Bre-X Minerals Ltd. was a small Canadian mining company that made a big announcement in 1995. Geologists had discovered gold on a site Bre-X owned near Busang, Indonesia. Not just a little gold, either—at least 30 million ounces, possibly as much as 200 million ounces. Given the high prices of gold, such a deposit would have been worth tens of billions of dollars. Bre-X’s stock price shot through the roof; shares went from being valued at a few cents to over $280 Canadian.
In fact, the deposit seemed so rich and so large that a small company like Bre-X could not possibly handle it all without some help. In 1997, the Indonesian government convinced Bre-X to take on an American firm as a partner to help extract the gold. When this firm, Freeport-McMoRan, started sampling the soil at the deposit site as part of its due diligence, it reached a confusing conclusion: there wasn’t any gold in the soil. Subsequent examinations by independent auditors reached the same conclusion. The “natural”?? gold that in the original samples Bre-X had taken was mostly river gold from other regions or shavings off of gold jewelry.
Although the company’s market cap had climbed to $4.4 billion, this report quickly destroyed Bre-X’s value. Share prices dropped 97 percent in a day following the announcement, the company was soon removed from the Toronto Stock Exchange and Nasdaq, and Bre-X quickly went bankrupt. Amazingly, no one ended up in jail from this scam, but you should still probably be wary if anyone offers to sell you an enormous gold mine on Borneo.