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WORKSHOP SEMINAR
Mining Stock Scams
- how to identify, police, and eliminate them!

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This material was originally presented in 2002.

In Roughing It , Mark Twain wrote:
"The sagacious reader will know now, without being told, that the speculative miner, in getting a "fire assay" made of a piece of rock from his mine (to help him sell the same), was not in the habit of picking out the least valuable fragment of rock on his dump pile, but quite the contrary. I have seen men hunt over a pile of nearly worthless quartz for an hour, and at last find a little piece as large as a filbert, which was rich in gold and silver -- and this was reserved for a fire assay! Of course the fire assay would demonstrate that a ton of such rock would yield hundreds of dollars -- and on such assays many an utterly worthless mine was sold."

Mouse over the game board to learn more about mining scam terminology.

scam board Bre-X Minerals Ltd., a member of the Bre-X group of companies, was a junior Canadian mining company that was once reported to be sitting on an enormous gold deposit at Busang, Indonesia (on Borneo). Bre-X bought the Busang site in March 1993 and in October 1995 announced significant amounts of gold had been discovered, sending its stock price soaring. Originally a penny stock, its stock price reached a peak at $286.50 (Canadian dollars) on the Toronto Stock Exchange (TSX), with a total capitalization of over $6 billion Canadian dollars. The gold reserves at Busang were alleged to be 200 million ounces (6,200 t), or up to 8% of the entire world's gold. However, it was a massive fraud and there was no gold. The core samples had been faked by salting them with outside gold. An independent lab later claimed that the faking had been poorly done, including the use of shavings from gold jewelry. In 1997, Bre-X collapsed and its shares became worthless, in one of the biggest stock scandals in Canadian history. The nanotech community is be a particularly attractive target to scammers because it has been so effective at generating buzz and attracting cash. Nanotech scams involve the promotion of phoney devices. High-tech fraud is a constantly moving target. It's difficult to prosecute, and you probably won't get good results if you report it. If the investment doesn't make sense, there's probably something wrong. The old rule applies: "Too good to be true." "Pump and dump" schemes, also known as "hype and dump manipulation," involve the touting of a company's stock (typically microcap companies) through false and misleading statements to the marketplace. After pumping the stock, fraudsters make huge profits by selling their cheap stock into the market. Often the promoters will claim to have "inside" information about an impending development or to use an "infallible" combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is "pumped" up by the buying frenzy they create. Once these fraudsters "dump" their shares and stop hyping the stock, the price typically falls, and investors lose their money. Promoters of phoney stocks may claim to have found "invisible gold" Though such thing does actually exist, it is not as it appears. Unless you have the technical background to understand what is going on, stay away. Invisible gold=scam. "Salting" is a criminal activity unique to the mining industry. Salting can be briefly described as the addition of material to an ore sample in order to create a false impression of the value of the ore deposit. The BRE-X scandal is an example of the most financial successful salting operation ever carried out. Promoters will use the term "unassayable gold' to describe an ore that contains gold not recovered in standard fire assay or wet-chemical methods. Unfortunately, unassayable gold does NOT exist. Though, the gold may be in a volatile form that is lost during fire-assaying, but it would be recovered using other standard methods. Stay away! "Boiler rooms" are traditionally the centre for telemarketing operations involving promotion of worthless products or penny stocks. The arrival of the Internet, and specifically message boards, have resulted in schemes being taken online. These cyber boiler rooms do not require much overhead, and con artists can reach milions of potential investors with one click of a mouse. Very few mining con artists ever end up behind bars. Very few mining con artists ever end up behind bars. The only people getting rich are the scammers. The only people getting rich are the scammers. The only people getting rich are the scammers. The only people getting rich are the scammers.

Workshop Focus

The environment for mining is much more than a geographic neighbourhood — a healthy financial climate is equally important. The image of mining has suffered significantly in recent years from a series of high-profile scams. Why do these scams keep returning to haunt society and the legitimate mining industry? Does it correlate with the popularity of board games such as Monopoly? Is it simply human nature for our emotions – greed, hope, despair, and fear – to interfere with our common-sense judgments? This seminar will provide an insight into how such swindles can be identified and prevented. Presentations will be made by mining engineers, ethics professors, financial advisors, investigators, regulators and advisors to securities commissions.

