The Six Billion Dollar Gold Scam: 4. Prospector of the year
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From the BBC's investigations podcast, World of Secrets, here's the fourth episode of our guest season, the $6 billion gold scam from the BBC World Service and CBC. Over to Suzanne Wilton. In early 1997, a fax arrived at Briex's Jakarta office for John Felderhoff.

It was from Michael de Guzman, 854 miles away at the exploration site in Busan. It read, The fire at the Busan camp destroyed the survey office, an administrative office, and a break room. Numerous files were lost, including drill logs and maps.

One of the investment bankers who was really trying very hard to be involved with all of this had arranged to visit the site and wanted to inspect the core samples. And there was a mysterious fire that shut everything down for a while. Paul Murphy, the Indonesian vice president for Freeport, Briex's new partner, never really questioned how the fire got started. There was so much going on at the time about the Briex frenzy that that was kind of lost in the shuffle.

Officially, Briex blamed the fire on an electrical short circuit caused by a power surge. But John Felderhoff circulated another rumor. The fire could in fact be someone playing dirty tricks. Earlier that evening, he'd spotted a helicopter circling overhead.

No one ever got to the bottom of how the fire started. But those lost files, the records from all of Briex's gold drilling, there weren't any copies. They were gone forever.

It was amidst that chaos that Freeport sent a small team to the site in East Kalimantan. Their job was to prove once and for all whether Briex's gold really did exist.

I'm Suzanne Wilton, and from the BBC World Service and CBC, this is the $6 billion gold scam. A story about the lengths people will go to in pursuit of getting rich and how greed can obscure the truth. This is Episode 4, Prospector of the Year.

Geologists Joe McPherson and Dave Potter were part of the Freeport team sent to Busang. Their plan was to do their own drilling to verify Briex's findings. First, they flew into the nearby city of Balikpapan to meet with Felderhoff and de Guzman.

Joe McPherson remembers that meeting. So we met them in the hotel that night. We were down in the bar and having a couple of drinks and Dave Potter had to get up and go back up to his room. And we were, you know, it was all very cordial at the time. Everybody was laughing and joking and having a great time. And Potter was gone for a long time. And he came back down. He sat down again beside me and said, well, what's going on? He said, well, somebody broke into my room.

Really, Dave? Yeah. He said it was really weird because they didn't... I had a pile of money sitting on the desk. They never took it. But someone had broken into his room. Was he concerned? Not at the time. Retrospectively, yes. Because we realized that they were probably looking for notes or something and trying to figure out what our plan was. And they being the unknown, I don't know who exactly, okay? But clearly someone broke in. And it wasn't anybody that were down there. So it wasn't Deguzen, it wasn't Felderhoff. What do you think that...

they could have been looking for? Well, they obviously weren't looking for money because Dave had, I think, 10 or 12 million rupees sitting on the table there in plain sight and it wasn't touched. He said he thought his notebook had been looked through. And how could they use that information or what might that be important for? Well, perhaps it would give them an idea of what our plans were, where we would go and what part of the property we'd want to visit if we wanted to look at drill core, if we were going to make a deep dive on the labs. That was all about all in Dave's notes.

to some degree. And for Noy David, it would have just been a point for him, you know, like, we're going to need to do this, this, this, and this. Unsettling, for sure. But they shook it off and carried on to the Busang site. While flying over the jungle canopy and into the camp, Joe McPherson remembers getting a feel for the place once again. We flew in in a helicopter and landed at the helipad and there were buildings there where some of the core was theoretically stored.

Core are small cylindrical samples taken from a mine to double check the quality and amount of gold. It was quite a large camp, a lot of dormitory type thing, a nice big canteen for people to eat. And the main house was where Felderhof and de Guzman lived and it had a porch and it would look out over the Briecks area down in the valley. And there was lots of chairs and couches and stuff. They would entertain all the visitors there.

