Gold in the hills

JENNIFER WELLS March 25 1996

Gold in the hills

JENNIFER WELLS March 25 1996

Gold in the hills



David Walsh is up to his nostrils in gold. The real stuff. He does not know exactly how much he has. But he does know that his Bre-X Minerals Ltd., the junior mining stock du jour, has jumped from $1.90 to as high as $170, that his geologists say Bre-X has struck an Indonesian

geologists say an Indonesian gold find containing 30 million ounces “plus plus plus,” and that the thrum running through the company’s annual meeting in Toronto’s Royal York Hotel last week carried that number as high as 100 mil-

lion ounces. If that is true, David Walsh, onetime institutional trader turned stock promoter, may just have led, from his Calgary basement no less, the discovery of one of the richest gold ore bodies ever.

In early March, Walsh moved into corporate digs in downtown Calgary.

Bre-X shares, he says, will soon be listed on the U.S. over-the-counter

market and then the Toronto Stock Exchange, having lived their life so far on the Alberta Stock Exchange. Refreshingly, Walsh has acquired none of the requisite polish of the chief executive officer, is a painful speaker, seems dazed by questions from the audience, and can hardly wait for the meeting to end so he can light a cigarette. As a shareholder approaches, Walsh asks the obvious question in such circumstances: “What did you get in at?” “Thirty,” is

the reply. “Not bad,” says Walsh. “It’s 168 now.”

'Generally,' says one investor, 'I'm just in for the quick buck'

Bill Thomson bought in at $63. “I sold a hundred of ’em. I still own 250,” he says. “Generally, I’m just in for the quick buck. I can’t afford to lose.” Why? “Because I’m 81.1 buy and sell so fast, sometimes I can’t remember what I’ve got.”

Thomson has been investing in mining stocks since 1946. He remembers when the price of gold was raised to $35 an ounce from $20, when Toronto was a haven for penny mine promoters, and the exploration excitement came from mining camps near Timmins or Rouyn-Noranda. These days, Canadian mining companies,

particularly the aggressive juniors, have moved abroad to other topographically tough locales. They may find nothing at all. On the other hand, some of the most exciting mineral discoveries in memory, from the Hemlo gold find in Northern Ontario 15 years ago to what seemed the wildly unlikely notion of diamonds in the Northwest Territories, have

been discovered by these same small players. Steve Misener, senior vice-president at BPI Capital Management Corp. in Toronto, puts it this way: “The big mining companies can’t find their way to the bathroom.” The majors jump in later, as Falconbridge Ltd. has done with its $4-billion bid for the Voisey’s Bay nickel find in Labrador. David Walsh, too, will strike a deal, though he talks about selling just 25 per cent of the gold find known as Busang.

Canadian junior mining companies are now raising more financing for exploration than those in any other country. We’re head and shoulders above the next capital market,” says Misener. “We’re way ahead of the Australians. London is nowhere. The United States? Not there.”

The Bre-X camp is in Kalimantan, the Indonesian side of the island of Borneo. The day before last week’s annual meeting, the Bre-X team joined 4,700 other attendees at the annual prospectors and developers convention in the Royal York, where it showed off its ore samples in the convention’s Core Shack. As the band warmed up for Kirkland Lake Night—the shindig high-

light of what is, in essence, a three-day drink ’em up—booths one floor below promoted mining opportunities from Mongolia to South America. Geological sketch maps of Albania were there for the taking. “For many years, exploration was basically Canada, the United States, Australia and the country of choice,” says John Hansuld, president of Central Asia Goldfields Corp. “The country of choice was where the latest discovery was found.”

Central Asia is exploring for gold in Kazakhstan, formerly part of the Soviet Union. The “stans,” as everyone in the mining game calls them, are some of the hottest territories for geologists. Later this year, Cameco Corp., the Saskatoon-based uranium producer, will start mining gold from an open pit atop a 14,000-foot mountain in Kirghizstan. Robert Friedland, who backed Voisey’s Bay, has spread his newer mining interests from Java to Vietnam to South

Korea and Kazakhstan, where, he says, “we think we have at least 50 million ounces of gold and one of the world’s largest gold deposits.” The irrepressible Friedland has never, it seems, underestimated anything. Like Bre-X, he is in Indonesia, through Indochina Goldfields, which he will take public this summer. ‘We hold a mineral project in northeast Kalimantan within which Switzerland could comfortably fit,” he says. “Its potential upside cannot be exaggerated. If somebody’s excited by blue sky, then this is the sort of thing that would interest people.”

Junior mining companies have always held promises of inestimable riches. And playing their stocks has always been a punter’s game. Today’s action, says Frank Giustra, has been abetted by the demise of old political regimes, and propelled by mining and money talents honed in this country for 10 years. We’re the world leaders both from a technical point of view and from a capital markets point of view,” says Giustra, chairman of Yorkton Secu-

Digging for dollars In the past three years, Canadian junior mining companies have raised up to $6 billion for overseas exploration. Some of the companies, and the minerals, they are seeking: Main Minerals exploration site Bre-X Minerals gold Indonesia Arequipa Resources gold, copper Peru Asia Pacific Resources potash Thailand Chivor Emerald Corp. emeralds Colombia Central Asia Goldfields Corp. gold Kazakhstan

rities Inc. Giustra says that in the past 2 1/2 years Yorkton has raised $1.2 billion in equity for junior resource companies exploring outside North America. The ease with which Canadian companies can raise financing dovetails neatly with the growing need for foreign investment dollars in emerging regions. Mining laws that give security of title and tenure and tax rates as low as 30 per cent have directed the Canadian players to their targets. “Mining represents the easiest and most readily available means to generate a tax base and foreign exchange reserves,” says Giustra. “The resources are there, and the capital and expertise needed to exploit that resource is easily importable.”

But there have been problems. Venezuela opened up to Canadian juniors early, then beat a protectionist retreat. “Within a nanosecond,” says Giustra, “investment stopped in that country and started going elsewhere in the world.” There will always, he maintains, be “loser” countries. “Certainly there is a risk that you’re going to have blowups,” he says.

Across from Giustra sits Dave Fennell, chairman of Golden Star Resources. In the 1970s and 1980s, when Fennell played for the Edmonton Eskimos, he was known as Dr. Death. But Fennell long ago got out of football and into mining, most recently the hunt for diamonds in French Guyana. He has a slower speaking style than Friedland, but Fennell is equally hyperbolic. He talks of kimberlite pipes, which could mean a potential diamond find, or nothing at all. ‘You’re talking about a pipe,” he says of one of his own, “that is larger than anything else that anyone has ever found anywhere.” He has maybe 25 other exploration projects on the go. He’s looking for gold in Suriname. He offers a ride on his plane.

Fennell and Giustra head back to the big-talking convention crowd. The Bre-X name falls from the lips of the beer drinkers. Perhaps they have been talking to Mike de Guzman, who manages the Busang site. The gold there, he says, “sits along the fractures like a fine brown sugar.” A hundred million ounces? Unofficially, de Guzman thinks so. So often the mining tales are not real. Sometimes they are. □