A SINGULAR PURSUIT: The tangle of companies his father Jack Allen

Over the past two decades, Peter Ackerman Allen has fused together a perplexing assemblage of small, linked mining companies into a single, modern, big-league gold player called LAC Minerals. Along the way there was one enormous setback — the courtroom loss to International Corona of the billion-dollar Page/Williams mine near Hemlo. Allen rebounded. He re-directed the company, shaped it into a million-ounce producer and instituted a shareholder’s rights protection plan — a poison pill, in the financial vernacular. Previously, American Barrick, Placer Dome and Falconbridge had all nibbled and backed away. With the poison pill, the acquisitive have retired. Only an old-fashioned proxy fight of the type perfected years ago by none other than Allens father J.C.L. (Jack) Allen could wrest control of LAC from the younger Allen. But that’s unlikely. Who can knock his post-Hemlo achievements?

The predecessor company to LAC Minerals was born in 1951 out of a fight over control of an aging orebody near Geraldton, Ont. Peter’s father Jack, who ran his own stock brokerage, carried the banner for the dissenters against the controlling group led by Watkin Samuel. Samuel, in 1946, was telling shareholders that Little Long Lac Gold Mines was running on empty. The grade of ore was low and getting lower. The prognosis: another four years at best. Allen’s group countered that, with a serious injection of skill and moxie, a more productive old age could be secured. A majority of shareholders were easily persuaded with visions of a prolonged stream of dividend cheques. They sided with Allen’s group at an April, 1951, meeting. Thus was born the Little Long Lac group of companies.

Allen and his crew did squeeze out a few more years of ore — ransacking the gold-rich shaft pillar, no less. They finally quit in 1954. That same year, 14-year-old Peter Allen, too young for the corporate fray but likely acquiring tidbits at the dinner table, entered Trinity College School, a private school in Port Hope, Ont.

A couple of years later, Little Long Lac metamorphosed into an investment and exploration vehicle. Jack Allen’s first investment foray led to the Bahamas for a chat with a representative of the estate of Sir Harry Oakes — but not with the widow, as legend has it. He persuaded her to sell her interest in Harry’s marvelous creation in the Kirkland Lake camp, the Lake Shore mine. Once an annual 500,000-ounce-plus producer, Lake Shore during the time of the senior Allen’s intervention was a depleting, but still productive, resource.

He would later add to the portfolio Lake Shore’s neighbor, the Wright-Hargreaves mine, as well as MacLeod-Cockshutt, Hardrock Gold, Perron, East-Malartic, McKenzie Red Lake, Barnat, Macassa, and plenty more. His favorite tactic — proxy battles to turf out entrenched management. If the companies didn’t have producing mines, they did have ample treasuries. The elder Allen wasn’t collecting ancient producers for sentimental reasons.

It was a profitable, but bewildering collection of companies lashed together through interconnected ownerships. The younger Allen was later to inherit, unravel — “the old structure confused even us” — and, by 1985, finally reshape them into a decipherable corporate entity.

But before that could happen, Peter was to graduate from the sixth form at Trinity and go on to the University of Toronto. He graduated with a civil engineering degree in 1962 and joined Imperial Oil that same year.

“Right off the bat I saw what a big, modern, technologically-advanced company looked like,” recalls Allen. “In mining generally you didn’t have that. And at Long Lac we couldn’t afford it.” In 1965, the year Lake Shore and Wright-Hargreaves hoisted what was thought to be their final skiploads, Allen jumped to his father’s stock brokerage firm, gathering directorships in several of the Allen companies. By 1974, Peter Allen had become president and chief executive officer. Unfortunately, the inheritance was rather moribund. Says Allen: “Things were not looking good. We were below the critical mass even to retain good personnel.” Long gone were the Lake Shore and Wright Hargreaves as producers. Only the base metal operation Willroy and the East-Malartic and Macassa gold mines were running.

He authorized an all-out exploration drive under the guidance of Dennis Sheehan. Sheehan’s focus was the Cadillac area of northwestern Quebec. “We took an interest in Bousquet and Doyon for a Noranda-type occurrence,” says Allen. Sheehan’s team quickly proved up the Thompson-Bousquet property (now Bousquet Nos. 1 and 2) — as predominantly a gold property not a polymetallic a la Noranda — and advised the Lac group to buy a piece of the nearby Doyon ground.

Then, in early 1981, Sheehan and Kirkland Lake exploration manager Chris Pegg made the fateful visit to Hemlo. That journey led to an enormous Canadian gold find, the fattest since the Kirkland Lake camp discovery. It proved up millions of ounces of gold, created three outstanding mines, and, finally, raised the curtain on an historic corporate courtroom drama that pitted International Corona, a junior at the time, against LAC. The courts ruled in favor of Corona. LAC had been deemed to violate the law in acquiring its Hemlo ground. The disputed Page/Williams mine, was given to Corona (and Teck Corp. as half owner). And in a single, dry, legal pronouncement, Allen saw his vast gold reserve shrink to a comparative trifle.

