A firsthand account of the $6 billion 1997 Bre-X Minerals gold fraud by Warren Irwin, Founder and Chief Investment Officer at Rosseau Asset Management Ltd. Rosseau was the top ranked hedge fund in the world in 2016 of 4,099 hedge funds tracked by BarclayHedge. Irwin made $millions long and short Bre-X, and was one of a few investors to attend a site visit to Bre-X's Indonesian property before the biggest scam in the history of the gold sector unravelled... 

Bre-X – Of Course I Know Where Michael de Guzman Is!

Warren Irwin

by Warren Irwin

May 2017

The story of Bre-X was reborn after 20 years with the release of the movie “Gold” starring Matthew McConaughey in February 2017. The Bre-X fraud was brought to an end by a mining consultant, Graham Farquharson of Strathcona Mineral Services, who released on May 4, 1997 that its independent audit concluded a massive campaign of tampering and fraud without precedent in the history of mining. The question remains to this day, what really happened to geologist Michael de Guzman, who reportedly fell from a helicopter on his way to Bre-X’s Busang gold property. By the end of this article, you will finally know the answer.


My story begins in 1991 with a trip to Indonesia following graduation from MBA school. Contrary to my classmates and professors at the time who were convinced the future growth engine of the world would be Russia, after the fall of the Berlin Wall, I headed to Southeast Asia where I believed the future of business activity was going to be.

My tour included Hong Kong, Macau, Thailand, Malaysia, Singapore and finally Indonesia where I was hosted by one of my former MBA professors who took a job teaching at a business school in Jakarta. My professor was kind enough to share his experiences of living and working in Indonesia and also lent me his car and driver to tour the slums and mansions of Jakarta, where in some cases they were right across the street from one another. It was clear to me, there were Indonesians making some serious money, and I had a feeling deep down in my gut that I knew I would be back someday to find my fortune.

Fast forward four years to 1995, where as a Director of Proprietary Trading at Deutsche Bank Canada, I first heard the story of Bre-X from our trading desk. The story intrigued me as it combined my interest in gold discoveries, seeded from the stories of Noah Timmins and his gold discoveries heard when I was as a kid living in Timmins, Ontario, and my recent experiences in the Indonesian archipelago... I had to learn more.

Now infamous photo of geologists at Busang. Taken by Warren Irwin. Published in Northern Miner. From left: Jerry Alo (geologist), John Felderhof (head of exploration), Michael de Guzman (head geologist), Cesar Puspos (geologist)

Bre-X Minerals

The pitch I heard from our trader was that one of his stockbroker buddies had loaded up with this junior mining stock called Bre-X Minerals for pennies a share and it had discovered gold in East Kalimantan, the Indonesian territory on the southern part of Borneo, and he was up millions. I researched the situation extensively, built a model of the ore body, plotted every drill hole and knew this would be a huge winner. The heady days of the mid-1990s in the mining business were ripe to be exploited as investors were coming off a $4.3 billion win with Robert Friedland’s Diamond Fields takeover by Inco and they were eager to do it again. Greed was in the air and the timing for Bre-X’s discovery could not have been better.

My partner and I at the bank had made significant profits trading special situations in the Canadian market, but despite that, when I pitched a Bre-X investment to our president at $13 per share, I was shot down. I was disappointed about being turned down, so I looked for opportunity in this setback and asked the question, “If the bank won’t let us invest its capital in Bre-X, surely they wouldn’t have a problem with us investing our own personal capital in the name instead?” Permission was granted and the game was on. I got in at $18 per share because I was trying to save a nickel on my purchases by playing the bid side of the market, waiting for pullbacks that never came, and I ended up having to pay a much higher price. The lesson cost me millions, but it was a mistake I have not repeated.

Having owned a personal stake that eventually peaked at $5.6 million, including $1 million in margin debt, I knew I needed to know everything I could about the situation. Staying up all night on the phone to contacts in Indonesia and ringing up $1500 monthly phone bills was not going to cut it. I had to return to Indonesia.

