The Gold Mine That Wasn't; Investors Poured Millions Into B.C. Prospect

This story was originally published in the Herald on Sept. 27, 2009

By Tony Seskus

TULAMEEN, B.C. — In this rugged mountain region of southern British Columbia, the stories that slip from people’s lips are as rich as the tiny gold flakes that filter down the nearby Tulameen River.

Tales of ghosts, heroes and scoundrels abound.

Treasure hunters scour the nearby Granite Creek ghost town looking for a bucket of platinum buried by an old prospector, while locals tell tales about a spectre named Hattie who’s haunted the area ever since her ghastly murder long ago.

And then there are the stories of gold.

The mineral saw the region boom and bust decades ago, but its glitter still entices visitors to pan the river for a flicker of something precious.

“There’s lots of people who still have gold fever — it’s easy to get,” says Bob Sterne, who’s interest in gold panning led him to settle in the area two years ago and build a small motel in the community of Coalmont.

“There’s still lots of gold around.”

Recently, another gold story with local ties has been making the rounds, this time across North America, but it’s not quite the thing of legend.

Rather, Mounties allege a small mining outfit that once operated in the nearby hills was part of an intricate tale spun to investors who lost millions in a purported, Ponzilike scheme that investigators link to two Calgary-area men, Milowe Brost and Gary Sorenson.

None of the allegations have been proven in court.

Instead of a “world-class” alluvial deposit–that promoters once touted as containing proven gold reserves of 2.5 million ounces — an RCMP probe now alleges that “the claims never contained proven reserves of platinum or gold as was boasted.”

Or as a court-appointed receiver simply concluded, the alleged gold mine operations in Tulameen “are a scam.”

Located more than a dozen kilo-metres up the Tulameen River Road, a winding, hillside route stretching west from a tiny community of the same name, one can find what was once a small mining operation.

It’s not much to look at these days: a mouse-infested trailer, a silvery Quonset hut crushed like a giant beer can by winter snow, and several unremarkable piles of gravel and sand.
A bright red tool kit, a hockey stick and plastic deck chair sit abandoned. Hanging on the trailer wall is a poster proudly displaying gold bars, Mayan ruins and the words: “In Merendon time is GOLD.”

Basking in the sun of a late-September afternoon, the one-time mining camp is eerily quiet. Not so long ago, however, the area appeared to be the focus of some big plans.
Those plans started with a million-dollar bid for Stone Mountain Resources, a small local firm with seven to nine claims in the Tulameen area that, at least by historical estimates, should’ve been worth a quarter of that, according to the RCMP.

But a million dollars was what was offered to Terry Wells back in 2002 — and he was only to happy to accept.

Wells, a logging and construction contractor who also worked in mining exploration, acquired the claims for only a$1 a couple of years earlier. It was part of deal struck between Wells and some men who owed him about $200,000 for work on the claims. The deal also saw Wells take the reins of a company called Stone Mountain Resources.

Knowing the old stories of the Tulameen producing gold and platinum since the early 1800s, Wells forked out thousands of dollars on exploration.
“I had already spent probably ($)150,000 of my own money, and I hadn’t acquired much for gold, maybe two or three little pieces,” he told a hearing of the Alberta Securities Commission in 2006.

“I was thinking about selling or else getting somebody to put up some money and partnering or whatever.”

That’s about the time that Kim Powell came long.

Powell, described as a guru of placer mining (the mining of alluvial deposits for minerals), had been to the site on at least a couple of visits and had knowledge of the Tulameen, Wells recalled.

One day, Powell approached Wells to see if he was willing to sell Stone Mountain Resources and the Tulameen claims to a third party he worked for in South America, according the RCMP. The company was called Merendon Mining Corp. Ltd., a company securities regulators say was owned by Gary Sorenson.

“And he asked me what I wanted for it, and I just threw a number on the table,” Wells told the ASC.
One million dollars was the answer, to which Powell responded, “Oh, I think we can get that.”

When the deal was completed, Wells was kept on as an employee of Stone Mountain Resources.

However, according to the RCMP investigation, Wells began to have disputes over how the operation was being run.

Wells (who could not be reached for an interview) apparently thought there were several people working on the site that were more interested smoking marijuana than doing anything else.
He coined the phrase “Stoned Mountain” when referring to Stone Mountain Resources, according to an RCMP legal filing

Mounties say Wells was also concerned about what he perceived to be wasteful spending.

“Stone Mountain Resources was spending hundreds of thousands dollars putting infrastructure into a location in which no precious metals/ minerals had been located,” the RCMP’s report states.

“At this time (January 2003 to December 2004) there was no indication that the area was economically viable but they continued to put in roads, a bridge and several buildings.

