Mining Man of the Year — Witte gathers rag-tag mines, builds

When Margaret (Peggy) Witte launched her initiative to acquire and revitalize the Pamour group companies in late 1990, it was perceived in some circles as being overly ambitious if not foolhardy.

Gold prices were weak, and skeptics pointed out that she was acquiring aging, labor-intensive gold mines with production costs near US$400 per oz. And the investment community had little interest in the money-losing Giant and Pamour mines or in the complex structure of the various companies. But Witte surprised critics by completing the $35-million acquisition during a period of weak financial markets. By the summer of 1991, she managed to merge the companies into a new entity, Royal Oak Mines (TSE), which produces 200,000 oz. gold annually from operations in Yellowknife, N.W.T., and Timmins, Ont. More importantly, the restructured company is now profitable, debt-free, positioned for growth, and attracting investor interest. For this remarkable turnaround and for other accomplishments, The Northern Miner has named Witte, 38, its “Mining Man of the Year” for 1991. She is the first woman to receive the award.

Those who know Witte attribute her success to qualities that know no gender; intelligence, determination, hard work, and the ability to lead and inspire. She is charismatic without being flamboyant, and her dynamism is tempered by a practical, down-to-earth attitude that inspires confidence. She is backed by a solid team of mining professionals, including long-time business partner Ross Burns, Royal Oak’s vice-president of exploration.

Witte’s career began in the mid-1970s when she graduated as a metallurgical engineer from the MacKay School of Mines in Nevada. Several years later, she emigrated to Canada to work with the government on the development of heap leaching technology. Born on a farm in Nevada, she retains her American citizenship.

In 1981, with husband William, Witte founded Witteck Development which developed a reputation for metallurgical expertise. During this period she was involved in the metallurgical development of several gold mines, including Williams at Hemlo, Ont., and Hope Brook in Newfoundland. But Witte’s entrepreneurial nature began to emerge when she acquired control of a VSE-listed junior with a bulk-tonnage, low-grade gold deposit in the Northwest Territories. She raised $150 million after the 1987 stock market crash to develop Colomac, but in a dramatic turn of events was squeezed out when Northgate Exploration took over control of the company. Colomac was developed into a mine, but the operation was not an economic success, and production has been suspended.

In 1989, Witte began looking for opportunities for her new company, Royal Oak Resources. With only $1 million in the treasury, she made a successful bid to acquire the Pamour group companies on an “as is, where is” basis from the creditors of Giant Resources of Australia.

It took dogged determination to negotiate the financing (about $16-million equity and $19-million debt), but the deal closed and Witte focused on turning around what she felt were under-performing and undervalued assets. Even before the deal closed, plans were in place to staunch the bleeding at the mines. About 120 people were laid off in the administrative, exploration and mining sectors. Unprofitable operations such as narrow-vein-mining at Timmins and a tailings retreatment plant in Yellowknife were shut down. Cost-cutting measures were put into place, and administrative costs were slashed when corporate offices were moved from Toronto to Vancouver. As a result of these and other measures, Royal Oak was able to report net earnings of $8.6 million (16 cents per share) from production of 141,738 oz. gold for the first nine months of this year, compared to a loss of $4.5 million for the same period in 1990. The cash cost of production was reduced by about US$60 to US$330.

The investment community was slow to appreciate these results; some felt the improvement was artificial through “high grading” or cutting back on mine development. But research showed that grades were consistent with life-of-mine averages, and development work was being maintained at 1990 levels.

Royal Oak is aiming to reduce cash production costs to US$300 per oz., but the operations will never be considered low cost. And after collapsing a hedging program and using the proceeds to pay off long-term debt, the mines are more sensitive than ever to gold prices, even though some short-term protection is in place and the company is extremely sophisticated in using the financial markets to improve its bottom line.

What’s ahead for Royal Oak? It has minable reserves of 1.4 million oz. from an overall preliminary resource of six million ounces, with plenty of exploration potential on over 180,000 acres in two of Canada’s richest gold camps.

Several projects are under development near existing mines, and the company recently announced plans to buy the Hope Brook gold mine which produced 110,460 oz. gold in 1990. After evaluating this project, the company believes it can make the operation economic with minimal expenditures by changes to the mining and milling methods. Chances are it will do exactly that.