The demand for a Bre-X site tour was so great that there was no room on their first large investor tour, but regardless, I jumped on a plane and flew to the other side of the world with no permission to go to site. While in Jakarta, I met the Bre-X office manager in hopes of convincing him in person the merits of having me on the trip, but he confirmed the trip was full and there was no room on the helicopters. He did say there was a presentation I might find useful being held in Balikpapan on the south coast of Borneo with the head of exploration John Felderhof (“John”) and chief geologist Michael de Guzman (“Mike”) the evening before the helicopters headed to site that I could attend. I was on the next plane.

In Balikpapan, I asked John if there would be any chance to grab a seat on one of the choppers the next morning. He confirmed that the helicopters were full but I was free to join the evening presentation and drinks afterwards. At the bar where I was drinking and playing pool, I met the rather nervous Australian who was head of the local assay lab. I liked him, but he was clearly very stressed out. For fun I asked him, “The gold is there isn’t it?” He nearly jumped out of his skin. It was the first sign something might just not be right.

Felderhof discusses Bre-x at site with Warren Irwin - Vivian Danielson of the Northern Miner photo

The next day I was packed up and ready to go first thing just in case. I again asked John and Mike if there was room on the helicopters and luckily a spot freed up in one of the two Huey helicopters when a big investor lost his passport on the trip down and was turned back from Hong Kong. The third helicopter was the infamous Alouette III that you will hear more about later. I was in luck, I didn’t need to resort to my plan “B” which was paying a local to take me up the Mahakam River on an 8-hour river boat ride, where I would then hope to buy a motorcycle off a local to ride to the camp at Busang.

At site I was bunked with a mining analyst and spent two days touring around site with investors, analysts and a journalist from the Northern Miner. It was clear that Mike and John were very tight and the group of Filipino geologists were very loyal to Mike. Upon my return to Canada, all appeared in order, although I was concerned enough about the bar incident and the onsite procedures of not splitting core that I did ask John when the holes would be twinned. He said the most important holes would be twinned in the fall. Twinning holes involves getting a third party to drill holes next to existing holes to independently verify the results. There were some warning signs, but generally the trip was all good.

Dale Hendrick, the Skeptic

As luck would have it, I was in my condo elevator on my way to work one morning with a crusty old guy named Dale Hendrick who I had never met before. Bre-X was the front page story of the Financial Post I was reading in the elevator that day and I mentioned to him I just got back from a site tour. It turned out Dale was retired, but was also a very experienced miner. Dale had tried several times to go to site but was declined by John Felderhof, so he was very keen to debrief me. We agreed to have lunch.

At lunch Dale interrogated me extensively about what I saw and it became clear he was a huge skeptic, and possibly had some ulterior motives, like consulting for a large mining company that was trying to talk down the stock to make the acquisition cheaper. Dale’s views were so out there, that I definitely had questions about his true motivations. He recounted story after story of mining scams he had witnessed and why he believed Bre-X to be one too. He complained of how mining executives he knew were ignoring his views on the company and thought he was crazy. The story of the New Cinch Uranium scam, and how people started to show up dead, especially hit home with me. For every point he made, I had a logical explanation, but it started to bother me that there were so many issues, despite each one having an equally logical counter point. Dale did not think much of Felderhof and told him at one point, “John haven’t you taken this scam too far, isn’t enough enough?”

He had my attention. When I asked him if he was shorting Bre-X shares, he said no, and that he owned a bunch of stock because he believed it was going way higher before people would figure out it was a scam. Needless to say, when my builder came asking me for money to finish my Bre-X house several months later, I thought it was prudent to sell enough shares to take myself off margin, complete my house and pay my taxes, just in case Dale was right. Turned out, it was close to the high in the stock, about $280 per share, but I still retained a bunch of shares so I had to keep a close eye on the situation.

From that point forward, I started to have a much more critical eye as to what was going on and when fall came and went and holes were not twinned, it did not sit well with me. I mentioned the possibility of a scam to some of my contacts in Indonesia and although reluctant at first to believe it could be possible, they agreed to keep an eye out for signs from their end.

