Issue 152, January 2016

This is an article about the Campbell mine in Canada and how a small group of mine managers rose up the ranks of the industry. It is also about relationships and how over $1bn of shareholder funds has been handed-out, between former colleagues


Campbell was one of Canada's largest gold mines. It was owned by Placer Dome, a highly-acquisitive gold miner, which was bought out itself by Barrick Gold in 2006. Placer Dome's executives fought against the deal and the breakup that followed. Barrick's hedging book, they argued, was a huge liability, and its Pascua Lama project in the Andes faced massive risks.
     Both claims later proved correct. But Barrick's aggressive founding chairman Peter Munk muscled the deal through, Placer Dome's Canadian assets were sold off to Goldcorp and Campbell was absorbed into its Red Lake operations.
     Many of Placer Dome's insiders left. Its head of exploration in Canada, Robert Pease, founded a new company, Terrane Metals, which snapped up Placer Dome's Mount Milligan deposit in British Columbia. He took several colleagues with him, including Campbell's senior geologist, its chief geologist and mining engineer Wes Carson.
     Other mine managers from Campbell disbanded and shot up

the ranks. Campbell's business manager Jacques Perron is now CEO of Thompson Creek. Campbell's general manager Michael Winship is CEO of Rubicon Minerals. And Campbell's former mine superintendent Bill Shand is Rubicon's head of operations.
     Ghana-focused Golden Star has also drafted in several former Placer Dome insiders, including chairman Tim Baker, one of Placer Dome's senior managers in Chile, and technical director Martin Raffield, another former superintendent at the Campbell mine. Tony Jensen and William Hayes, who were senior managers at Placer Dome for 18 years, have meanwhile risen to the top of gold royalty group Royal Gold, as CEO and chairman.
     In the 10 years since Placer Dome was broken-up, the raft of companies now led by its former insiders have dealt almost exclusively with one another, shuffling assets, staff and shareholder money in a closed loop of deals.
     Thompson Creek bought Terrane and its Mount Milligan

deposit in 2010 for C$650m; Royal Gold has pumped $782m into Thompson Creek, plus $75m into Rubicon and up to $170m into Golden Star; Wes Carson jumped from Terrane to Thompson Creek and was promoted to mine manager; Tony Jensen has joined the board of Golden Star, and Golden Star's former chairman has joined the board of Royal Gold.
     The loop offers a new insight into Royal Gold's most baffling and least profitable deals: Rubicon's Phoenix project was suspended in November only five months after its first gold pour; construction costs at Mount Milligan have risen from C$915m to C$1.5bn and counting, whilst Golden Star recently amended the terms of its agreement with Royal Gold, landing an extra $15m to $20m.
     Mining, like any industry, is built on relationships. But with operators including Teck, Glencore and Anglo American all currently queuing up for financing deals over multi-decade mines, shareholders might ask why Royal Gold is pumping money into smaller companies, all run by former insiders at Placer Dome.



Golden Star Resources

2015 was tough for Golden Star. The company battled an unreliable supply of electricity, it permanently closed its Bogoso plant after a ball mill motor failure and deferred a plant upgrade in December. It did bring its Prestea South open-pit into production, but at current prices, the company is losing money, forcing it to refocus around its higher-grade, undeveloped, underground deposits. These, in turn, were delayed, with first production kicked out from 2016 to 2017.

There was one major positive however: Royal Gold pumped $170m into the company, funding its new strategy. It paid $130m for a gold stream, which was then revised upwards by $15m to $20m. It has also given Golden Star a $20m loan.

Thompson Creek

Thompson Creek is built on two former Placer Dome assets: its Endako moly mine and its Mount Milligan copper project, which it bought in a deal funded by Royal Gold. The company has faced a major capex blowout at Mount Milligan and is considering an additional $75m layout on a new rock crusher. Over $800m of debt is due to begin maturing next year.

Rubicon Minerals

Rubicon collapsed last year after massively misjudging grades at its Phoenix underground project, forcing it to write-off 88 per cent of its gold resource earlier this week. Royal Gold paid $75m for a gold stream over the mine in 2014, despite it being built without a detailed engineering assessment, a red flag for many investors.

PHOTOS FROM LEFT: Golden Star's operations in Ghana, Thompson Creek's Endako mine and Rubicon's Phoenix project in Canada's prolific Red Lake district. Share prices as of 13th January (Bloomberg)