People who will benefit from this event include students, investors, brokers, and those associated with developing and promoting new mining projects. The goal of the workshop is to discuss options to impede the ability of swindlers to run such scams by providing knowledge and ideas to the community at-large. After the workshop, a Communiqué will be issued with recommendations for regulators and investigators and advice for investors.

Schedule

9:00 - 9:15 Opening Remarks - objectives
9:15 - 9:45 A review of recent mining stock scams Paper / Presentation
9:45 - 10:30 So many scams, so few prosecutions - where is the deterrent? Paper / Presentation
COFFEE
10:45 - 11:45 Strategies for finding reality within economic illusions Paper / Presentation
11:45 - 12:15 Ethics in mining stock promotions: moving beyond the obvious Presentation
LUNCH (on your own)
13:45 - 14:15 New regulatory measures to prevent stock scams in BC Paper / Presentation
14:15 - 15:15 National Instrument 43-101: mineral project disclosure standards Presentation
COFFEE
15:30 - 16:45 Round Table Panel Discussion
16:45 - 17:00 Wrap-up summary - Communiqué

This workshop seminar has been endorsed by

The Vancouver Branch and the National Headquarters of
the Canadian Institute of Mining, Metallurgy and
Petroleum www.cim.org

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The Mining Association of British Columbia
www.mining.bc.ca

and was held in conjunction with the 2002 Canadian Student Mining Games which took place in Vancouver from February 21-24, 2002

Scheduled Speakers

John Meech Director of CERM3 (Centre for Environmental Research in Minerals, Metals and Materials). He has ~30 years of experience in mining and mineral processing R&D. CERM3 is a multidisciplinary group that aims to conduct sustainable research for the mining industry that also includes addressing the image of mining in society and amongst the investment community.

Michael McDonald Director of the UBC Centre for Applied Ethics and Maurice Young Chair of Applied Ethics. His research is in applied ethics including business ethics and health care ethics. His current research is focused on governance issues around the protection of human subjects in research. He has been an ethics consultant for several professional, business and public sector organizations including the Certified General Accountants of Canada and the Aboriginal Research Coalition of Ontario.

Deborah McCombe Chief Mining Consultant, Ontario Securities Commission. She was instrumental in developing National Instrument 43-101: Standards of Disclosure for Mineral Projects. With over 25 years of exploration and mine development experience, most recently as President of Watts, Griffis, McOuat Ltd., her career has focused on due diligence reviews, exploration projects, reserve estimates, feasibility studies, and mergers and acquisitions. She is a 2001-2002 CIM Distinguished Lecturer.

George Pemberton Sergeant with the RCMP assigned to the Vancouver Integrated Proceeds of Crime Section. He holds an MBA from the Rotterdam School of Management and a B. Com. from the University of Alberta. He has worked with the Vancouver Commercial Crime Section - Securities Fraud Office, the Organized Crime Agency of BC and as a VSE investigator and has authored "The Securities Market and Money Laundering" published by The Money Laundering Bulletin .

William Cate President, Beowulf Investments, Pescadero, CA. He is a business and equity finance consultant. He publishes Investor Alert and offers a workshop - Equity Financing - for companies planning to go public. He is founder of the Global Angel Network and has been teaching, consulting, and *winning* with his investment strategies for longer than he cares to admit.

Sasha Angus, Director of Enforcement B.C. Securities Commission. The mandate of the Enforcement Division is to protect the investing public through the investigation of complaints and the enforcement of the Securities Act. The Enforcement Division is comprised of the Case Assessment Team, the Investigation Branch and the Litigation Branch. The Case Assessment Team is responsible for receiving and assessing complaints concerning alleged misconduct or abuse in the capital markets. The Investigation Branch is responsible for investigating alleged violations of the Act and preparing investigation briefs, which are either referred to Crown Counsel for possible prosecution in the Provincial Court or referred to the Executive Director with recommendations for administrative proceedings before the Commission. The Litigation Branch is responsible for conducting administrative proceedings before the Commission, providing legal representation to staff in administrative proceedings, representing the Commission before the courts of British Columbia and providing legal advice to staff.

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