November 1998
by Barry Stagg
BRE-X vs. INCO
The very real wealth of the mineral quarries at Voisey Bay lies in the ground. Somewhere in the never, never land of the stock market, brokers, promoters and traders are counting their money made on the buying and selling of shares in the massive Bre-X criminal fraud. The contrast between the two projects, one legal and the other criminal is quite telling.
In Voisey Bay, in Canada, Inco has a huge nickel deposit which can be developed honestly and with the absolute assurance that the nickel is there to be mined. With Bre-X, a criminal phantom in the Indonesian jungle, stock traders and brokers made millions while being legally insulated from what became the biggest criminal stock fraud in history.
The financial high society orbiting around the Toronto Stock Exchange fell over each other in their sycophantic scramble to heap adulation and awards upon the Bre-X owners. The late David Walsh, president of Bre-X and its chief geologist John Felderhof, were given major awards and were touted as entrepreneurs in the mold of Microsoft's Bill Gates. Then the bubble burst and Bre-X was shown to be no more than a massive, dirty fraud.
It seems peculiar but quite informative to notice how the same financial wizards and prognosticators who heaped laurels on the Bre-X royalty are the same people who are so quick to scorn the Newfoundland government. This smug disdain is directed at Newfoundland's efforts to ensure that an honest mining development in Labrador gets developed for the good of Canadian citizens.
It seems that bingo hall style profit making at the Toronto Stock Exchange, as exemplified by Bre-X, is acceptable as long as obscenely high profits are being made while any questionable activities are confined to a third world jungle.
When financial markets collapse a lot of the blame must be laid on the tendency of honest and properly regulated stock exchanges like the Toronto Stock Exchange to rely too much on questionable third world investments. The military dictatorship of Indonesia made it much easier to conceal the criminal activities that enabled the Bre-X fraud to grow to mammoth proportions. Bre-X profits turn out to be based on a criminal phantom. Why then cannot a legitimate development like Voisey Bay go ahead without repeated accusations that the Newfoundland government is blocking a righteous development?
One of the reasons why this development is being stalled is that the value of the development is based on transparent reality. That it to say that the value of this development is based on the verified truth that there are huge nickel deposits in northern Labrador. The true facts are known and the regulatory framework is in place and is legally enforceable. Both the company, Inco, and the government, Newfoundland, are acting within their legal rights in a democratic system. Thus it shows that it is much more difficult to profitably develop a legitimate resource lawfully than it is to profit and not develop a criminal fraud, Bre-X. Honest capitalism is hard work.
The financial establishment in Toronto would do well to assist this development in taking place in Labrador. The Bre-X scandal did not leave the Toronto Stock Exchange untainted. The championing of Bre-X as a rich, new company left many important players in the Toronto stock market looking quite foolish and potentially liable for losses incurred by stockholders relying on the supposed expertise of these professionals. Class action law suits against many brokerage houses and advisors and stock market analysts remain to be decided. A pro-Canadian effort to have a legitimate mining development in Labrador go ahead with the co- operation of Inco, the Newfoundland government and the giants of the stock market is certainly legitimate and in the Canadian national interest. It remains to be seen whether such mutual cooperation will take place.
One of the bitter and dangerous truths of this era is that honest work is less easily rewarded than graft and fraud. Bre-X shook the pillars of the money markets because it tacitly rewarded fraudulence. Voisey Bay represents a potential to transform honest effort into honest profit. The moral legitimacy of the stock market lies in the balance.