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Directory
A New Spin on an Old Story: Mining
Fraud After Bre-X
by Russ Fields and Walt Lombardo
Mining fraud or scams are "as old as the hills." These
schemes to part investors from their money are based on people's
desire to get rich quick. In mining, like most things, if it sounds
too good to be true, it usually is.
Some of the frauds are sophisticated and fool even knowledgeable
investors. Witness the recent Bre-X debacle where a much-touted gold
resource of supposedly more than 70 million ounces in Indonesia
turned out to be worthless. Samples of drill cores had been
"salted" with gold. Assays correctly reported the gold
which, unfortunately, had been introduced into the samples in a
sophisticated scheme to dupe investors. Stockholders saw share
prices fall from more than $200 to 6 cents before the stock was
pulled from trading.
In Nevada, we have a tremendous gold mining industry which
annually produces more gold than all other states in the U.S.
combined. In fact, Nevada, by itself, is third in world gold
production behind only South Africa and Australia. It is this very
real success that attracts individuals and companies bent on bilking
investors out of their cash. The common approach of some of the more
sophisticated scams is to form a company, raise some money
(sometimes on one of the stock exchanges like Vancouver or NASDAQ)
then stake some mining claims or acquire mining rights in a well
known producing area, like Nevada. Then the press releases begin
about the new project located in Nevada, home of internationally
known legitimate mines like Goldstrike and Gold Quarry on the Carlin
trend. Next, exploration permits are in hand and a drilling program
is underway. Finally, surface samples or drill results are reported
through press releases. The results are fantastic! Maybe too
fantastic. Recently the Internet has been used to promote some of
these outrageous claims. It is important to verify the companies'
claims through other sources of information and not rely solely on
the press releases.information and not rely solely on
the press releases.
Some things to look for that could be a tip off of a scam are:
- Platinum Group Metals (Platinum, Palladium, Ruthenium, Osmium
and Iridium) showing up in the assays. These elements are
extremely rare and are not present in Nevada in commercial
quantities.
- Assays for gold/silver that cannot be run using conventional
fire assay methods. Fire assays, if properly done by a competent
assayer, will produce accurate values for gold and silver. The
only exception is if the precious metals are associated with
tellurium. In that case Atomic Absorption analysis will be able
to identify the gold and silver, as well as tellurium. Gold
tellurides are rare in Nevada. Colorado has several telluride
occurrences that have been mined in more recent years.
- Claims that gold or silver can only be recovered by means of a
new "proprietary" process. While it is true that new
techniques have been and are being developed to enhance
recovery, secret recovery processes generally don't recover
much, if they are valid processes at all.
- "Reserves" or "gold in place" are reported
in the millions or even tens of millions of ounces - even though
there has been very little drilling. Usually hundreds of drill
holes are required, with thousands of assays before reserves of
this magnitude can be stated with any degree of confidence.
- Actual drilling is ongoing but is slow with one or two drill
rigs. If a major new ore deposit is suspected by a legitimate
company, there is significant incentive to get the drilling done
as soon as possible so mine permitting and actual mining can
begin. They will use as many drill rigs as they can get their
hands on. The primary incentive is to produce gold, not sell
more stock at a higher price. Legitimate operators know that
real, cost effective gold production, together with ore reserves
for future mining will result in satisfactory stock prices.
Investors who do not have significant personal knowledge of
mining and geology should be extremely cautious in investing in
unknown or brand new mining stocks. Many questions should be asked
before investing. Call government mining regulators, state
geological surveys and securities regulators to find out if they
have heard of the company and their project. Ask company
representatives if the company has ever actually produced gold (or
whatever the commodity is), where, and how much. Then check it out
with local officials. If the proposed investment is significant,
independent consultants, paid by the investor should visit the site,
talk to company representatives, take their own samples and perform
an evaluation of the project. If the company objects, this may be
another "red flag," indicating that perhaps something is
amiss.
The State of Nevada has a vested interest in seeing that these
mining scams do not occur here. Our very legitimate gold mining
industry is a significant contributor to the State's economy and
scams hurt that industry's ability to raise capital as well as
tarnishes its image with investors in general. While no one will
ever stop mining scams (remember, they've gone on virtually
forever), we can perhaps help investors by suggesting some of the
things to look for and questions to ask before they invest. Call us
at (775) 684-7040 in Carson City, Nevada, or in Las Vegas, Nevada,
at (702) 486-4343 or contact us by e-mail at ndom@govmail.state.nv.us
(Carson City) or ndomlv@govmail.state.nv.us
(Las Vegas). **
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