Bre-X Stock Loses Luster, Drops 84% Questionable Gold Discovery Shakes Investor Confidence

Investors bailed out of a Canadian mining company’s high-flying stock Thursday, one day after learning that its prized Indonesian gold find may contain very little of the precious metal.

Bre-X Minerals Ltd., which had ridden the discovery on a dazzling four-year stock market run, lost more than $2 billion in market value immediately after it resumed trading on the Toronto Stock Exchange.

The shares plummeted 84 percent to 2.50 Canadian dollars, or $1.81 in U.S. currency, down from 15.50 Canadian dollars a day earlier.

Trading in the stock had been halted since Wednesday, before the company acknowledged that early samples taken from the Busang field were either invalid or improperly evaluated.

At the same time, Freeport McMoRan Copper and Gold Inc., a big U.S. mining company brought in to help develop the project, said its own tests taken from the area showed insignificant amounts of gold.

Bre-X had previously said Busang contained more than 70 million ounces of gold, which would be worth about $25 billion after refining. One company official put the figure as high as 200 million ounces.

The revelation that there may be no mother lode only added to the intrigue surrounding the isolated field on the island of Borneo. Last week, the geologist who discovered the mine for Bre-X plunged to his death from a helicopter in an apparent suicide.

There has been speculation that Michael de Guzman’s death was related to the lack of gold at Busang, but Indonesian police said they found a note that said he was taking his life because of a terminal illness.

Bre-X, a tiny exploration company based in Calgary, Alberta, had been a remarkable stock market success since it first began exploring in Indonesia in 1993.

Shares bought at that point were worth more than 260 times as much in September, adjusted for a 10-for-1 stock split. Before Thursday, the stock was off about 40 percent from its high as speculation grew that the Busang mine would not live up to expectations.

Several mutual funds in Canada and the United States invest in the stock, which is also traded on the Nasdaq Stock Market. The U.S.listed shares plunged as well, losing $9.40-5/8 a share to close at $1.96-7/8.

The steep sell-off was not limited to Bre-X. Many other small Canadian mining companies, some of which don’t even have operations in Indonesia, were battered Wednesday and Thursday.

Diadem Resources Ltd. plunged 35 percent over the two trading sessions, while Indochina Goldfields Inc. fell 30 percent and Corriente Resources Inc. dropped 24 percent.

Even Freeport, which can back out of its deal with Bre-X if there is in fact little gold at Busang, fell 7 percent before bouncing back slightly Thursday, up 50 cents to $30.12-1/2 on the New York Stock Exchange.

Earlier Thursday, the Indonesian government said it will withhold mining rights for Bre-X until it submits the results of an independent survey of the Busang deposit.

“We need more time, more explanations and concrete data,” Mines Minister I.B. Sudjana said in a statement.

Bre-X plans to conduct further tests over the next four weeks.