David Walsh and the Bre-X saga

(Published in my book, Building a Province: 60 Alberta Lives (Fifth House, 2000)

To some, David Walsh was a true local hero, a little guy who struck it big with a gold find in the Borneo jungle reputed to be the largest the world had ever seen. To others, after Bre-X crashed and burned, Walsh was a villain, a huckster who led them down the yellow brick road to a pot of dirt at the end of the rainbow. But at the end of the day, even some of his victims said Walsh was more to be pitied than scorned. Like them, he had gambled and lost.

Gambling was in Walsh’s blood. His grandfather gambled on the stock market as a broker. So did his father. Born in Montreal in August 1945, David grew up in the Westmount district, a rich anglophones neighbourhood. But the Walshes were too Irish, too boisterous, and too fond of booze to really fit in.

Walsh did badly in school. He failed a couple of grades then dropped out. At age 19, he joined Montreal’s Eastern Trust. He worked the investment desk by day, and took finance and accounting classes at night. By 1969, at age 24, he was head of the company’s investment department.

In 1976, Walsh joined Midland Doherty in Montreal as vice-president of institutional equity sales. He married one of the Midland secretaries, a multilingual cosmopolite of Armenian descent named Jeannette Toukhmanian. They raised two sons, Brett and Sean. The early years of the marriage were difficult. Jeannette even went so far as to initiate divorce proceedings, which she later dropped.

For a while, it seemed as if Walsh might build a prosperous life for himself in Montreal. In some years, his annual commissions ran into six figures. But the Quebec economy was in decline, along with Walsh’s anglophone client base.

In 1982, he decided to make a fresh start in Western Canada. He moved to Calgary and established an institutional equity sales department at the Midland office there. But the oil boom was waning, and Walsh soon fell out of favour with his Calgary bosses. He left Midland Doherty within the year, and sued the company for $110,000. He claimed the company wrongfully cut his $50,000 annual salary to $2,000. The case was subsequently settled out of court.

Walsh decided to strike out on his own. His first venture was Bresea Resources, a junior exploration company that he named after his sons Brett and Sean. He tried drilling for oil in Louisiana but the petroleum business had nose-dived. Things went from bad to worse. The family’s only steady money came from Jeannette’s $20,000-a-year job as a legal secretary. The rest depended on luck, with Walsh gambling heavily on new stock issues.

In 1989, Walsh launched Bre-X. “Bre” derived from Bresea and “X” stood for exploration. Walsh hunted for gold in Quebec and joined a diamond rush in the Northwest Territories. His luck was so terrible that he opened his 1991 annual report with the line, “Yes, we are still in business.”

In 1993, he and Jeannette declared bankruptcy. Court records showed they owed $59,500 to 15 credit card companies and department stores, including Woolworth’s and Canadian Tire. At age 49, all Walsh had to show for his efforts as a stock promoter were a mortgaged split-level home in the Calgary suburbs, and a 1979 Buick Regal held together by duct tape. He was working out of his basement, seemingly headed nowhere.

Then his luck changed dramatically. Walsh began an incredible rise to fortune helped by John Felderhof, an old geologist buddy whose main claim to fame was the 1968 co-discovery of a large copper and gold mine in Papua, New Guinea. After gambling his firm’s last $10,000 on a do-or-die trip to Indonesia, Walsh returned to Calgary with dollar signs in his eyes. Felderhof had persuaded him to buy gold exploration rights to a creek at Busang, in the jungles of Borneo. Within months, the world’s most fabled gold mine was born.

Walsh became the darling of the penny stock-promoting crowd in Calgary. He was one of their own who seemed to have hit the jackpot. This overweight, chain-smoking barfly whose fondness for alcohol brought out the charm and occasionally his Irish petulance, was the toast of Canadian capitalism. With Felderhof handling the mining side, Walsh raised money and took his penny stock enterprise to dizzying heights. He fought off takeover attempts by gold giants including Placer Dome and Barrick Gold, which enlisted the support of the Indonesian government.

Busang’s reserve estimates seemed to rise as fast as Bre-X stock. It was the motherlode of picks for investors who bought early. Their shares soared from pennies in 1993 to over $286 by 1996, making millionaires of many. Walsh was apparently sitting atop the biggest gold strike the world had ever seen. And he was rich. He later told securities regulators he and Jeannette made $45.7 million selling Bre-X shares on the open market in 1995 and 1996. As company insiders, they were obliged to publicly disclose their trading.

At its height, Bre-X had a stock capitalization of $6 billion, exceeding that of Molson, Chrysler Canada and Coca-Cola combined. The word from Borneo was that the Busang find contained 200 million ounces of gold. That meant it would have been history’s richest discovery, containing gold worth $100 billion.

In March 1997, the whole thing began crashing down around Walsh’s ears. It started with a report that Bre-X’s chief geologist, Michael de Guzman, had fallen out of a helicopter to his death in the Indonesian jungle. Then came a report from Freeport-McMoRan, the company Walsh struck a deal with after fending off the advances of Placer Dome and Barrick, that it couldn’t match the Bre-X drilling results with its own work on the Busang site.

The site turned out to contain little or no gold. The remarkable assay results were attributed to tampering of core samples — a process known as salting — by adding gold panned from a nearby river. A mining analyst estimated that it took about $40,000 worth of real gold to salt all 268 drill holes. Indications were that the Busang geology crew had started rigging the core samples shortly after Bre-X bought the exploration rights, hoping to discourage the company from shutting down the project. Strathcona Mineral Services characterized it as a fraud “without precedent in the history of mining anywhere in the world.”

The largest gold find in history became the hoax of the century. In the media reports, Walsh changed from a David who fended off the gold industry Goliaths to a disgraced stock promoter whose mission now was to convince the world he was every inch the dupe he appeared to be. “I am wiser and obviously more cynical,” Walsh told reporters. “Four and a half years of hard work, and the pot at the end of the rainbow is a bucket of slop.” In a telephone conversation with Felderhof, reported by author Jennifer Wells in her book, Fever: The Dark Mystery of the Bre-X Gold Rush, Walsh said he felt empty and sick. “They fooled me completely,” he said. “This is the scam of the century.”

Four books were published about the Bre-X scandal. Each had its own take on Walsh’s culpability. All seemed to agree that he had been conned, but that he should have asked the hard questions before selling the dream to the investors.

Walsh resigned as chairman of Bre-X and fled to the Bahamas, where he had bought a seaside villa in December 1995. He died there, of a brain aneurysm in June 1998 at age 52, and left behind a messy trail of class-action investor lawsuits. His doctor said that, “aside from the aneurysm, Mr. Walsh was in excellent health.” Indeed, and aside from the nakedness, Walsh boasted a set of new clothes that would have been the envy of any emperor.