“A loss the magnitude of Hemlo would have normally destroyed a company,” says Allen today.

Some of LAC’s exploration people who worked on the Hemlo project in the early days have fond memories of the camp. The LAC team was a close-knit, but loosely-structured group, spirited and very committed. One geologist noted that, several years later, the early days of Hemlo still rank as the high point in her professional career. And for some the emotional attachment remains. “In my mind I see it (Page/Williams) as being a LAC Minerals deposit. It was discovered by LAC, explored by LAC, and developed by LAC into a first-class mining operation,” says Robert Valliant, who was, back in the heyday of Hemlo, LAC’s Director of Exploration.

Allen dismisses the issue of Hemlo with a weary, “we all know what happened to that.” But he adds: “We took our licking. We reviewed our capital budgets with a view to increasing them for development purposes. We showed a shift in attitude, which led to discoveries at Doyon and Bousquet No. 2, the building of a new concentrator at Macassa and the finding of the 05 zone there.”

The appeals process dragged on for several years. In the meanwhile, a bruised Lac pressed ahead. In 1987, it acquired, in an innovative debt/equity swap, the Toqui zinc mine in Chile, a 650-ton-per-day underground producer. In 1989, the Supreme Court of Canada ruled definitively (by a 3-2 margin) in Coronas favor, giving it the Hemlo mine. LAC was reimbursed $212 million for development costs.

That same year, Peter Allen made the boldest move of his corporate career. Bond International Gold (BIG), a 600,000-oz. producer, was being shopped around by a failing Australian financial empire. Bond first approached Allen with talk of a “joint venture or something. We thought about it,” recalls Allen, “and decided not to. A few weeks later we did a due diligence on an acquisition basis that ultimately led to the purchase.”

Did any red lights go off during the study period? “We are unaccustomed to that level of debt (in the area of $370 million). The various forms of debt didn’t fit with each other either and they were potentially expensive forms of debt.”

Creditors aside, Bond brought with it 629,000 oz. (1990) of gold production and two jewels. El Indio in Chile was the first. This mountain-top complex of underground and open pit mines yielded nearly 216,000 oz. last year. (Ed. Note: See separate story detailing our mine visit.) The other jewel was the Bullfrog, an open pit mine near Beatty, Nevada, that last year contributed 220,000 oz. Both production and reserves are on an upcurve.

By and large, the i
nvestment community lauded the acquisition. Some financial analysts quibbled about the price. A few fretted over the debt. Some didnt like Bullfrog. But it garnered two thumbs up from the likes of Egizio Bianchini and Dominik Dlouhy, analysts with brokerage house Nesbitt Thomson Deacon Inc. “With this acquisition the company has established itself as one of the major producers in the North American gold mining industry,” noted one of their reports.

Analyst Bianchini also believes the “revolving door” that saw several key people leave in the late 1980s and early 90s has been shut. The departures, Allen told The Northern Miner Magazine, were “evolutionary.” Bianchini agrees. The exploration-oriented LAC of the Hemlo days is weighted more now to operations/ acquisitions. “The company, to me, is focusing on operations, acquisitions, and development at operating mines and advanced projects,” Bianchini said.

Today, Allen worries less about building reserves than about turning a profit from the reserves he has. The price of gold, at about US$355, is uncomfortably close to operating costs — at the original LAC mines last year, US$305 (includes cash and non-cash charges); at the BIG mines US$376 ($239 cash plus $137 non-cash). So LAC is paying down the Bond debt to minimize non-cash charges. And unit costs should also fall, according to Allen. “We’re comfortably ahead on spending … We’re not desperate to drill off our next stope.”

As for the gold price, Allen is a cautious bull, “after being pretty bearish for 12 or 13 years.” The former bearishness was reflected in LAC’s profitable hedging practices over the past decade. Last year alone, 60% of LAC’s operating earnings flowed from hedging activities. But not this year — forward positions simply aren’t as lucrative.

With gold so lacklustre, LAC will entertain base metals prospects. But corporate development, a department he is formally structuring this year, does not entail ventures into “soft-rock” plays, such as coal or tin. “We have enough problems in mining without adding the marketing risks.”

Today, with the Bond acquisition a comforting reality, Allen waxes enthusiastic about the company. People in the organization are upbeat. Allen himself is focusing on managerial issues and strategic considerations, not a court case. LAC is strong technically and operationally, he continues, and is not dependent on “one person, one group or one mine. The company as it stands is a crackerjack.”