The Vancouver Stock Exchange (VSE) has long enjoyed a reputation as the "Wild West" of mining funds. Despite attempts to refurbish its tarnished image, a January 1994 report by James Matkin of the Vancouver Stock Exchange & Securities Regulation Commission found the VSE a hotbed of "shams, swindles and market manipulations." Scores of junior companies and entrepreneurs regarded as too high-risk, or flatly unacceptable in New York and London have flocked to the VSE. Of these, none has been more welcomed in the Canadian markets than gold mine financier Robert M. Friedland, a Canadian whose Venezuelan Goldfields (Vengold) in 1993 made the biggest float in VSE history - $31 million.
However, no one's track record casts more doubt on the integrity of Canadian money markets than that of Friedland, a man who admits he was attracted to the VSE because "it is one of the freest and most underregulated venture capital markets in the world."
Friedland's grounded rocket
A 43-year-old Chicago native (he became a Canadian citizen in the late 1980s), Friedland first emerged from relative obscurity in 1985, with a VSE shell company called Galactic Resources. Notwithstanding the hubristic title, for a while the sky indeed seemed the limit: "Galactic's stock performed like a rocket," comments John Wood, editor of the Vancouver-based financial news service, Stockwatch. Friedland had soon formed joint ventures with the world's biggest mining corporation, RTZ, at Ridgeway, South Carolina, and opened up the Ivanhoe gold joint venture on Nevada's Carlin Belt.
Along the way, he sold off Galactic's 30 percent share in the Philippine Far South East Gold project to CRA (RTZ's Australian associate), having persuaded the World Bank's International Finance Corporation (IFC) to package the deal. And though in 1987 he failed - along with T. Boone Pickens, the notorious Texas corporate raider - to gain control of Newmont Mining, a year later he conviced Homestake Mining (second only to Newmont in the U.S. gold stakes) to buy shares in Galactic.
Friedland's golden apple was undoubtedly the Summitville mine in Colorado. Its $222 million costs were bankrolled mainly by European (especially Swiss and British) investors, although the Bank of America also came through with $30 million, after the world's biggest civil engineering company, Bechtel, agreed to take on design and engineering of the mine. By the decade's end, Friedland had become a darling among North America's smart-monied sets. Rick Young and Dan Noyes of the New York Times observed, "Industry executives filled conference rooms to hear him speak on innovative ways to finance mining operations."
But the bitter reality was that Friedland had savagely cut corners, as well as costs, to bring Summitville on-stream in almost record time. "People were willing to go along with his assumptions," declares John Dobra, a Washington Gold Institute consultant. "The problem was, his assumptions were usually wrong."
Friedland's major, catastrophically false assumption was that the recently developed heap-leach system (virtually the cheapest and fastest way to extract gold from ore) would work on a vast scale (spread over 50 acres) and halfway up an icebound mountain. In heap-leach mining, ore is crushed and stacked on huge liners. Cyanide is then dumped on the heap and the liners are supposed to collect the cyanide, gold and other metals which leach out. Within days of Summitville's opening in 1986, the cyanide solution used to dissolve gold from the 127-foot high ore heap began leaking through its stretched and rupturing liner.
Kenneth Gooding, mining editor of the London Financial Times, describes what happened over the next three years: "More water flowed into the heap than flowed out or evaporated. ... Acid water began to flow from the waste pile." Cyanide started to leak into a nearby creek, and from there into the ground water. When the company tried to pump the leaking water back into the heap, this simply "raised the [water] level at an alarming rate." Soon there were spills of water "laced with cyanide and heavy metals," says Gooding, while contaminants, crammed into a mere five-acre disposal site, overflowed into other nearby streams, feeding the rivers below.
The Colorado state authorities turned an unseeing eye on the disaster for many months, "worried about the loss of jobs and taxes," according to Gooding. Eventually, they moved to close down the site, but it was far too late. "Contaminated water was not only flowing from the land disposal operations but also from nine other unauthorized discharges." Colorado Department of Health Inspector Jim Horn commented, "Literally, there was 1,000 to 2,000 pounds of heavy metals [daily] leaving the site in dissolved form. It was like adding half a Buick a day to the Whiteman Fork that flows into the Alamosa. There was no life in the river for 17 miles."
Summitville suspended operations in 1991. It had become "the Exxon Valdez of the American mining industry," declares Thomas Hilliard, formerly of the Washington, D.C.-based Mineral Policy Center. "Overambitious management, botched construction, reckless mining and weak state government regulation combined to create one of the biggest scandals in recent mining history," concludes Gooding. In early 1994, Summitville cost the Environmental Protection Agency (EPA) roughly $50,000 a day, just to contain cyanide, sulfuric acid and heavy metals threatening nearby waterways. It is estimated that a reclamation plan will cost at least another $60 million.