“The area looked good, but no work was being done.”

Later, Wells was let go
But interest in the mine was high in early 2005–at least from a Calgary-based company called Strategic Metals Corp.

Strategic Metals was incorporated in April 2004 with Brost, Sorenson and Arthur Wigmore initially listed as directors, but were removed over six months later.

On Jan. 1, 2005, a$9.6-million deal was reached between Merendon Mining–controlled by Sorenson –and Strategic Metals for the purchase of Stone Mountain, according to records obtained by the RCMP.

Months after the deal was closed, Wells seemed at a loss to explain why anyone would pay that much, when he had sold for $1 million just 13 months earlier.

“I kind of smiled. I mean I wished I had sold it for $9 million,” he later told the Alberta Securities Commission.

For their part, Stone Mountain officials later said Wells didn’t have access to geological information and his views on the site’s value are mistaken.

The minds behind Strategic Metals appeared excited about their new investment, as did the company that marketed its financial promise, Capital Alternatives.

According to an ASC probe, Brost had a history of involvement with both companies.

Alternatives’ website boasted of the value of the Tulameen site, while heading off any potential investor concern that it could be a hoax, like another Calgary-based firm with significant gold claims.
“Is this investment anything like the Bre-X scandal?” wondered the website’s question-and-answer section regarding Tulameen.

“Bre-X was the ultimate stock play with a very good mining opportunity and no production. At no time did they ever say they would be producing gold, whereas Stone Mountain Resources is already in the process of producing precious metals.”

But the RCMP’s investigation of the company’s activities suggests there may have been at least some Bre-X parallels, where assay results were salted with gold to make them look fantastic.

According to a 2008 RCMP court application, Mounties said a former mine manager claimed he was let go because he refused to sign an affidavit for Sorenson guaranteeing a certain grade of precious metal in the ground.

Geologist Theodore Reimchen, who worked on the site, also told Mounties that “Stone Mountain Resources does not have a precious metal/mineral operation at Tulameen, instead, the value is in the recovery of black sands, which has industrial applications.”

According to the RCMP document, Reimchen suspected the high assay results under the previous ownership may have been the result of salting.

While the criminal charges laid against Brost and Sorenson this month are now winding their way through the courts, the ASC concluded that much of the hype surrounding the gold and platinum results at Tulameen was overstated.

As part of a decision in 2007, the commission found Capital Alternatives’web page boasted that exploration at Tulameen began in 1997 and continued to 2000; “setup of the mining process” took place from 2001 to 2003; and “full production start(ed) in the summer of 2004.”

“This disclosure by Alternatives was therefore untrue,” it said.

The securities’ watchdog also found that claims the company had delineated proven reserves of 2.5 million ounces of gold–and an equal amount of platinum reserves–were merely “promotional hype.”

Today, Strategic Metals Corp. sits in receivership, targeted by a class-action lawsuit brought by former investors who lost their money.

“The alleged mining operations of Stone Mountain in Tulameen are a scam,” Michael Quilling, the inspector in the receivership, alleged in court documents filed last year.

“The funds spent on infrastructure improvements in Tulameen have been for show to give investors the illusion that real mining operations exist.”

Lawyers for Brost and Sorenson declined to be interviewed by the Herald last week.

However, in court filings filed last year, a Stone Mountain director rejected the accusations levelled against the firm.

“I do not know of any investor funds that have been misappropriated,” Ryan Jones wrote in an affidavit in September 2008.

“The mining operations of Stone Mountain are not a ‘scam’ as alleged by Mr. Quilling.”

Regardless, the old Stone Mountain claims have been purchased by another company, but its aim isn’t to get rich on platinum or gold.

It aims to develop black sand–or magnetite — that could be used in the cleaning of coal.

In a court filing made in January, the receiver said he expected to reach an agreement of $575,000 for the claims, which once attracted millions of dollars.

Sitting in the sunshine outside his home in nearby Coalmont, 67-year-old Ken Burke concedes there isn’t much he hasn’t seen in his decades living and working in the area.
And there’s not much he doesn’t know about the mining that’s gone on in the region.

He knows the tales of Tulameen booming in the 1880s with the discovery of gold in the local creeks, or Coalmont developing around a coal mine.

“There’s a hundred stories,” he says, taking a slow drag on his cigarette, before launching into a long, woolly tale about one of the region’s great characters.

“If the walls of the old Coalmont Hotel could talk . . .”

He’ll also tell you about the value of the rocks he’s collected at his home and those that can be found in the area. The region is indeed rich in resources, and he believes the black sand at Tulameen has real value.

But he has a warning for greenhorns that seems as old as the hills.

“There are honest people in the mining business,” he says, “but they can be hard to find.”

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