THE KIDD CREEK SAGA

Twenty-five years ago, in June of 1963, the Texas Gulf Sulphur company paid $18,000 and a 10% net profits royalty for a 2-year option on some patented mining claims about 10 miles north of Timmins. The claims had been held by the estate of the late Murray Hendrie. That fall, on Nov 7, 1963, one of the company’s exploration geologists, Ken Darke, directed the start of a diamond drill hole, K-55, on the Hendrie property. Four days later the drill began cutting a massive sulphide deposit and the Canadian mining industry hasn’t been the same since. In fact, that hole changed the nature of the securities industry in both Canada and the U.S., was instrumental in several major lawsuits and a royal commission, and was the first indication of a mineral orebody the likes of which was to astound many people. Kidd Township is now the site of the Kidd Creek mine, a major world producer of copper, zinc and silver.

As for the Murray Hendrie estate; after the executors had sued Texas Gulf for $400 million in damages and lost and the Ontario Supreme Court disinherited more than 100 descendants of Hendrie’s 10 half-brothers and half-sisters, William Gilmour of Hamilton,Ont., a step child of Hendrie, was found to be the sole beneficiary. Texas Gulf had often tried to buy back that 10% royalty. It finally succeeded in 1969, paying the Hendrie estate $27.5 million.

Back in 1963, however, the Hendrie property was virtually worthless. Only Texas Gulf, which had been doing consistent exploration in the Timmins area for years, had any interest in it. That interest turned out to be well founded.

On Nov 13, 1963, Darke thought enough of the drill core coming from K-55 that he had the company’s exploration manager, Dr Walter Holyk, travel from Toronto to take a look. After their examination, Darke and Holyk had the rig moved off the geophysical anomaly they were drilling in order to conceal where the core had come from. They even went so far as to cut saplings and stick them in the ground where the rig had been.

It wasn’t until December that assays on the drill core came back, and they were the only assay results available until the discovery was officially announced on April 16, 1964. Over its 600-ft length, the hole averaged more than 1% copper, 8% zinc and almost 4 oz silver per ton.

But the results were kept confidential and, according to the public record, no one other than a few Texas Gulf insiders knew the significance of that hole until April 16, 1984. Rumors, however, were rampant much earlier. The Northern Miner reported on the activity in a front-page article dated Feb 27, 1964, which read, in part: “The famous Porcupine gold camp is fast becoming the focal point of one of the biggest collective exploration campaigns to be seen in Ontario for many, many years * * * The rumor-machine has Texas Gulf obtaining some fat ore indications from its work.”

When Texas Gulf did finally announce its discovery, it unleashed a staking rush fuelled by months of unconfirmed rumors that was unlike any other staking rush.

It was dubbed “the whirlybird rush” in the April 23 issue of The Northern Miner because of the use of helicopters, and the newspaper said upwards of 6,000 claims had been staked in the first week from the Texas Gulf announcement. Claims that were worth $100 a week earlier were now selling for $20,000.

“Several hundred men are in the field — it is impossible to tell how many — but deep slushy snow in the bush coupled with flooding streams and ponds have created nigh-on impossible ground conditions,” the paper said.

On the stock market, there was pandemonium. Records in volume of trading were being set that would stand from almost a quarter of a century despite all the technological advances in trading.

Again from The Northern Miner of April 23: “There was bedlam on the floor, the din of which could generally be heard a block away on Bay Street. The high-speed ticker tape ran as much as 60 minutes late.”

More than 100 issues recorded new highs during the week after that announcement. Volume reached just short of 100 million shares during the week, compared to 12 million for the same period a year earlier.

The day before the announcement Texas Gulf stock had closed at $29 5/8 (US) in New York. On April 16, the day the story broke in The Northern Miner, wire services carried the story and the stock was up 25%.

But Texas Gulf was far from the only stock play in those days of mid-1964. Two days after the Texas Gulf announcement, George and Viola MacMillan arrived in Timmins. Through an almost unbelievable combination of circumstances, the share price of Windfall Oils and Mines, a company they controlled, rose from 56 cents on July 3 to $4.70 on July 13 touching $5.60 at one point, on the strength of some claims that Texas Gulf had once optioned but dropped because of lack of potential. Windfall’s share price eventually fell to 80 cents . The MacMillans were acquitted on charges of defrauding the public and fraudulently influencing the price of shares of Windfall Oils and Mines (although Viola MacMillan, then 63, was convicted and sent to jail for “wash trading” in connection with transactions in shares of Consolidated Golden Arrow Mines). Nevertheless, the story of “the Windfall scandal” has become legend in the Canadian securities business. A Royal Commission i nto the Windfall case had charged that the MacMillans realized profits of almost $1.5 million on trading Windfall stock.

The Windfall scandal led to major changes in legislation governin g the issuing and trading of securities in Ontario, Canada’s largest securities market. Those changes are credited with driving the venture capital market out of the country’s financial centre, Toronto. The Vancouver Stock Exchange has since filled that gap to a large extent, although Toronto and Montreal to this day are trying to woo back that business.

Another landmark law case, involving Leitch Gold Mines as plaintiff, stemmed from the Texas Gulf discovery.

Soon after Texas Gulf announced its discovery, Leitch Gold Mines sued. It would let Texas Gulf keep the mine and pay Leitch $450 million or it could turn over the mine and pay damages of $50 million.

The suit essentially stemmed from some lines on a map. Was the property where the Kidd Creek mine is situated part of an agreement between Texas Gulf and Leitch?

Back in 1962, the U.S. company empowered David Lowrie, one of its exploration staff, to offer Leitch the use of some airborne geophysical data in return for a 10% net profits interest. In other words, Texas Gulf was giving up development rights on certain property in return for the royalty.

The question in the Leitch case was whether or not the Kidd 55 anomaly was included in that area.

After a 164-day trial, Chief Justice George Gale of the Ontario Supreme Court took almost a year and a half to study the evidence. He handed down his decision in favor of the defendant, Texas Gulf, four years and five months after the action had commenced. Leitch was awarded a single dollar for a minor breach of the agreement and decided not to appeal.

The trial was marked by some rather sensational press coverage. While studying the evidence before rendering his decision, Justice Gale took up offices in the medical suite of the courthouse because it was almost windowless and easy to secure. According to the Toronto press, police spent a week-end checking the office and each of the more than 1,100 exhibits looking for bugging devices before the judge moved in. The Toronto Telegram described the attempt of a man posing as a telephone repairman, to tap the judge’s telephone line, and an attempt by a supposed window washer on the a sixth floor scaffold to peer into the office. Justice Gale received four telephone calls threatening his life on the night he made public his decision.

It was certainly an exciting time. But all of that activity was really only subplot. The essential story was of a unique and amazingly rich mine in northern Ontario. Since operations began in 1966, it has been at the forefront of mining and processing tec
hnology in Canada, a model of a modern, clean and efficient operation, producing roughly 4.3 million tonnes of ore every year.

The subplots will, no doubt, continue. Ownership of the mine, for example, has already passed from an American company to a French company to a Canadian government- controlled company to a major Canadian nickel producer. At presstime, a 24.3% block of shares in the nickel producer, Falconbridge Ltd., was up for sale. Both Falconbridge and Noranda had bid for the Placer Dome block.

But the mine itself, the Kidd Creek orebody, pays little attention to the insignificant vicissitudes of shareholders, courts or sovereign governments. The mine continues to operate today and will probably continue to operate for at least another 25 years, oblivious to the whirlwind that has surrounded it since its discovery a quarter-century ago. — 30 —