Project pipleine’ key to growth

Speaking to more than 125 institutional investors and mining company representatives, Goodman and two other panelists from Echo Bay Mines and Bond Gold International debated the merits of growth versus dividends.

Growth, via acquisition and exploration, has been the focus of the new mining entrepreneurs. And the generation of good project ideas has been the key to success.

In 1973, The Toronto Stock Exchange’s gold index was dominated by Dome Mines, Campbell Red Lake Mines, Pamour Porcupine, Giant Yellowknife and Camflo Mines. Today, these companies either do not exist, have been merged or have been bumped from the influential list by the newcomers. Today’s index is led by American Barrick Resources, Echo Bay and Corona.

“In the intervening period, they (the new companies) had better project pipelines and took the risks,” Goodman said. “The newcomers have won.”

Plowing cash flow back into acquisitions and exploration, as opposed to increasing dividends, was favored by the panelists. “The ultimate objective of growth is the enhancement of shareholders value,” Goodman said.

Robert Calman, chairman of Echo Bay Mines (TSE), agreed. “Our real thrust is growth,” he told the audience. Again the key has been to increase shareholder value on a per-share basis by acquiring long-life low-cost gold assets in North America. “We remain modest explorers. We’ve done better via acquisitions,” Calman added.

Bond Gold’s Thomas Waltier, vice-president of exploration, had a similar tale. Although both Echo Bay and Corona have instituted modest dividend prices, Bond remains committed to growth. “Therefore we have not considered a dividend policy yet,” Waltier said.

Corona, which began as a 15,000- oz-per-year mining company, has increased output to 640,000 oz this year, following the company’s courtroom victory to gain control of the Williams mine at Hemlo, Ont., from LAC Minerals.

During its growth phase, Corona management led by President Peter Steen, astutely sought deals which would feed the project pipeline. For example, the acquisition in 1987 of control of Lacana Mining from Westmin introduced three advanced projects into the pipeline, Goodman said. These included the Musslewhite in Ontario and Marigold and Santa Fe in Nevada.

The company’s main project remains the Williams mine. Set to produce 500,000 oz of gold this year, the mine is Canada’s largest. Goodman was especially excited by the Williams depth potential.

“We believe there is a depth extension to the orebody which could match what is above.” What is above amounts to 33.9 million tonnes grading 6.2 g gold per tonne (0.18 oz gold per ton). The potential to double these reserves will be examined by Corona and Teck Corp., an equal partner at Williams, by underground development and drilling.

Amy Gassman, mining analyst at Goldman, Sachs & Co., and the seminar’s moderator, noted that the new senior gold mining companies had yet to reach the mature phase of the gold mining industry life cycle. This phase is characterized by declining unit profits, a reliance on higher production to offset rising costs and a need to build long- term strategic relationships with other companies.

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