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March 20, 2005 – John Woods has never heard of Emgold Mining Corp., and it’s hard to blame him. As editor and publisher of Stockwatch, which tracks Canada’s publicly traded companies, he has seen hundreds of mining outfits come and go over the past 20 years.

And mostly, they go. By far, of Canada’s hundreds of mining companies, the majority are classified as junior companies, and juniors hardly ever find the major investors needed to build venture capital. Fewer still ever break ground.

Emgold, which hopes to reopen the long-shuttered Idaho-Maryland Mine in Grass Valley, Calif., is a Canadian junior company traded on the TSX Venture Exchange based in Toronto. Companies on the exchange are called penny stocks, which generally sell for less than $1 a share. Emgold lately has been trading at about 60 cents (Canadian) a share, roughly the exchange’s average. Information on financial statements, public filings and corporate meetings for all Canadian public companies can be found at www.sedar.com.

“It’s a penny stock. It doesn’t have anything except a hope and a twinkle in the promoter’s eye,” Woods said. “They’re nearly all in the mining business, and there are hundreds and hundreds of them.”

Of the 1,927 companies trading on the TSX Venture as of October 2004, the exchange’s largest sector — mining — made up 46 percent of them. Many have hopes of being bought by a major investor, perhaps merging or getting enough capital to graduate to a larger, more stable and affluent market such as the Toronto Stock Exchange. TSX Venture companies are generally unproven or have short track records, said Kevan Cowan, the exchange’s senior vice president.

Yet Emgold, publicly at least, has shunned the pattern of starting small and attracting a big player; this despite an Emgold report that said the company “has limited financial resources” and another report that showed a nine-month loss of $4.4 million on Sept. 30, 2004 — after a $1 million loss over the first nine months of fiscal year 2003. Company officials say they plan to start up the Idaho-Maryland alone and gain investment capital as the project progresses. But Woods and others call that a risky business strategy.

“Almost never” does a junior mining company go it alone, Woods said. “Anybody who ever says there are some exceptions will only be referring to the few.”

While Woods hasn’t heard of Emgold, he has heard of its biggest player — Frank Lang. People who follow the mining industry come to hear the big success stories, and Lang owns one of them. In the early 1980s, Lang and his business partner, Dick Hughes, helped start what became known as the Hemlo Mine in Ontario, about 200 miles east of Thunder Bay. Woods calls it Lang’s first and only major success in an industry where just one gold strike would suffice for most people.

“By golly, fortune smiled upon them. It was a major find,” Woods said in a phone interview from his Vancouver, B.C., office. “There’s no way you can detract from a find of that kind. It made him a multimillionaire many times over, and he deserved every penny of it.”

Hemlo has yielded 7 million ounces of gold and keeps on producing, Lang said. “It was just a quartz vein that was visible from the roadway, and geologists would stop to look at it, and they would determine there was nothing there.”

In 1982, Lang said, exploration at the Hemlo site turned up an 85-foot-wide ore body that eventually produced a third of an ounce of gold per ton of ore. “The discovery was so potentially large, so exciting, that major companies fought all over us to basically make an agreement with them,” he recalled.

Before going into the mining industry, Lang retired from a career with a Vancouver utility company. Through a series of connections, he and Hughes learned of the Hemlo property, explored it and bought its mineral rights. Lang and Hughes never actually operated the mine, Lang said.

The mine went on to trade hands many times, and Lang went on to other projects, none of which matched the Hemlo’s acclaim.

“Their promotional prowess decreased. They are penny stock mining promoters just like dozens and dozens and dozens of promoters,” Woods said. “They were never really particularly effective promoters, but they did get lucky once and, of course, that stock did go to great heights.”

But Lang thinks the Idaho-Maryland could become another Hemlo. He said perhaps another 7 million ounces await below ground; this despite Emgold’s official line that about 1.5 million ounces sit in reserves. The Idaho-Maryland produced about 2.4 million ounces, between 1862 and 1956, before closing as California’s second most productive underground mine.

Seven million ounces would also surpass California’s No. 1 underground producer, the Empire Mine, which produced 5.8 million ounces before also closing in 1956. The Empire sits next to the Idaho-Maryland in Grass Valley and has long since become a historical park, where tourists learn about mining’s heyday in the 19th and 20th centuries.

