EDITORIAL AND OPINION — The best defence is a strong offence — Teflon `victims’

After the Bre-X Minerals salting scandal was exposed, mining professionals worried aloud that they might be tarred with the same brush and that investors, once-burned, would be twice shy of all companies involved in mineral exploration.

Industry associations expressed similar sentiments, particularly as disgruntled shareholders and their lawyers began launching class-Action suits related to the Bre-X fiasco. It was pointed out, however, that Bre-X was a case of one bad apple tainting a barrel of otherwise good ones. We did not hesitate to echo that sentiment, for we know that the mining industry has much to be proud of and more than its share of honest, hard-working individuals.

But no sooner were those words said than investor confidence was weakened as a result of further revelations: first, that samples from Delgratia Mining’s Josh property in Nevada were salted; and second, that results from a Ghanian property of Golden Rule Resources had been enhanced by either salting or selective sampling (perhaps, the company speculated, the work of an over-enthusiastic geologist).

So far, management of each of these companies has managed to dodge responsibility. As for Bre-X, President David Walsh says he is the “victim” of a massive fraud, while his former chief of exploration, John Felderhof, raised himself from a beach chair in the Grand Caymans to state that he, too, is in the dark as to how a salting scam of such proportion could have occurred.

Delgratia President Charles Ager, meanwhile, sidestepped the Josh property salting scandal by stating that his company was “the victim of data falsification.”

Ager’s claim is bound to be challenged by the class-Action lawsuit launched against him, the company and other insiders by a group of unhappy shareholders. The suit alleges that Ager and others made “false and misleading” disclosures related to the Nevada property — including a statement (later retracted) that it hosted 5 million oz. gold — and then boosted their interest in the project by committing US$15 million and 4 million shares (a package then worth US$100 million) to a company owned by Ager’s wife and children. Furthermore, exploration and development work was carried out (for a fee) by Cactus Mining, a company wholly owned by Ager.

The suit also alleges that the defendants “knew but failed to disclose” that the assay results were conducted not by a certified lab but by an unlicensed assayer, “personally selected” by Ager, who had been previously convicted of securities fraud. Delgratia also had its own sample preparation facilities, which included a rather mysterious assembly line of crock pots. The salting scandal cost Delgratia its public listing on NASDAQ, though the company intends to appeal the decision.

Meanwhile, the embattled president of Naxos Resources, Jimmy John, has turned the tables in order to prevent the Alberta Stock Exchange (ASE) from proceeding with a de-listing hearing later this month. This hearing follows a damning report from an independent consultant who was unable to confirm Naxos’s previously reported gold results from a California property.

Believing the best defence is a strong offence, Naxos and 120 shareholders filed a $200-Million-plus class-Action lawsuit against the ASE — and against the independent consultant, who is alleged to have “fraudulently or negligently misrepresented” that the assay results reported by Naxos were “caused by contamination or deliberate enrichment.”

North American securities regulators face plenty of problems related to the recent spate of salting scams. If investor confidence is to be restored, they will need to send out a strong message that there are serious consequences for those who engage in this deceptive and damaging practice.