RUNNING ON EMPTY

Not long ago, the larger Canadian gold mining companies were content to report two to three year’s worth of reserves at their individual mines. The practice, I was recently told by a mining veteran, became entrenched under the reserve reporting guidelines established by the Emergency Gold Mining Act (EGMA), which basically carried Canada’s gold mines through the middle decades of this century. Many of the mines were slow to alter their conservative reporting habits in the post-EGMA world. The Dome mine is the classic example. Dome’s annual reports of less than a decade ago always reported three year’s reserves. Long-time shareholders understood that that had been the case for decades and were assured current reserves and eventual mine life bore about the same relationship as acorns to oak trees.

That began to change in the early 1980s, when the big Canadian gold players started courting international investment funds, whose faith in South African stability was eroding. The South African mines had huge reserves. So the Canadian mines drilled off more reserve tonnage to show prospective investors a truer picture of expected longevity. (The practice of reporting “ounces of gold in the ground” also spread about this same time. This simplistic phrase conjures an image of miners casually descending to the gold vault every morning to retrieve a few yellow bars. Such a comforting image, so unreal. A bald statement of “contained gold” without qualifying remarks as to dilution factor, mill recoveries, and so on, should not satisfy any investor.)

But deliberately drilling to establish longevity does seem wise. Both investors and employees can find comfort in a long reserve life. The key, naturally, is that reserves are there to be tapped. But consider how the operators of the Macassa mine (featured in this issue) must have felt a few decades ago. For all intents and purposes, the mine had run out of ore on its own ground. It was clawing at sills and bumping up against a boundary on its western extremity. Across the boundary lay a property owned by Sir Harry Oakes’s widow. Mrs. Oakes, whose husband founded the Lake Shore mine, rebuffed advances from the Macassa people for a deal on the Tegren ground, as it was called. Teck Corp. eventually cut a deal with Lady Oakes. And by 1970 Teck, having had no luck on the Tegren ground, dealt it to Macassa through an agreement with Upper Canada Mines. Up until then, Macassa’s fortunes had seemed bleak. In fact, an unconfirmed story suggests that Macassa had nothing but a drill round of ore left before it finally struck mineralization on the Tegren ground.

Now that would have made for an interesting reserve story in the annual report had they been following the conventions of today. “Your company can say with assurance that it has at least 500 contained ounces of gold.” Actually, I might have been more inclined to invest in this company, with its experienced operating staff and veteran miners, than in some of today’s companies whose contained ounces, I suspect, will never be uncontained.