Challenging year ahead for Placer Dome

New at the helm of Placer Dome (TSE), President John Willson must contend with more than just weak gold prices.

The former Pegasus Gold president replaced Tony Petrina, who resigned last summer after Placer Dome announced writeoffs of almost $300 million related primarily to investments in the Mt. Milligan and Eskay Creek projects in British Columbia. Mining analysts were highly critical of management’s weak negotiating skills and less-than-thorough analyses of the target projects. In recent months, however, Placer Dome has enjoyed a positive market re-rating in light of its management changes, strong balance sheet and successful efforts to cut operating costs and increase reserves. Yorkton Securities, a critic in early 1992, recently said the required fundamentals are now in place for Placer Dome to regain its premium market rating. Once criticized for having too much Third World exposure, Placer Dome is also being given full marks for its broad geographic diversification, including its latest venture into a Chilean copper project.

New York-based J.P. Morgan Securities, although somewhat less bullish about the 1993 outlook, views Willson’s appointment as a “positive factor” and cites his technical background and record at Pegasus, which has profitably mined low-grade deposits.

But Willson will likely have to spend considerable time on legal issues as efforts continue to resolve outstanding disputes related to the Porgera gold mine in Papua New Guinea (PNG), and the Pipeline gold discovery in Nevada. Placer Dome has a 22.7% direct stake in Porgera, its lowest-cost gold producer (cash costs averaged US$83 per oz. during the first half of 1992). The new coalition PNG government headed by Paias Wingti plans to negotiate the acquisition of an additional 20% (to boost its stake to 30%) in the large mine, which is estimated to have produced 1.4 million oz. gold last year. This turn of events is complicated by the fact that the new PNG government is being advised by Robert Needham, a former Placer executive who was recently appointed managing director of the PNG Mineral Resources Development. Needham, whose parting with Placer was not amicable, was also the foundation chairman of the Porgera joint venture committee from 1979 to 1987. Closer to home, Placer Dome U.S. (PDUS) is embroiled in a legal dispute with Gold Fields Mining, a division of Hanson Natural Resources, relating to a portion (about 38%) of the Pipeline deposit. The Nevada project is estimated to contain about 4.2 million oz. gold and is held by the Cortez joint venture, 60% owned by Placer Dome.

Gold Fields’ first seven claims include various allegations of fraud, breach of contract and breach of fiduciary duty, while the eighth claim arises under the Racketeer Influenced and Corrupt Organizations (RICO) Act. The case is complex in that certain claims relevant to the dispute held by Placer Dome and Gold Fields overlap and conflict with each other. But Gold Fields alleges that Placer Dome’s discovery hole of March, 1991 (91907) was drilled on its GRM 778 claim, and that a bulldozer was used to obliterate physical evidence of the hole. (Gold Fields also alleges that PDUS drilled subsequent holes on GRM claims without notifying the Bureau of Land Management and concealed evidence of the drilling.) It is further alleged that PDUS used information from Gold Fields’ previous drilling (late February and early March of 1991) by trespassing and sampling mineralization from three exploration holes.

As well, Gold Fields says that before the execution of the Aug. 13, 1991, option agreement between the two companies, PDUS did not disclose its knowledge of an “enormous” deposit within the GRM claims, as was (allegedly) required by various confidentiality agreements. Instead, Gold Fields alleges it was told that PDUS needed the claims for heap-leach pads and dumps. Placer Dome insists, however, that all its drilling was conducted on claims that it controlled, with the initial drilling ordered to condemn a proposed heap-leach site. The company believes it has acted properly at all times and that the claims are “without merit.” It has also counter-claimed against Gold Fields for abuse of legal process, disparagement and defamation of its business reputation, and for breaches of contract.

The Pipeline legal dispute is still in the early stages, and no dates have yet been set. But the case could emerge as this decade’s equivalent to the controversial legal dispute between Lac Minerals and Corona over a rich gold deposit at Hemlo, Ont., in the 1980s.