Kaiser aims to end legal issues stalling Madeleine project

Patrick Sheridan’s much publicized bid to bring the Lac des Iles palladium-platinum project into commercial production single-handedly ended recently when he resigned as president and director of Madeleine Mines (TSE).

Sheridan and fellow director Alex Pearson tendered their resignations at a special board meeting Oct. 8 just one week after Sheridan lost control of the Toronto company to Oklahoma oil executive George Kaiser. (T.N.M., Oct. 7/91) An investor since 1988, Kaiser increased his holding in Madeleine to 32% from 19% after a key block of 1.4 million shares was sold by Sheridan companies Anyox Metals (ASE) and Zenmac Zinc (ASE). Sheridan sold the shares to answer margin calls when the stock fell below $3.

Pressured by low precious metals prices and concern that Sheridan’s legal battle with the Ontario Environment Ministry would stall the project indefinitely, Madeleine shares have fallen to $2.60 from a high of $6.50. As Madeleine’s new controlling shareholder, Kaiser, through his 100% owned Oklahoma oil firm Kaiser-Francis Oil, clearly has the financial ability to get North America’s first open pit palladium-platinum mine into production. The largest privately owned gas producer in Oklahoma, Kaiser-Francis generates annual revenues of about US$100 million and Kaiser recently bought control of the Bank of Oklahoma from the U.S. Federal Deposit Insurance Corp. Following an investment of $8 million in Madeleine, Kaiser’s immediate priority is to deal with a number of legal issues, including a lawsuit launched by the Ministry of the Environment after he began operating the mine without a permit. A hearing is scheduled to begin Feb. 10, 1992, in Thunder Bay.

On Oct. 22, an Ontario Court will rule on the Environment Ministry’s attempt to obtain an injunction to prevent milling operations at the Lac des Iles mine site from going ahead until Madeleine complies with the law. To reflect its 32% interest, Kaiser-Francis has named Dale McDoulett, its manager of strategic ventures, and chief financial officer Joseph Graham, to the 5-member Madeleine board. McDoulett succeeds Sheridan as president and a third Kaiser nominee is expected to be named soon.

Glenn Clark, an engineering consultant hired by Kaiser-Francis to manage the Lac des Iles project, flew with McDoulett recently to visit the site and met with Environment Ministry officials in Thunder Bay.

After a brief discussion with Wayne Scott, director of the Environment Ministry’s northwestern region, Clark was handed a package of documents to be filled out before the Lac des Iles project can properly be assessed. “If we have reason to believe the package is complete, we would look at ways to speed up the process really quickly,” said Scott, who estimated it could take 4-6 weeks to approve the documents after they are submitted. While Sheridan has lost his dominant position at Madeleine, he still holds about 11% of the company’s 8.8 million issued shares through Anyox and Zenmac. His secretary Virginia Hall remains on the Madeleine board along with longtime director Stan Hawkins. The Sheridan Platinum Group, a private company owned 90% by Boston Bay Mines (CDN) and 10% by Sheridan, still holds 50% of the 5,000-acre Lac des Iles property.

As a result, it is in everyone’s best interest to embark on a co-operative effort, said a Kaiser-Francis insider who asked not to be identified. But even if the Oklahoma company succeeds in resolving the permitting questions surrounding its 50% owned operation, longtime observers are skeptical about the economic viability of such a low-grade orebody. Reserves in the Roby zone stand at 22.5 million tons of grade 0.19 oz. platinum group metals per ton, according to Madeleine’s 1989 annual report, and the ratio of palladium-to-platinum varies from 4-to-1 to 8-to-1. By contrast, the average grade of platinum group metals at the Stillwater mine in Montana — the only producing palladium-platinum mine in North America — is about 0.8 oz. The ratio of palladium-to-platinum at the underground Stillwater operation is 3.5-to-1.

Analysts, who won’t discuss the project in public, are also waiting for Madeleine to make an announcement on where concentrates produced at the 3,000-ton-per-day project will be refined.

When asked about these issues, Graham said Kaiser-Francis will not be in a position to table its plans for another couple of weeks. But Hawkins predicts that with mining costs in the range of $10-15 per ton, the operation will be very profitable, especially if metal prices go up. “Madeleine is almost debt-free,” he said.