The EPA first became involved in September 1990, when an anonymous telephone caller sent agency officials rushing to the scene. Within two months, EPA and Galactic drew up a containment plan which would have cost around $20 million to implement. By then, however, the company was virtually broke. On December 15, 1992, Galactic filed for bankruptcy.
Conveniently, just six weeks earlier, Friedland had freed himself from any liability for the disaster, by suddenly resigning all his positions at the company. He was, as U.S. Interior Secretary Bruce Babbitt later put it, "stealing away in the middle of the night." Stockwatch Editor John Wood says, "Friedland is able to say with a perfectly straight face, with those mesmerizing eyes, that [Summitville] wasn't his problem; he relied on other people. ... He doesn't say [that he resigned] the very day the EPA came knocking on the door."
Once he washed his hands of Summitville and Galactic, Friedland began regenerating his main investment front, VSE-registered Ivanhoe Capital Corp. Together with brother Eric, Friedland predicted a gilded future well away from the shores of North America, specifically in the huge South American Guiana Shield, which covers Guyana, Venezuela, French Guiana, Suriname and part of Brazil. "What Chile is to copper, the Guiana shield will be to gold," Friedland said. Using Ivanhoe's investments in South American Goldfields Inc., Friedland bought his way into a struggling Canadian junior mining company called Golden Star Resources, in which he became the largest single shareholder. As well as digging its way into French Guiana and Suriname, the company now operates Guyana's Omal mine, the first corporate gold mine in the heart of the Guyanese rainforest and one of the biggest mines in South America. According to Friedland, Star was "a bird with a broken wing, and I helped it mend."
Since then, the hawk has truly taken flight. This year - much to the alarm of Amerindian communities in western Guyana - Golden Star is doing airborne surveys of more than a million hectares in the Upper Mazaruni rainforest, after concluding a very favorable deal with the avowedly leftist Jagan government for the choicest deposits it finds. While the region has been plagued by privately-owned "missile dredges," - huge, remote-controlled vacuum cleaners which pump water into alluvial deposits and suck them up to process out the minerals, ripping out the river banks and choking marine sytems - the area has so far been spared any large corporate mines. Friedland's prospecting may soon change that.
Using Ivanhoe Capital as his main financing vehicle, Friedland controls several other outfits, of which Vengold is the most important. This company owns the potentially lucrative Oro Uno concession in Venezuela's Bolivar state, along with several other "properties."
Friedland has also sealed joint venture deals with Carson Gold, Queenstake Resources and Philip Resources in the same area, and has acquired a minority stake in Bolivar Goldfields. In cahoots with a shady Venezuelan national, Charles Brewer Carlas, he has been fishing for gold along the Orinoco river. In Namibia, Ivanhoe controls the deep-sea miner, Diamond Field Resources, while in the Papua New Guinea highlands, it has negotiated a share of the Mt. Kare prospect, ironically surrendered by CRA after landowners threatened an armed attack in 1993.
But once again, everything is not going according to Friedland's plan. Venezuelan environmental groups and politicians have publicly condemned his operations in Bolivar, while 5,000 indigenous people recently mobilized to protest invasions of their land by Friedland and other Canadian corporations. "The genocide of our peoples continues ... the land is sold off without taking into account our concerns," protested indigenous leader Jose Luis Gonsalez. The chief Venezuelan agency for such misappropriation has been the CVG, a state corporation which supposedly regulates the transfer of mining rights from private landowners to foreigners and also maintains its own mining operations. Friedland's skill at taking over disputed claims hints at an inside track to the CVG. In any case, Venezuela's "structural adjustment" program will likely put CVG's mining operations on the private market - and Friedland has expressed interest in buying.
Surprisingly few people in Venezuelan government seem aware of Friedland. Last year, when asked by the Financial Times for his opinion of the man, Oswaldo del Castillo, Venezuela's mining expert on the National Council for Investment Promotion, commented, "It's a relief to us that Mr. Friedland is not involved in mining in Venezuela." Yet by then, the Canadian entrepreneur was the second biggest owner of mining claims in Bolivar.
In late 1994, Ivanhoe began major base metals prospecting in Burma, despite longstanding calls from the Burmese democratic movement for a ban on all foreign investment until democracy is reestablished in the country.
Today, the Big Guns of the mining industry desperately need to convince a growing body of skeptics that its practices are safe and ecologically sound. Michael Brown, vice president of the Gold Institute, has damned Robert Friedland as the "mining industry's Charles Keating" - a reference to the former savings and loan executive who came to symbolize the deregulated excesses of that industry in the 1980s.
One might conclude that no respectable miner would now touch the wily Canadian with a dragline. But over the past 18 months, as the full extent of the Summitville Horror has registered and Friedland has plundered ever southwards, one company has cordially negotiated with the pariah. Britain's RTZ, corporate mining's leading power and self- appointed advocate, will team up with Vengold to hold 40 percent of Papua New Guinea's massive Lihir project - the biggest untapped gold deposit outside of South Africa.