliged to issue such a clarification underscored the unease that many were beginning to feel about Busang.

The news shocked the market, but with trading in Bre-X halted the funds could do little but sell other speculative junior exploration stocks and break open a box of red pens. Most funds carrying substantial Bre-X positions wrote the stock down to $2 per share, a valuation that was instantly picked up by investors who began to trade in the “grey market” off the exchanges.

The following day (the last before the TSE closed for the long weekend), officials at the exchange instructed Bre-X to issue a further release, disclosing Freeport’s drill results. Bre-X complied but protested that if the TSE reopened trading, shareholders might suffer large losses due to incomplete information. David Walsh, Bre-X’s president, transmitted a letter to Rowland Fleming, president of the TSE, insisting that the company would have additional information available by the time the exchange reopened on March 31.

The TSE refused to budge, saying all material information then available had been released. The exchange then lifted its halt on trading in Bre-X, and the roller-coaster began its descent. Within minutes, Bre-X shares had plummeted to the $2 range, ultimately closing at $2.50.

Bre-X persuaded the TSE to issue another halt order on the weekend, promising that “new material information” — the results of a report on a check-assay program by Kilborn SNC Lavalin — would be released to the market before trading began on the following Monday. The breathing space gained by Bre-X was short, as the TSE ruled that trading would resume on April 1, disclosure or no disclosure.

The TSE allowed trading in Bre-X to resume at 10:30 a.m. Toronto time on April 1; within half an hour, the trade orders had swamped the exchange’s computer system, forcing the TSE to call another halt. Bre-X’s shares rebounded to $3.85, as gamblers and bargain-hunters entered the arena.

Trading continued in Montreal and Calgary, and on the National Association of Securities Dealers Automated Quotation (NASDAQ), which traded about 35 million Bre-X shares among them.

Bre-X released a short statement describing the Kilborn report as “an extensive document which requires a more thorough review,” and announced that it would wait for the results of Strathcona’s technical audit before releasing any further details.

Bre-X trades shut the TSE down again on April 2; by presstime, it was apparent that Bre-X would have its trading delay, regardless of what the TSE might say, and that it would disclose the information in the Kilborn report in its own time.

The events have also spawned class action suits on behalf of Bre-X shareholders, claiming that Bre-X made misleading statements about the size and grade of Busang. At least five actions have now been lodged in courts in the U.S., and leave to sue is being sought in Quebec. Some of the actions name affiliated companies, such as Bresea Resources (bsr-m), as well.

Cyanide leach

Some press reports, and some of Bre-X’s statements, have concentrated on the distinction between fire-assay and cyanide-leach analyses, but the controversy over assaying techniques does not address Freeport’s results. Its 7-hole confirmatory drill program also used the cyanide-leach extraction, backing up its numbers with fire assay. Both techniques produced similar results from the Freeport samples — gold concentrations that averaged 0.06 gram or less over intervals where Bre-X found concentrations of 1.3 to 5.7 grams per tonne.

Typical fire assay uses high temperatures and fluxing agents to produce a metal bead; the bead is then weighed to determine the gold content directly, or dissolved to allow the concentration of gold in the sample to be determined by instrumental analysis.

The cyanide-leach technique, while not a conventional fire assay, is still an accepted method; it bypasses the fire-assay stage by dissolving the gold directly from the sample into a cyanide solution. Then standard instrumental methods — absorption or emission spectrometry — determine the gold concentration in the cyanide leachate. From there, the analyst can calculate the concentration of gold in the rock sample.

That Bre-X has drawn attention to the assaying issue is unusual, because in a release in March 1996, when questions about the analytical techniques arose, the company took pains to point out that fire-assay checks on the cyanide-leach results had, on average, “returned grades 5% to 7% higher than those reported employing the cyanide-leach method.”

Walsh’s letter to the TSE stated that Busang was “a complex orebody [sic] with an equally complicated assay process,” and went on to quote a brief by Bre-X’s vice-chairman, John Felderhof, on the assay techniques that had been developed to evaluate samples from Busang. Felderhof’s brief said that even before Bre-X acquired the property, workers had already found that fire-assay results were not reproducible — that duplicate samples could have a relative error as great as 100%. (For example, if one assay returned a value of 1 gram per tonne, the other might return as much as 2 grams or as little as zero.) Problems with reproducibility are not unusual in sampling for gold. Because it tends to occur in trace amounts, as native metal or as an alloy with silver, gold in rocks or soils is usually unevenly distributed in a sample.

