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B.C. regulators must stop Gallowai Bul River nonsense


By David Baines, Vancouver SunFebruary 12, 2010

http://www.vancouversun.com/regulators+must+stop+Gallowai+River+nonsense/2554649/story.html

Is the Gallowai Bul River gold project near Cranbrook as rich as promoter Ross Stanfield claims it is?

After raising more than $220 million from nearly 4,000 investors over the past three decades, why isn't the mine in production?

I say the B.C. Securities Commission should force Stanfield to obtain an independent audit of the property to determine what is there, and what is not there.

Over the years, there have been many red flags. For example, in December 1999, the Alberta Securities Commission alleged Stanfield and his companies, Gallowai Metal Mining Corp. and Bul River Mineral Corp., had misrepresented the project in offering documents. However, in January 2001, the commission withdrew its allegations and cancelled the planned hearing into the matter.

The ASC did not provide any reasons, but it's possible the commission decided that the source of the problem was Stanfield's consulting mining engineer, Philip de Souza, who had authored exploration reports included in the offering documents.

De Souza was a member of the Association of Professional Engineers and Geoscientists of B.C. and its sister organization in Alberta. APEG BC initially took on the case, then handed it to the Alberta association, because de Souza lived in that province.

APEG Alberta began its investigation in July 2001, but for reasons that were never explained, there were lengthy delays. A hearing wasn't held until February 2006, and a decision wasn't rendered until July 2007.

The panel found that, from 1993 to 1997, de Souza's exploration reports:

- Did not include adequate and relevant exploration data to support the opinions and findings expressed in the report;

- used methods to calculate resource estimates that "were not appropriate and the estimates were therefore suspect";

- portrayed the project "as being more advanced than was actually the case"

- omitted significant other recent assay data.

The panel also determined that an evaluation report in which de Souza projected a share value of $150 had been "based on reserve numbers at a time when economically recoverable reserves had not been determined."

These were damning findings, but the punishment was relatively mild. The panel ordered de Souza to pay a $5,000 fine and $12,981 in costs. And his work was subject to audit for two years.

The panel also ordered that its decision be published in the association's magazine, which is circulated to members only. It was not circulated to, or published, in any daily newspapers.

In August 2007, a month after the decision was rendered, de Souza resigned. But Stanfield, who was busy raising more money, didn't provide any explanation to shareholders until May 2008, by which time a group of unhappy investors was pressing for more information.

In a letter to shareholders, Stanfield soft-pedalled the disciplinary action against de Souza. He pointed out that APEG Alberta did not allege the reports were "wrong or misleading or biased," just that de Souza had failed to provide enough supporting information in his actual reports.

That is quite correct, but it is also clear from the panel's decision that adequate supporting information did not exist for many of the key representations that de Souza had made in his reports.

The B.C. Securities Commission, meanwhile, was keeping a close eye on the project. And what they were seeing was not pretty.

In December 2001, Gallowai and Bul River filed another offering memorandum. This time, it included a technical report by professional engineer John D. Morton.

"In contrast to the previous OMs, this one does not contain the heavy promotional references to gold," BC-SC mining consultant Terry Macauley said in a June 14, 2002, internal memo, referring to de Souza's earlier reports. However, he said Morton had incorrectly stated the report complied with National Instrument 43-101, a newly instituted set of rules governing mineral disclosure.

"The main shortcoming in the present report is the substantial lack of documentation of results of all the work by the Stanfield companies over the past 25 years, stated ... to have cost approximately $60 million."

He added: "The scale of exploration being recommended at Gallowai Bul River and the other portions of the property is way in excess of what is justified by the results stated in this report. A $14.6-million expenditure in the vicinity of the mine, and another $7.7 million on the other prospects, cannot be justified without adequate documentation, verification and success-contingent phases."

In another internal memo dated Oct. 8, 2002, Macaulay said he had received a 129-page fax from Stanfield's law firm, Macleod Dixon LLP. According to a cover letter, it purported to contain "representative unpublished data" that "demonstrates the ongoing work which Gallowai Bul River is undertaking." However, Macaulay noted, "The material consists entirely of laboratory reports of test work done on samples by Gregory J. Iseman."

He said an official with the U.S. Department of the Interior in Arizona told him he had been "making an extensive effort to identify mining properties used in scams and also those assay labs and technical people that are involved. He tells me that Iseman is at one of the group of labs that provided fictitious data showing appreciable amounts of gold, platinum, or whatever."

Macaulay concluded: "As I have previously said, it would require having a professional metallurgist or assayer evaluate all the material like this to get an authoritative opinion that could be used in a hearing. But I have little doubt that he would tell us that all this test work is rubbish."

In May 2001, after the ASC dropped its enforcement action against him, Stanfield told investors he was "in the midst of a major geological and assay appraisal of our Gallowai Bul River property." However, he said new rules governing mineral disclosure (National Instrument 43-101, which had been implemented the previous year) "limit our ability to communicate technical details about our properties, even to our shareholders."

Seven years later, Stanfield was saying the same thing: "Management intends to engage the services of an independent geologist to prepare a comprehensive up-to-date geological report that reflects the results of all the companies' surface and underground exploration work," he said in a May 2008 letter to shareholders.

But once again, there was a proviso: "Although the companies would like to disclose the details of this report to our shareholders, new rules have been put in place in recent years governing the preparation and disclosure of technical information in mining companies."

By that time, those "new rules" were seven years old. Nearly two more years have passed since, and shareholders are still waiting. My question is, how long are regulators going to wait before they put a stop to this nonsense?

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