That the Idaho-Maryland was mined for several decades yet supposedly has much more in reserves raises questions with Jim Kuipers, a longtime mining engineer who now does consulting work for public interest groups and government agencies. If an old mine has so much potential, how was all that gold missed the first time?

“And that’s with any mining operation. That’s a huge if,” said Kuipers, who is based in Butte, Mont. “If there’s a lot of gold, why didn’t they mine it out before?”

Another big “if” as far as Emgold is concerned, he said: “If they can do things the way they describe. It’s something to put it down on paper, but it’s a whole other thing to put it on the ground.”

Lang nowadays oversees the Lang Mining Group, which is comprised of four companies including Emgold. Lang is Emgold’s board president and, he said, its biggest shareholder. None of the mining group’s four companies have actually extracted precious metals.

“None of them are mining,” he said from his Vancouver office. “We’re basically an exploration group. Not that we won’t take something into production. I think my fun in life is finding things and when it becomes hard work, I give it to someone else.”

Lang also said Emgold is no longer his primary focus. He said he’s keeping closer tabs on another of the Lang Mining Group’s four companies, Cream Minerals Ltd. Cream was Lang’s first company, and he started it as a silver mining venture. Recently, he said, Cream picked up an investment option on a mine in Sierra Leone that has “$2 billion in diamonds potentially,” he said.

Old age keeps Lang from becoming more involved in Emgold, he said, and he doesn’t totally rule out the possibility that a larger mining firm could swoop in and become its major shareholder. “We think we can do it (alone), and at some stage there may be some aggressive major who wants it and may make an aggressive offer for ours shares, so things happen that way,” he said.

That’s basically how things happened with the Hemlo, although he recalled this with a tone of regret. “I really had hoped we’d taken Hemlo to production.”

Lang learned of the Idaho-Maryland through a broker who also knew Ross Guenther, who later became the project director of Idaho-Maryland Corp., an Emgold subsidiary, and an Emgold board director.

“This would be another feather in Frank’s cap, and he just loves doing this sort of thing,” Guenther said from his Grass Valley office. “He’s got more millions of dollars than he could ever spend in his lifetime, and he just loves putting together these projects.”

Guenther likes to say that he has been sizing up the Idaho-Maryland for 30 years. He has college degrees in geology and business administration, and his first job in the industry was mining for silver at the Sunshine Mine in Idaho in the early 1960s. He later worked for San Francisco-based Utah International, which mostly mined copper and coal and later merged with General Electric before eventually folding into the Australian mining giant BHP/Billiton.

Working later as a consultant, Guenther said, he researched old California gold mines to see if they had ore worth revisiting. That was in 1975. In 1986, he said, he discovered volumes of old maps of the Idaho-Maryland in the basement of one of the mine’s owners, who are listed in records as Mary Bouma, Erica Erickson and William Toms, known together as the BET group. Guenther said the maps revealed that some areas weren’t methodically mined the first time; he said the Empire Mine was scoured down to 5,000 feet below ground, the Idaho-Maryland less thoroughly to about 3,000 feet.

Before he teamed up with Lang, Guenther said, he tried reopening the Idaho-Maryland with a different outfit out of San Francisco that he didn’t want to talk about. “They owe me a lot of money,” he said. “They raised money and went off and spent it, but not on the mine and not on the consultants.”

A second attempt with a Vancouver company called Del Norte Mining, of which Lang was a board director, failed because the company “decided to go in a different direction,” Guenther said. That company later dropped the lease, and then Lang put together Emperor Gold Corp., in 1993 and secured a lease.

In 1993, company records say, Emperor acquired a seven-year lease that included an option to purchase the property for $8 million. In 2002, Emgold negotiated a five-year lease with the BET group that Guenther says includes a $4.35 million purchase option.

During the mid-1990s, Emperor went through the permitting process with state and Nevada County officials to get the mine reopened. The county approved the company’s Environmental Impact Report and the state issued the company a water-discharge permit. Plans called for dewatering the mine, which has 70 miles of tunnels, before exploration.

