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Mining Investment Scams
Mining scams may be "as old as the hills" but deep down they are just like any other investment scam employing both trickery and the promise of huge returns.
Investment scams take many forms and can be found in all manner of industry. Mining is no exception. Mining investment
scams have gone on for a long, long time because, like all investor scams, they exploit their victims longing to get
rich quick. As always, if something sounds too good to be true, it almost certainly 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, there is 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.
Some things to look for that could be a tip off of a mining 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.
Mining Investment Scam Links:
A New Spin on an Old Story: Mining Fraud After Bre-X
Digging Deep into Mining
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