Recently reread a book called Fool’s Gold by Brian Hutchinson, Alfred Knopf, Toronto, 1998 which is about Bre-X. The company Bre-X was a gold mining promoter whose stock went to over $100 a share before crashing down because there was no commercially mineable gold. Along the way, the saga exposed many different layers of human greed and gullibility. The greed was to buy shares in a company who continually said their drilling samples were giving the indication of the biggest gold mine in the world. There is gold in the area, as in most areas of the world, except there is not enough gold to be commercially mined. There was however a great number of people who were fooled, as well as people made money, and when the saga was finished  the shares were worthless after a few months the look for the next greatest thing was underway.

To give context to the story, there are remarkably few large deposits of minerals discovered, even though the mining companies have access to more information than ever before. In the late 1990’s new mines were being discovered based on looking at different theories of how minerals were formed. Unfortunately, the key to any mine is to drill into the earth to verify the theory works. This leads to a great many people looking for the big one, but very few ever discovering one. Bre-X came at a time when it seemed what they discovered was more than possible and everyone wanted to believe. Bre-X also exhibited many signs, which everyone saw in retrospective, to be troubling. However since everyone wanted to believe, the experts who others believed were doing more but were actually dependent on other experts who thought the other experts were doing more and as long as the fees were coming in, few were cynical to ask the tough questions and receive answers.

Linking to dividend paying stocks, if you only bought dividend stocks, the episode would have passed you by. Although the price of Bre-X shares were worth a great of money, the company had never made a profit and had not mined a single ounce of gold. However, if you read the papers, Bre-X due to the large increase in share price was all over the news, until it came trumbling down to worthless. The dividend producing mining company were still making a profit from their other mines, it just their investment in Bre-X turned to be a bust or a write down. The story also tells how even though business says the government should not be in their business, how quickly business turns to the government for help and to keep others away if all the rules were not fully carried out. If you speculate, which is a natural thing to do, do not have all your eggs in one basket, because one may be fool’s gold and one maybe the real thing, but which is which?

There are more questions than answers, till the next time – to raising questions