Then, in 1997, plans abruptly halted after the price of gold sank to less than $300 an ounce. At the time, Emperor put the cost of extracting gold from the Idaho-Maryland at $247 to $315 an ounce. Gold’s price drop was partly blamed on an international mining scandal, in which a small, Calgary-based company named Bre-X boasted of having some 200 million ounces of reserves in an Indonesian mine. It turned out there was almost no gold in the mine.

At the time, Lang said, Emperor was “within days” of arranging for about $30 million in financing to dewater and explore the mine.

Around this time, Emperor changed its name to Emgold, Lang said, after learning that another company was operating under a similar name.

For this newest endeavor, Emgold filed an application with the city of Grass Valley in February 2005. Guenther said the company has already spent about $7 million the last two years on studies and permitting costs, and he said those processes could cost another $20 million. But those figures are a fraction of the cost needed to go into production; Guenther put that amount at $300 million, or $100 million a year over three years, if Emgold gets permitted, starting in 2007.

Also, despite cost increases from inflation since the 1990s, Guenther said the mine’s operation costs this time around would run about $160 an ounce. He said some savings would come from using bigger ore-hauling trucks and by building the mine’s main entry closer to the highest valued ore.

“They’re just projections, of course,” Guenther said.

While Emgold has never opened a mine, its officials talk confidently about being able to operate on their own because some within the company have worked on mining operations. “It’s not the company that does these things, it’s the people in the company that do these things,” Guenther said.

If it does reopen, the Idaho-Maryland would be the state’s only mine within a city’s borders. It would also be the state’s only medium- to large-scale gold operation, according to Susan Kohler, senior geologist with the California Geological Survey.

She said the state’s last, big surge in mining activity occurred in the 1980s, when gold prices reached $800 an ounce. A lot of that mining occurred in Southern California, in pursuit of low-grade, disseminated ore. The last of those big operations, in Kern County, is done mining ore and now chemically processing it to extract gold.

Nowadays, Kohler said, no large mines are in operation, but not for a lack of ore. “The mines never depleted. They were shut down due to economic reasons, bottom line.”

Gold-price volatility is one reason Grass Valley officials look at the Idaho-Maryland project with caution. Mayor Gerard Tassone said he wants to see Emgold’s business plan during what he promises will be an extensive review process. And city planners are already preparing for a rare, additional review process called a Preliminary or Master Environmental Assessment (MEA), which will precede the Environmental Impact Report that state law already requires of large projects.

Emgold’s plans are resource-intensive. To gain access for exploring the mine’s gold potential, Emgold has said, it needs to initially pump 700 million gallons of water — or 2,500 acre-feet, with an acre-foot equaling one acre covered a foot deep in water. Initial dewatering would occur at a rate of about 12 acre-feet per day and take about seven months. During exploration, an average of 1,375 acre-feet a year would be dewatered over a course of five years.

It also plans to convert tons of cyanide treated mine tailings into ceramic products using a patented technology that hasn’t been developed for use on a commercial scale.

Emgold officials say the ceramics business would defray production costs; in fact, Guenther said gold prices could drop to “near zero” and the mine could stay open making tiles and other ceramic products from tailings.

But Woods pondered Emgold’s ceramics plan with a cautionary tone. Although he didn’t know the details, he said operations that promote the use of a patented technology are “usually not greeted warmly by the mining industry. They’re greeted exactly the same way some alchemists were greeted in the 1400s.”

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Emgold officials also say their operation will contain mining’s poisonous chemicals and byproducts — including sulfides, cyanide and arsenic — and treat water before it is discharged and heads to Wolf Creek in downtown Grass Valley. Emgold hopes to become permitted to open the mine by next year, and operating by 2007. The mine would close around 2027.

Selling an old mine’s new possibilities isn’t a new business strategy. Common are claims that new technology will make a mine’s long-exploited gold veins worth revisiting, industry observers say.

“Quite often (promoters) return to old mines, and usually they are accompanied by a new theory on why the old miners missed the old — fill in the blank — usually it’s gold,” Woods said.

“Reopening old ground, that’s a very popular story, a very popular modus operandi for stock promoters,” said another Canadian mining journalist who didn’t want to be identified.

It’s a story Nevada County residents have already heard.

