Profile The Luck of a Low-Grader

Dennis MacLeod has this thing about ore grades. He likes to find ways of making money at grades so low that most of the mining fraternity would turn its nose up at it. It’s no wonder he was attracted to Pamour Inc., a company that was already making gold from one of the lowest grade underground mines in the world when Australian-based Jimberlana Minerals took control of it in 1985. It was MacLeod, already a director of Jimberlana, who was chosen to run the Timmins gold producer after the takeover. Within a year he had taken control of both Giant Yellowknife and soon-to-be-producing csa Minerals, making Pamour one of the largest gold producers in Canada.

The Pamour takeover wasn’t MacLeod’s first foray into the Canadian gold mining industry. In 1982, after two years of observing the mining scene from Toronto, he took control of TSE-listed erg and launched what is perhaps the most ambitious of all his many projects — an attempt to make money from something everybody else threw away. MacLeod’s Timmins tailings recovery project, scheduled to get under way in 1988, will be producing from an average headgrade estimated at 0.0103 oz gold per ton. You can’t get much lower than that.

But little more than a year ago, few Canadians in mining circles had ever heard of Dennis MacLeod. Even fewer had any inkling of how this Scottish- born chemist came to head one of the top gold houses in the country.

As anyone who operates a low grade mining operation can tell you, the two keys to profitability are recovery and low overhead. The recovery part came naturally to MacLeod, who spent 10 years in the South African gold business. For part of that time he was metallurgical manager at Vaal Reefs, then the largest gold mine in the world. Later, as a senior executive at Anglo American, he was to launch the $200-million ergo gold tailings treatment project. That project earned $90 million(R) last year, processing 1.8 million tons of tailings every month. The low overhead experience came through managing projects such as ergo and starting very small on his own deals.

Born in 1939, MacLeod was trained as a nuclear chemist and spent the early 1960s with the United Kingdom Atomic Energy Authority on the development of the fast reactor and nuclear submarine projects. In 1965 he went to Zambia with Anglo American and eventually rose to the position of chief chemist in the copper and cobalt divisions. From there, he went to South Africa and got his first taste of gold. It was early on in his South African experience that the entrepreneurial bug first bit. MacLeod and a couple of friends each kicked in $300(R) to clean up an old gold plant.

“We made a few thousand rand, nothing very serious,” he recalls. But it also showed him that there was money to be made in salvaging what others had left behind.

MacLeod left Anglo in 1977 to team up with Joe Berardo, a Portuguese entrepreneur. Together they formed the Egoli group of companies, named after the Zulu word for “place of gold.” That group now has six companies trading on both the London and Johannesburg stock exchanges and includes three small gold producers and one diamond mine.

The group’s success came on a couple of fronts but was concentrated on MacLeod’s favorite topic: low grade gold. It began acquiring the rights to tailings and old workings in the eastern Rand, where the original South African mining was undertaken. One of the group’s first projects was to take over a 1.2-million-ton-per-year gold plant which Anglo American was going to close down. They saved it by treating — what else? — tailings and low grade waste dumps in the area. That plant is still going today.

As the gold price went up and news of the tailings success at Anglo spread, the price of tailings dumps in South Africa began to rise. As a consequence, MacLeod began to look at the rest of the world for a similar situation. His field glasses focussed in on Timmins — the world’s largest gold camp outside of South Africa. But, more important, he realized it had more gold tailings concentrated in one area than anywhere else in the world.

MacLeod moved to Toronto in 1980 with one thing in mind: start securing the rights to as many tailings dumps as possible. With Joe Berardo looking after the South African companies, MacLeod took his time. He knew gold was cyclical and he wasn’t about to rush into anything while the gold price was high.

In 1982 he managed to get control of tse-listed Energy & Resources (Cam), which he later named erg Resources and used as the vehicle for his tailings venture. Over the next few years, erg looked at most of the major tailings dumps in northeastern Ontario. The company now has its hands on 172 million tons, including Pamour, Hollinger, and McIntyre in Timmins, and another 32 million from the Kirkland Lake camp. At presstime erg had just received a feasibility study on the tailings and was deciding whether to go ahead with the $60-million project. If the go-ahead is given, production is expected to get underway in 1988.

Leaving exploration to the explorationists, MacLeod optioned erg’s main gold property to Yorbeau Resources. That company has since spent millions of dollars on underground exploration and hopes to make a production decision later this year on the property, known as the Astoria mine. Erg will retain a 20% net profit interest.

MacLeod’s first encounter with Jimberlana Minerals was typical of the strategy he has always adopted. Jimberlana and Toronto-based Laurasia Resources were operating a low grade salvage gold operation just outside Johannesburg. They weren’t doing a very good job of it and in 1982 the operating company was put into provisional liquidation. Enter Egoli, MacLeod’s original South African enterprise, which got the operation producing profitably.

His time spent in Timmins made him familiar with the Pamour operation. Mining an average grade of just 0.076 oz gold per ton (most of it from underground operations), Pamour has to be one of the more amazing operations in Canada. Total production costs, including head office, are $27 per ton — probably lower than any other underground mine of its size in Canada.