There is plenty of rock, only a little gold, and the gold is all contained in a small number of grains. A single 30-gram fire-assay sample may miss all the gold, whereas a larger sample will find it.

This sampling problem is analogous to the problems mine geologists encounter when performing grade control in vein-type gold deposits. Drill holes, like small samples, frequently underestimate the gold grade ultimately measured in bulk underground samples. The knowledge that the bulk samples provide more trustworthy numbers has led to the “drill for structure, drift for grade” practice common in underground mine operations.

Bre-X ultimately chose a cyanide leach on a 750-gram sample as the most reproducible assay. Contrary
to Walsh’s claims, it is not a “complicated assay process,” although it can be sensitive to conditions such as the temperature and acidity of the cyanide solution. Neither is there anything particularly complicated in crushing a 2-metre length of core. And the great virtue of cyanide-leach testing is that it can be done on large samples — often up to 2.5 kg.

George Duncan of Accurassay Laboratories in Kirkland Lake — a lab that has been a leading proponent of cyanide leach — points out that “at a grade of 0.05 oz. per ton, you’ve only got about three or four gold grains . . . [O]ne extra grain puts your grade up 20%, one missing puts it down 20%. It’s got nothing to do with whether fire assay is a good technique or not; it’s an excellent technique. But statistically you may be out in left field.” Felderhof’s brief recounted how Bre-X adopted cyanide-leach assaying following studies of the physical mineralogy of the Busang gold. The brief reported studies that found Busang gold grains were mainly between 100 and 400 microns (0.1 to 0.4 mm) in diameter. Later mineralogical examination by metallurgical consultants produced similar results.

That size is relatively coarse for gold grains, and the results differ from the evidence Felderhof and Bre-X geologists Jonathan Nassey and Cesar Puspos presented in a paper on the geology of the project area. In that report, the geologists said “gold dominantly occurs in free native form and as submicroscopic particles in pyrite-arsenopyrite and as a minor amount in electrum occluded in sphalerite.” Gold inclusions in the Busang sulphides — sulphides that are themselves fine-grained — would usually be less than a tenth the size of the sulphide grain, more likely 10 to 40 microns than 100 to 400. And gold assays are much more reproducible if the gold particles are smaller.

The argument over assay techniques sidesteps the more serious charge that the drill core is no longer available for cross-checking. Bre-X’s standard procedure — to retain a 20-cm length of intact core in each 2-metre interval, and to crush the rest for assaying and metallurgical testing — effectively eliminated the one chance for proving that the company’s numbers were genuinely reliable. If duplicate splits of the original diamond drill cores could be analyzed, positive results might clear Bre-X of the suspicion that now surrounds it.

Two defences have been offered for the destruction of the core. The first objection is that the 13-kg sample was necessary to provide sufficient material for a representative sample. But even if the gold particles were as coarse as Felderhof’s brief says they are, and large samples were needed, a 2-metre section of H-size core weighs about 14 kg. A split core, leaving a 7-kg sample for crushing, would be sufficient for cyanide leaching of nine samples, each one weighing 750 grams. It is the amount that is analyzed, not the amount that is crushed, that controls the reproducibility of gold samples.

The second objection was detailed in a report from brokerage house Lehman Brothers in 1996 — that “gold [at Busang] is about 90% free, loose and powder-like . . . [rock] is fractured, which makes for delicate cores. The more you split up and cut the core, the more gold falls off.” Weathered cores from the shallow parts of the drill holes are, indeed, fairly fragile, though it is debatable whether splitting would actually disturb gold anywhere but on the core surfaces. The unweathered core is generally competent — after all, it is strongly silicified — and is unlikely to have “loose” gold. Moreover, if splitting or sawing core causes gold to fall off, even more gold should be lost in the process of diamond drilling, which is far more mechanically disruptive than either splitting or sawing.

The other serious flaw in the Bre-X sampling methodology is the on-site crushing, which leaves the company open to the charge that tampering could have taken place. Freeport’s report that there were “visual differences” between its own samples and Bre-X’s imply that Freeport is worried about tampering, because it is hard to know how else the gold might differ.