John Felderhoff and Michael de Guzman had made their own way from the hotel in Ballackpappen to the camp and met them on the veranda. So of course out came the beer again and it turned into quite a session that afternoon. We sat there with them probably for about three hours. Felderhoff was very ebullient, okay, very excited. He was running off showing us pictures of his new Ferrari, his new red Ferrari and his beautiful house and somewhere in the Hamptons, I don't know where it was exactly, but

He was very excited to have us there. And as the beer started to flow a little bit more, people were yakking more and more. De Guzman was very quiet through most of this, I must say. I noted that to Colin, who was sitting beside me. Colin Jones was another member of the team from Freeport who joined McPherson and Potter at the site. Later in that afternoon, Colin, myself, and Felderhoff got into a bit of a conversation and talked.

Felderhoff came out of the blue and said, what would you do if you drilled holes and didn't get any gold? And Colin, of course, at that point, we were very excited. And we said, ah, well, it must have been a mistake at the lab. We kind of laughed it off. Felderhoff asked us. Felderhoff asked us.

And at this point, you hadn't done any of the drills? No, no, we were just there first day. We hadn't even unpacked our bags. And did that trigger you at all? We wondered about why he would ask that. But again, we kind of said, oh, no, it's probably, you know, I'd have to check the lab. Maybe there was a screw-up in the lab, because that does happen.

But it was just a very, very strange question to ask. We both commented to each other later that, yeah, this was kind of weird. Dave had notified John and De Guzman that we were going to do twin holes. Now, a twin hole is basically, if this is their drill hole, we would come in and drill another hole ourselves right beside it in order to check. Because there was no core from the original drill hole, we really had no choice.

And that's a commonly accepted procedure for any due diligence. You know, you always twin a number of representative holds. And did they seem resistant to that idea? No, not resistant, but just not super cooperative either. The jungle is surprisingly quiet, believe it or not. The only bad part of the jungle is it's so hot. Oh, it's hot. You walk outside and you're just covered in sweat.

And so you're constantly wet. And everything you touch seems to have a thorn. And the mosquitoes are unbelievable.

This was Dave Potter's second trip to Busan. As Freeport's head geologist, he'd gone out there a few weeks before the deal was made to check out the site. Not drilling, just to look around. The camp was on the side of a hill, kind of went down into a valley, and they had a nice camp. See, that's the other thing. Exploration geologists like to get out far, far away from anybody because nobody comes to see what you're doing. ♪

Dave Potter had a lot of geological experience, and he was skeptical about the amount of gold in Busan. But he was prepared to be proved wrong. You know, I went out with a clean slate. I thought, OK, Freeport's got involved in this thing. I'm a little leery, but OK, they're going to be our partners. Let's, you know, fold them into the embrace here and tried real hard to make them part of the team.

our team. I tried real hard to make us part of their team. I even had some hats made that were half-half Bre-X Freeport, FCX. Just try and get everybody to be part of it. On Dave Potter's first trip, he'd found a well-run and busy camp. But this visit was different. How do I explain this? It just got kind of quiet. Before, it was a lot of activity, a lot of people running around.

And then when we got out there to do the work, it kind of got quiet. There wasn't quite as many of the higher-ups around, and you had to look for the main guys. They were hard to find. And I started talking to some of the young geologists out there. Gave us a lot of information, a lot of help. And then, you know, you start getting this, it sounds silly, but you get kind of a creepy feeling. Something just isn't right.

That's when things started to get interesting for us. And then, a red flag. I wanted to look at some of the core that was in the sheds there. I was a little disappointed because there wasn't a lot of core. I was somewhat surprised that they didn't have more examples of what they were drilling because they just drilled thousands of meters of rock, and I was surprised that there wasn't more core available to look at.

Standard practice is that you keep 50% of the core drilled. The U.S. Securities Exchange Commission, the SEC, who helps prevent fraud, require it in case there's ever a question over results. Normally you keep what we would call a skeleton, or maybe an 8 to 10-inch piece of whole core. And the surprising thing with what they were doing is that they ground all of it up to assay.

which is not normal practice. Assing is the process of determining the purity of gold in a sample. I questioned that a little bit. I had been told by both the Guzman and some of the geologists is that the gold was so touchy that they had to ensure that they got all of it by grinding up the entire core. But they assured me it was okay because they took pictures and

describe the rock. And I was, again, I was a little hesitant about that because you run into problems with the SEC if you do that. Dave Potter went to visit the lab in the city of Samarinda, 200 miles or 300 kilometers through dense jungle from Busang. This is where BRIACs were sending the crushed rock samples to be tested for gold.