A July 22, 1994, editorial by The Union newspaper in Grass Valley called plans to reopen the mine “intriguing” but that western Nevada County residents “have good reason to remain skeptical. They’ve watched as other proposals to study reopening of the Idaho-Maryland Mine have been announced with hullabaloo and have been abandoned quietly.”

“In the case of Emperor Gold’s proposal, the skepticism of area residents gains strength from the company’s financial condition. In fact, the ability — or inability — of the company to raise money from Canadian financiers probably will be far more important than environmental reports in determining if the project goes forward.”

In more recent times, an Emgold document showed similar concerns. A Dec. 31, 2003, Emgold financial report, in a section titled Risks and Uncertainties, says:

“Emgold has limited financial resources, has no source of operating cash flow and has no assurance that additional funding will be available to it for further exploration and development of its projects or to fulfill its obligations under any applicable agreements. Its ability to continue in operation is dependent on the continuing support of its creditors, funding from related parties, and the ability to secure additional financing. Although the company has been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that it will be able to obtain adequate financing in the future or that the terms of such financing will be favorable.”

Guenther said such statements are included in financial disclosures to warn investors about mining’s high financial risks. “That scares the hell out of anyone who doesn’t know anything about the mining industry.”

A common slam on junior mining companies is that they don’t mine precious metals — they mine investors.

“Emgold is what’s called a junior company. It has no operating mines and, thus, no revenue from mineral sale,” said Liz Kanter, State Water Resources Control Board spokeswoman. With junior companies in general, she added, “Their activity from year to year is directly related to their success at raising capital, which as we all know is boom or bust. That’s one reason this project has been hanging around since 1996.”

Kanter said that junior companies often try to partner with senior, or major, mining companies. “That way,” she said, “the junior only pays for exploration costs while the major pays for the much greater development costs.”

Guenther, without identifying any companies, has said Emgold has been contacted by major companies about the Idaho-Maryland. Physically, the closest major company to the Idaho-Maryland is Newmont Mining Corp., which owns the Empire Mine’s mineral rights and is one of the world’s largest mining companies.

Doug Hock, a Newmont spokesman, said his company likely wouldn’t be interested in joining Emgold’s pursuit of the Idaho-Maryland. For one, he said, Newmont, which is based in Denver, almost exclusively mines in Nevada when it comes to the company’s domestic operations. Further, he said, a mine must have about 2 million ounces in reserves for Newmont to become interested.

Told that one Emgold official estimated the Idaho-Maryland’s reserves at 7 million ounces, Hock didn’t respond directly and returned to his first stance — that Newmont mostly operates stateside in Nevada.

Nevada is also where Emgold is incorporated. Guenther said the company incorporated in the neighboring state because that’s where it formed when officials were looking for potential projects. The company is also registered with the California Secretary of State.

Emgold is headquartered in Vancouver in western Canada and among numerous mining outfits based in the Great White North. Cowan, the TSX Venture senior vice president, said Canadian mining companies are so prominent partly because the country is rich in underground resources. Further, he said, those resources tend to draw a lot of experts, from geologists to financiers.

To some degree, the industry is still recovering from the days of the now-defunct Vancouver Stock Exchange, where mining stocks were traded recklessly on exaggerated claims of huge gold reserves. A lot of investors got duped, and a lot of mines never went into production. Forbes magazine in 1989 called the Vancouver exchange “the scam capital of the world.”

The Vancouver exchange was later shut down, and during a massive overhaul, the TSX Venture was born as an amalgamation of other stock exchanges in the country.

Cowan said numerous reforms have been enacted. There is far more oversight, and the junior companies follow many of the same regulations that guide senior companies, he said.

“There’s still some association (with the past),” he said. “Every year, I think we’re getting farther away from that. But in certain cases we are still dealing with that. If you talk to U.S. people who aren’t as familiar with what has happened the last three or four years, they still think of how Vancouver had a long, colorful history that we’re still trying to put behind us.”

Woods, the Stockwatch editor and publisher, said Lang and Hughes stayed above the fray that rocked Vancouver. They promoted mines within the rules, he said, and did quite well from their single biggest find.

“It’s a huge achievement. There’s no taking away from it,” Woods said. “They just haven’t come up with anything since. They’re an honest, hard-working, boring pair of promoters.”

In the mining business, he added, “Honest and boring go together.”