The Bre-X samples have a line of custody that leads from the drill site to a sample preparation facility on the property, supervised by site manager-metallurgist Jerome Alo. Bre-X’s practice was to retain a 20-cm core specimen from each 2-metre length, then crush the remaining core and roll or mix the crushed material to render it as homogeneous as possible. It is not definitely known whether Bre-X then divided out a 750-gram portion of crushed core that was sent for assaying, and retained the rest, or whether the entire 13-kg sample was sent out and a 750-gram portion taken at the lab.

But once the lab had its 750-gram portion, the sample would be leached with a dilute cyanide solution, typically while being rolled in a sealed bottle for 24 hours. The lab would then analyze the leachate solution by spectrometry.

Indo Assay Laboratories in Balikpapan, Indonesia, where the bulk of Bre-X’s samples were assayed, appears to be in the clear. The lab is used by several major companies active in Indonesia, including Newmont, RTZ-CRA and Freeport.

Check analyses sent by Bre-X to other laboratories were consistent with duplicates analyzed at Indo Assay. It appears that the lab’s figures are as good as the samples it received.

So if tampering took place, where could it have happened? Intact core is notoriously difficult, though not impossible, to salt with gold; it is far easier to tamper with samples that have been crushed. Small amounts of gold can be mixed in when the sample is being crushed or homogenized; for duplicate samples to match, the interference would have to happen before the 750-gram portion was divided off. To obtain a 2.5-gram-per-tonne assay from a 13-kg sample would require 32.5 mg of gold, or the equivalent amount of gold in a concentrate. To put it another way, a troy ounce of gold (31.1 grams) could salt about 950 samples, each weighing 13 kg.

It is not hard to get your hands on gold in Indonesia. Small-scale independent miners — the equivalent of the Guyanese porknockers and the Brazilian garimpeiros — have been working the rivers of Borneo since the days of missionaries and river pirates, and will deal gold for cash. There are also a number of active commercial placer operations.

Placer gold purchased from the small-scale miners, or a heavy concentrate from a placer dredge, would be easy to buy and hide, and would typically be coarse-grained (0.1 to 2 mm). Material of that sort could easily be distributed into the samples around the time of the crushing phase. And as long as it was done before the 750-gram portion was divided out, any later check-assays on the crushed material would show results similar to the original assay.

Australian metallurgical consulting firm Normet noted, in a July 1996 report to Bre-X, that the gold in samples from Busang was mainly 100 to 400 microns (0.1 to 0.4 mm) across, and that “gold particle shapes were mostly rounded with beaded outlines.” The head grades were typical of Busang: 2.5 to 4.4 grams gold per tonne.

The description of the shapes is consistent with a placer source; gold from lodes is most often described as “delicate” or “wiry” in shape, and advanced rounding is often taken as evidence that the gold has been abraded — as would happen in erosion and deposition of a placer gold, or in the milling of gold grains in a glacial till.

Normet also tested gravity concentration on the Busang material, finding that 91% of the gold could be recovered in a Knelson concentrator. Such high recoveries in a simple gravity circuit are unusual in a hard-rock gold environment.

Some observers have suggested that the stories now swirling around Bre-X originate with companies that are trying to drive down the price of the company’s stock, presumably to ease the pain of a takeover bid. While it would be naive to pretend that dirty tricks do not happen in the mining industry, it is fairly clear that Bre-X’s problems extend beyond any one company telling tales out of school. It was Bre-X’s o
wn consultant, Strathcona, that delivered a report drawing the company’s attention to “invalid samples.”

One analyst, Michael Fowler of Levesque Beaubien Geoffrion, suspended his rating of Bre-X but still suggested that Freeport might have sampled the cores incorrectly, or that some third party that wished to discredit Bre-X might have found a way to replace Freeport’s samples with barren rock. How a fraud artist would be able to obtain sufficient drill core to replace all Freeport’s samples is not clear. Nor is it clear how he would manage to crush the drill core and substitute the barren material.

Similarly, analyst Egizio Bianchini of Nesbitt Burns theorized as late as March 25 that Freeport could be getting negative results as a result of an “assay discrepancy,” having failed to seek Bre-X’s advice on sampling and assaying. As it is now clear that both Freeport and Strathcona have turned up negative results, the exculpatory theories appear to be falling one by one.