What he found there made him even more concerned. The guy at the lab, good lab man, good honest man, ran a good business, and he commented to me, he said, you know, it's kind of funny here, we get these cores in plastic bags, and when we dump it into the crusher to be crushed up, he said they make us wash the bags out. And I started talking to him about that,

Well, they grind up all the core. And he said, yeah. And he said, I don't know why they want to do that. And we started talking back and forth. And that feeling got worse, that tense feeling, because I think the guy at the lab was trying to tell me that he thought something was funny, too. But he didn't want to break up the client confidentiality thing that he had with REACS. And he didn't want to be pointing fingers. But he was a little uneasy about the whole thing as well.

kind of looked at me and said, you know, maybe you want to check this, Dave. Joe McPherson was also running into difficulties in other areas. The team that was looking after data management, I wouldn't say they were resisting my questions, but they weren't openly, you know, saying, well, here it is, kind of thing.

So that made me start to wonder, well, why aren't they just giving this to me? And when I say this, I mean drill geology logs, laboratory analytical results, geotechnical portions of the geology, anything that had to do with the geology and understanding the gold deposit. And then another red flag. Then we went out to the field with, I think it was Colin, myself, Potter, Felderhoff for sure, and I think de Guzman.

In the main zone, the southeast zone, they had basically cleared off all the trees and exposed the outcropping rocks and had done some sampling, which you normally do in any kind of an exploration project. We asked John Felderhoff, well, John, so what grades did you get out of these trenches? And John says, oh, we didn't get any gold, but we got lots of silver. I thought, okay. Now, geology 101 here. Gold is basically what we call immobile. It doesn't move very far. Silver will.

Silver will actually move over time as a result of weathering processes. So if anything, you would expect the gold to still be present in those trenches. And Colin and I looked at each other, and then that light started to go on at that point. And we said, this doesn't make any sense. So by this time, you're starting to get a pretty good inkling that something's not right here. Yeah, something's not right.

Joe McPherson and Colin Jones knew that if there was any gold, they should have seen some evidence of it in the trenches. The Freeport team persevered with their due diligence. To check Briex's results, Dave Potter made every effort to match where and how he was drilling so that his drill core would be identical to Briex's. I like to call drill rigs a geologist's lie detector.

because do you really think we know what's going on 300 meters below the ground? We like to think we do, and we get all excited about it, but at the end of the day, it's that drill rig that tells you whether you have it or not. And our drill rigs, the drill rigs, and we used the same drill rigs that the Breax people were using. They drilled those holes. We were getting the right rocks. Same holes, same rocks, different results.

Dave Potter sent the drilled core to the same lab in Samarinda used by Briex. The first results were not good. No traces of gold were found. We started going, uh-oh, what's going on here? So we changed the fuel of the drill hole locations. We actually took a drill and set it like full, I think about three or four feet away from an existing hole and drilled right beside it.

to make sure that we hadn't missed something by doing a scissor hole. That one came back dead. And while all this was going on, things got harder and harder to get done there at the camp. People started disappearing. De Guzman disappeared. After these poor results from Samarinda, Dave Potter sent the final drill samples to Freeport's own assay lab in Jakarta.

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That includes our introductory five-piece system, free gifts, free shipping, and a 60-day money-back guarantee. All that available at MeaningfulBeauty.com. As the drill results were being tested back in Jakarta, the 1997 Prospectors and Developers Association Convention was being held back in Canada. This is the mining industry's annual gathering, and John Felderhoff was due to receive the Prospector of the Year Award.

The CEO of BRIACS, David Walsh, joined John Felderhoff and Michael de Guzman, plus his group of Filipino geologists who'd flown in from Busan. The BRIACS-3 should have been feeling bullish.