Michael de Guzman is “sort of” Dead

The next year, my phone rang in the middle of the night on March 19, 1997 from one of my most trusted Indonesian contacts, John McBeth, the famous journalist based in Jakarta who wrote for the Far East Economic Review. “Warren, I think you are right, it’s a scam, they just killed de Guzman”. I nearly fell out of bed, oh shit Dale was right, all I could think about was selling my stock as quickly as I could. I stayed up all night waiting to hit the bid after the release came out in the morning. After hours that felt like days, the release came out mid-day after the stock was halted all morning. Bre-X Minerals regretted to report the death of Michael de Guzman in a fall from a helicopter. Some analysts speculated that he probably fell out of the helicopter as it was hopping around site where geologists often get lax with safety protocols. I didn’t buy any of it. Dead people were starting to show up just like Dale had told me they did in the New Cinch Uranium scam.

I phoned the company to get some further details as to where it happened and they said on the way to the site from the staging area at Samarinda, the last chopper stop before the property. I remembered the pre-flight inspection, the operation of the doors on the Alouette III helicopter and the former Indonesian military pilot who flew it, Eddy Tursono, with his very memorable and very cool silver skull ring. Although I never spoke to him because I doubted he spoke English, he seemed like one very serious dude with a military history I am sure you would not want to know about. The story did not make any sense, I knew the pre-flight inspection process, it was rigorous. The doors on the chopper were like car doors on the front and large sliding doors at the back and they don’t just pop open when the helicopter is moving. The flight engineer also made sure all seatbelts were securely fastened in his pre-flight inspection. People don’t just fall out of Alouette III’s. Possibly Eddy and his ex-military buddies were told by the Indonesian government to take care of de Guzman in the best traditions of Indonesian helicopter interrogation.

Ominous photo of Michael de Guzman entering an Alouette III

Things did not add up, when the market opened I sold all my remaining stock and went short. Then the second-guessing started to happen. How can I think this is a scam when several major mining companies are fighting to buy Bre-X? Am I to believe the words of a crusty old cynical retired mining guy who is probably working for a major? Am I crazy? What do I know about mining, I am just a punk kid six years out of MBA school?

As time went on, a suicide letter was found and suicide began to be the story. Mike decided to end it all because he couldn’t deal with the pain from years and years of suffering from the ravages hepatitis B and its side effects. I thought making several million dollars on his share position would have helped cushion some of the pain, but apparently it didn’t. Well, I would have been fooled if it were not for me seeing first hand Mike partying it up hard at the Prospectors and Developers Association Conference, also known as PDAC, some weeks earlier in Toronto with his cast of Filipino geologists and a number of ladies that were hanging onto his arm. A suicide story was clearly baloney and later there were medical documents that indicated his hepatitis wasn’t severe. With his death came a number of wives out of the woodwork, the last count was four. Some in the Philippines, some in Indonesia, you get the picture. Mike was a polygamist.

But where was the body? Four days later they found a body in the middle of the jungle that they claimed was Mike. Talk about finding a needle in a haystack in the days before common GPS usage and it was conveniently mutilated by wild pigs and didn’t have much in the way of any teeth left for dental confirmation. But not mutilated enough to stop family members from the Philippines swearing up and down they recognized the hump in the corpse’s shoulder and it was clearly Mike. A quick cremation ended any further argument and hey, if the family confirmed the body, why would one do any DNA analysis or dental record comparisons?

There is No Gold

On May 4th, 1997, the firm hired by Bre-X President David Walsh, Strathcona Mineral Services, put out a press release stating that Bre-X was a fraud. Several books were eventually written. David Walsh, the President of Bre-X Minerals, who I believe was totally duped, dies of a brain aneurysm. The Ontario Securities Commission’s case against the only survivor of the original three, John Felderhof, does not result in a conviction and the RCMP surprisingly did not proceed with a criminal case against Felderhof.

So where is Michael de Guzman?