Yet despite the near-heroic efforts of the 760-member crew in Timmins, it wasn’t a company to which anyone paid much attention. Controlled by mining giant Noranda Inc., Pamour’s year-end statements were showing losses more often than not. Knowing that Noranda was having debt problems, MacLeod decided not to wait until the big company put Pamour on the auction block. Early in 1985, as a director of Jimberlana, MacLeod approached Noranda and orchestrated a deal to buy its 3.4 million shares at $10 each. That put the capitalization of Pamour at only $70 million and included an established producer with 5,500 tons per day of milling capacity, six operating mines and a lot of key mining claims in the Timmins camp.

It was Jimberlana, an Australian based company with its main asset the South African salvage operating, which made the offer. Jimberlana is based in Sydney, under the chairmanship of Australian John Byrne and his partner Chris Kyriakou. Another member of the board is A. C. A. Howe who runs the well-known exploration consulting firm.

At the time, the purchase was viewed with some skepticism in mining circles. Some analysts didn’t (and often still don’t) bother to include Pamour in their lists of Canadian gold stocks. At the time of the takeover, the Timmins newspaper referred to Jimberlana as “suckers.” This adverse opinion to Pamour made the takeover hard to finance.

“Everybody thought Pamour was an old dog,” MacLeod recalls. Jimberlana had raised $14 million in Australia and approached the major Canadian banks, but there were no takers. Ironically it was two foreign- controlled banks — Barclays Bank of Canada and anz Bank Canada — that finally put up $14 million to help finance the deal. Still another $7 million was needed to close.

“We were a week away from closing when a small brokerage firm, Pollitt Legault & Co., in Toronto, agreed to put away $7 million worth of stock after the deal close
d,” says MacLeod. He says they were the only firm on Bay Street that gave them any credibility. That left Jimberlana with 37% of Pamour compared with the 48% Noranda had owned.

Whether or not they were suckers remains to be seen, but the stock has since risen from $9 to a recent $12.50 and the future will have a lot to do with the gold price. One thing is clear: the face of Pamour is changing. As Nick Restar, manager of services in Timmins, told The Northern Miner Magazine on a recent visit to the mines, “The new management is looking at Pamour from a long-term view. They are developing things. We are now looking outside of the boundaries of our present-day orebody.”

Those statements, echoed by most of the Timmins staff interviewed, reflect as much on activities at the head office as at the mine site. Only four months after the deal with Noranda closed, Pamour bought from Falconbridge Ltd. the largest single position in Giant Yellowknife Mines. For $15.8 million, it took down 814,000 shares, representing a 19% interest. Once again, in typical fashion, MacLeod didn’t wait until Falconbridge hung out a “for sale” sign on the Giant mine. “We didn’t go out and ask anybody to buy it,” then vice- president of Falconbridge Lionel Kilburn said at the time.

Giant had long been known for its declining reserves, and wasn’t near the top of anyone’s “buy” list. Its cash cow, the Salmita mine, was running out of ore and the mines in the Yellowknife area weren’t doing much better. But, typically, MacLeod’s vision went well beyond the known orebodies. He believes Giant Yellowknife properties have excellent potential for expanding reserves and plans to spend “a few million” to try and increase reserves at the Giant mine. The reasoning is that Giant has only been mined down to 1,800 ft while the nearby Con Mine workings go down to 6,000 ft. Recent drilling has hit low grade gold values 4,000 ft below the Giant headframe. He wants to do the same thing at the small, high grade Salmita mine.

Then there are the Yellowknife tailings. MacLeod says there are 7.5 million tons there grading 0.075 oz gold per ton — the average headgrade at Timmins. He expects to put together a smaller tailings recovery program there.

In order to consolidate Pamour’s holdings in Timmins, MacLeod then went out this past October and bought a 50.1% interest in Consolidated csa Minerals, which has a 50% interest in the Bell Creek mine being brought into production by Canamax. The price tag was $2 million and 520,386 Pamour common shares. At the same time, Pamour acquired control of erg from the major shareholders — MacLeod and Berardo — with a plan to acquire up to 1.4 million shares or 27% of the company.

What had been for so long the staid, old Pamour was now controlling a tangled web of other gold companies. But that was becoming a problem in itself, at least in the perception of the investing public. Pamour’s actual value was becoming very confusing; and if there’s one thing the investor doesn’t like, it’s a confusing stock situation. But MacLeod has already taken steps to take care of that, and his vision of the Pamour group for the future is actually very simple: to set up a group of companies with various roles under the banner of Pamour — similar to many of the large South African mining houses.

The first step was to transfer all of Pamour’s Timmins mining operations to Giant in exchange for 2,683,567 shares, giving Pamour a 50.1% interest in Giant. This is expected to close at the end of January.

“Giant will be Pamour’s operating arm,” MacLeod says. “It will be doing up to 300,000 ounces of gold per year in three years and will be spending $100 million to get there ($20 million to improve the Ross mine at Timmins, $25 million on the Giant tailings, $12 million to expand the Timmins mills for the extra ore expected from open pits in the area, as well as smaller expenditures in a number of areas).

The tailings arm of Pamour will be erg while csa, with a number of well- located properties, will become the exploration arm. Pamour, having control of all three companies, will administer the operations.