Briex's Vice President Brian Coates remembers de Guzman and Felderhoff introducing their gold discovery. This year, they were being crowned as kings. 1997 was more of coronation with the transaction that had occurred. So they were rock stars. That's the way I would describe it.

He and John were riding high, though, at that point. But, I mean, you know, again, they were rock stars. They had discovered they were amongst their peers. They were heading out of the park right from day one. So pretty amazing. And that's why they had the status they had within a convention of explorers and promoters.

How colorful was Michael to Guzman? He had a Nora around him and Felderhoff and the rest of the team had sold it that this guy was really smart, high IQ, leave him in his bubble so that he can think about his whole aspect there. Don't disturb him. It's like a successful athlete. You live with their quirks because they're talented in certain things. So you say, you know, don't mess up the recipe.

Joe McPherson had also made his way out of the jungle and back to Canada to attend the conference.

He was anxiously awaiting the results from the last round of core samples and tried to remain professional. Walsh was there with all his sons and all the investors. It was a big deal. Everybody was, you know, back-slapping and congratulating each other and all that kind of stuff. And I was trying to stay in the background. They kept trying to drag me in. So I was there and, you know, I was kind of mixing with them, but, you know, trying to keep my distance as well because, you know, there's like $6 billion in the bank.

tag hanging out there on the chairs and that. So I just kept my distance. I was cordial. And I met with him a couple of times. One time I met de Guzman in the Royal York Hotel, which is the main meeting place. They have a mezzanine level and it's got a railing around it. I came out of the elevator one evening. I think it was Monday night. And there was de Guzman. He had his head down and he was leaning over the railing. He looked very unhappy.

So I went over to him. I said, Michael, what are you doing? If you know, right? He says, oh, yeah, yeah. I just got a lot on my mind. I said, OK. And then I walked away. I didn't hang around. On the Monday after chatting to de Guzman on the mezzanine, Joe McPherson decided to go back to his hotel room. I guess around 530, I got a call from Jakarta. And it was a geologist who looks after all the analytical results there.

She's a very smart lady, but she's very timid. And she's on the phone. She says, Pa Joe, Pa Joe, I'm really sorry. I said, why are you really sorry? Well, the assets came back and there's no gold. So I'm sitting on the side of my bed in the room with the Royal York. And I'm holding a six billion dollar secret in my hand. I had to go downstairs. I actually had to go downstairs and get the fax because back in those days was fax. Right. So I got the fax and I looked at it and I went, holy shit.

And then I said, I don't think I'm going back down to the prospector of the year award. So I bailed. Do you remember how you felt in that moment? I was shocked. I was kind of, yeah, I was in a state of shock. But there you are in Toronto. John Felderhoff is about to give a speech as prospector of the year. And you're holding the secret. Yeah, I had the secret at that point. Did you tell anyone? No, I couldn't.

You know how many people's lives I would have ruined at that time? You know, it was not good. I was in a very, very difficult position. But I talked to Dan and I said, look, I'm not going to say another word. I'm getting the hell out of here. And he said, yeah, that's right. Just get out. Go.

Dave Potter was the first person to receive these negative results from Freeport's lab. And while Joe was reeling from the news, Dave was already on a flight from Busan to Jakarta. Well, the first person I had to talk to was Jim Bob. And I got to tell you, that was one of the hardest telephone calls I've ever made in my life. I had to call him up and say,

There was always the potential that this was real and that we were sitting on one of the largest gold deposits that the world had ever found. And Freeport was involved for like a pretty good percentage of it. And Jim Bob was, I think he was hoping against hope that it was real. I agonized for about an hour before I finally picked the phone up that night. It was about two o'clock in the morning and called him up and said, well, Jim Bob, there's nothing there.

And I got to give the man credit. He just said, are you sure, Potter? And I said, yes, sir, I am sure. And he hung up. That was it. After that call, Jim Bob went looking for answers. He started asking questions, which would be kind of like having a five-ton boulder drop on your head to have Jim Bob talk to you. So...

