A mining company's holes

By Dave Frank

Appeal Staff Writer

Mining company HE-5 Resources used the work of geologist and former employee Paul Pelke to lure investors even as he was trying to collect a half year's worth of pay from the company.

Pelke had helped the Canadian company get the permits and contractors it needed to drill at the Overman Pit outside Virginia City, though he was never paid the $10,000 he was owed.

The company went on to do preliminary drilling, but never any actual mining. It defaulted on payments and lost the lease on the property.

That happened in March, about the same time the Reno geologist last heard from the company.

"You just have to be careful when you deal with these people," he said.

But HE-5 Resources has continued to promote the pit as a potential outgrowth of the boom of 19th-century Comstock Lode and, in the two years since it began, has used many other people and businesses to advertise a mining project that attracted investors whose stock is now essentially worthless.

In a January news release, for example, the company announced it would construct a leaching plant to process ore extracted from the Overman Pit.

The company's stock, which was never listed on a major stock exchange, reached its peak at less than a dollar a share in July 2007.

It is currently listed on over-the-counter markets as valued at less than a penny a share.

It managed, however, to use optimistic press releases based on information and work from many Nevadans to promote a project that never produced anything.

The company, for instance, was still short $50,000 when Steve Russell canceled the lease he had given them for the pit property.

He also did geology work for the company, but broke with them after he had to struggle to get paid. He stressed that he is no longer associated with the company.

Some companies that had ties to HE-5 Resources, such as Virginia City-based GoldSpring Inc., which didn't directly lose money, had their reputations hurt through association.

HE-5 Resources put out a press release in November 2006 saying that it had given GoldSpring a contract to process ore, but GoldSpring said HE-5 never raised enough money to pay for the job.

"We don't need to have guys like that around who are cheating people out of money," said James Golden, GoldSpring's chief operating officer.

Who is running HE-5 Resources now and why, however, is difficult to say.

The Quebec-based company has been listed at several phone numbers and addresses, including an abandoned mobile home in Carson City, but never returned dozens of messages this year requesting comment. There was no answer or opportunity to leave a message when a reporter called the company's local Carson City number on Saturday.

The company's Web site is currently under construction.

Serge Ollu, who was convicted of fraud in Quebec in 2006 on a charge unrelated to HE-5, is the most active officer in the company. He is also involved with notorious businessman Andrea Cortellazzi in several other businesses that operate similarly to HE-5. An anonymous blogger has even set up a Web site to uncover Cortellazzi's dealings, www.cortellazzi.wordpress.com.

Tracking down anyone from the company, however, can be difficult, as people found after HE-5 set up a scholarship contest through the Nevada Appeal.

It offered three $2,500 scholarships for the elementary school students who could best answer the question, "Why is mining important to Nevada?"

Winners were selected after the October deadline, but the company never paid any of the children.

Angela Frisina, whose son was selected as one of the winners, said she talked with representatives from the company a few times, but only got empty promises.

It was frustrating not being able to force the company to cooperate, she said.

"It's not like I can go in their door, sit on their desk and say, 'Cough it up.'"

Randy August, who investigates mining fraud in Nevada for the U.S. Bureau of Land Management, said he hasn't closely examined HE-5, but said it has "all the hallmarks" of a scam.

The problem with prosecuting fraud mining, however, he said, whether it is through his office or any of the state offices that regulate some aspect of mining, is getting someone to file a complaint against the business and proving that a law was clearly broken.

Small fraud mining companies are common in the state, one of the top gold mining areas in the world, but investigators are often happy to just get the largest scam companies, he said.

To explain that people should be skeptical of unfamiliar companies, August referenced a quote often attributed to Mark Twain.

"A mine is a hole in the ground owned by a liar," he said.

• Contact reporter Dave Frank at dfrank@nevadaappeal.com or 881-1212.