Mike was a smart and conniving individual to have been part of what Strathcona described as the most sophisticated and elaborate mining scam they had ever seen. After watching the partying at the PDAC in Toronto in the weeks preceding his exit from the helicopter and the lame suicide note, there is no chance that a suicide is what happened. Was he killed by powerful Indonesians eager for revenge against an individual that would bring great shame to their country as some have surmised? The Indonesians didn’t care, they like us, just wanted to make a lot of money off the best gold discovery in the world. Mike was smart and had an exit that was planned out well in advance. Bodies are a dime a dozen in Indonesia, there is zero chance it was Mike.

As the years went by and memories of Bre-X faded, in 2005, I got a call out of the blue from John McBeth who I had been keeping in touch with periodically. “Warren, Mike’s wife Genie just got a US$25,000 wire transfer from a Citibank branch in Brazil and she is willing to talk to me”. Apparently, she recognized Michael de Guzman’s handwriting on the fax that notified her of the funds being deposited in her account on Valentine’s Day 2005. Take my word for it, in a town where you can live for $10 per day, US$25,000 is some serious money and there is nobody else that could have sent her that amount of money. It was the first significant clue I received that he might be alive.

In the subsequent interview she told McBeth that she had also received a call from de Guzman in April 1997, shortly after the helicopter incident. The call came in the middle of the night and shocked her elderly maid who answered the phone. She recognized Mike’s voice calling from the grave. Mike asked the maid to tell Genie to check her bank account for a US$200,000 wire transfer. The 2005 Citibank transfer of $25,000 was the second transfer from the grave. This was good info.

Years earlier I received some less concrete information from an investigator who claimed to have been working on behalf of the RCMP who said she had tracked him to Venezuela. McBeth’s information was far more credible.

Fast forward to today and a friend of mine and I were discussing the movie “Gold” when he told me that he had met a Filipino from Seattle some years ago at a party. The man told him he had lunch in 2004 with Michael de Guzman in Manila. The key takeaway from the lunch was that Mike had undergone some very serious plastic surgery and was very much alive. Like McBeth, my friend is very credible and says his source is 100 percent reliable.

The movie “Gold” got another highly credible mining president talking to me about the whereabouts of de Guzman too. He told me he was sitting in a restaurant having dinner in the New World Hotel in the Makati City area of Manila, Philippines in 1997, some weeks after Mike de Guzman fell from the helicopter. He said he watched a man walking out of the restaurant and his geologist colleagues around the table all stood up and gave him a standing ovation. The man turned around and smiled as he continued on his way. He asked his buddies who that was and they said it was Mike de Guzman the guy who fell out of the helicopter weeks earlier.

So, if at this stage you still believe Mike de Guzman’s ashes are the ones sitting in the mausoleum at the Holy Cross Memorial Park Cemetery in Queson City, Philippines, I have this amazing new gold project I want to talk to you about.

There have been scams before Bre-X, there have been scams since and there will be scams going forward, but my hat is off to you Michael, as you read this article, Bre-X has won the Academy Award in the category of Best Mining Scam Ever. I am sure 20 years later, looking back at the trail of financial hardship for investors and your former co-workers forever tainted by Bre-X and unable to work in their chosen field of geology, the suicides of people unable to cope with their financial losses and the cost to you personally and your many families, you must be questioning whether you chose the right path.

To my fellow investors in the mining sector, we must remain diligent to learn as much as we can about the companies we invest in, bring to light the scams we come across and share our stories with others, like Dale Hendrik did with me. I am forever grateful for the stories heard and lessons learned from the crusty old guy I ran into by chance one day in an elevator.

Warren Irwin is the Founder and Chief Investment Officer at Rosseau Asset Management Ltd ( www.rosseau.com ), a Toronto-based money management firm focused on special situation and event driven investing, often in the natural resources sectors, with an emphasis on Canada. Rosesau’s flagship fund, Rosseau LP, has compounded 16.02% from inception to Apr 30, 2017, an incredible 18 year track record. Roseau’s Special Situation Hedge Fund was ranked the Top Performing Hedge Fund in the World among 4,099 hedge funds tracked by Barclay Hedge with a 156.32% annual return.