Freeport's reputation and his own was on the line, not to mention the lives of all the investors. He needed to speak to Briex's CEO, David Walsh. So we picked up the phone. Over at the prospector's convention, a litigation lawyer named Alan Lenser happened to be in David Walsh's hotel room with John Felderhoff when the call came in from a furious Jim Bob Moffitt.

Anyway, so while we're sitting there, the most astonishing thing happens. The phone rings and David picks it up because it's his suite. And I can only hear one side of the conversation, but it's Jim Bob Moffat was calling. And from what I could ascertain, he was telling David Freeport McMorrin, which was his company,

had drilled some holes adjacent to the holes that Briex had drilled and they'd recovered core, they'd taken the core to the assay lab and there was no gold. And it was David's reaction which really stunned me because he said, "What are you talking about? Of course this is impossible."

In the Brie X tapes, Jim Bob Moffitt recalls this phone call with David Walsh to Richard Behar, who was writing an article for Fortune magazine. And then you called Brie X. You spoke to David. Yeah. Did you speak to him right away? Yeah, I guess. I wouldn't sit around with something like that. No, I know, but... See, the problem, Richard, was... But you said you couldn't get anyone out there from Brie X. Yeah, well, guess what? Guess where they all were? The night after the damn phone call.

all of their senior people were in toronto because feldenhoff and david walsh were receiving the prospect of the year award even the guzman was there i spoke to them that week you see yeah and so they left they left the job site and left all these young filipinos out there we had nobody in charge and we're out there sitting on this goddamn powder keg and i told david i said david uh i uh we've got a problem here now i'm talking to a guy who starts the conversation by me saying look i don't know anybody about all this technical stuff i'm just a money raiser

And Ferdinand just keeps saying, "You guys must be confused." I said, "We may be confused. I'm not going to tell you anymore over the telephone. I'm asking you to get somebody out here who can go over this data with us so you can understand the problem." The conversation went on for a little while and David said, "We'll check this out right away." He said, "I'll get back to you." And put the phone down and turned to John and said, "John, where is de Guzman? Where is he? Get him back here as fast as you can."

Then it was Dave Potter's turn to speak with Walsh and Felderhoff. I called him up and wanted to talk to him and said, you guys, and this was the night they gave their acceptance speech for that award, which I thought was kind of ironic. I said, you guys need to get back out here and explain why we can't find any of the gold that you claim you have. His first comment was kind of a rude thing. The

He was caught up in the moment of the award, so he was riding the high at that point in time. He wasn't really focusing too much on what we were talking to him. He just said, that can't be, I don't believe it.

As Felderhoff walked to the award podium to the theme music of Raiders of the Lost Ark, in front of a room full of promoters, investors and developers, all oblivious to the drama unfolding, Michael de Guzman was found partying hard in one of Toronto's strip joints.

Walsh and Felderhoff wasted no time instructing de Guzman that he had to go back to Busang to meet with Dave Potter and answer why Freeport couldn't find any gold.

So confident of Boosang's gold, Felderhoff and Walsh tried to dismiss those early results. They never entirely trusted Freeport anyway, and they suspected they'd try to drive down the price of Briex by discrediting their sampling. Over in Boosang, Dave Potter had just blown up a $6 billion company, and he was anxiously waiting.

Waiting for De Guzman to return. Next time on the $6 billion gold scam. Tempers are getting frayed. I was so pissed off I could eat dirt. And the net begins to close around Michael De Guzman. De Guzman was caught like a rat in a trap.

The $6 billion gold scam is produced by BBC Scotland Productions for the BBC World Service and CBC. I'm Suzanne Wilton. Our lead producer is Kate Bissell. Producers, Anna Miles, Mark Rickards. Story consultant, Jack Kibble-White. Music and sound design by Hannes Brown. Additional sound design and audio mix by Joel Cox. Executive editor, Heather Kane-Darling.

At CBC, Veronica Simmons and Willow Smith are senior producers. Chris Oak is executive producer. Cecil Fernandez is executive producer. And Arif Noorani is the director. At the BBC World Service, Anne Dixie is senior podcast producer. And John Manel is the podcast commissioning editor. Thanks for listening. ♪

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