Hemlo Gold Mines Inc. History

Company History:

Hemlo Gold Mines is one of the most important and lowest cost gold producers in North America. The company owns and operates two mines with high gold reserves: the Golden Giant Mine located near Marathon, Ontario, and the Silidor Mine close to Rouyn-Noranda, Quebec. From these mines alone, Hemlo produced 492,100 ounces of gold in 1992. The company also has promising development properties in northeastern Ontario and in Montana, and is actively exploring additional mining sites in Australia and South America.

Like the proverbial pot of gold at the end of the rainbow, the Hemlo area in northwestern Ontario has been regarded for centuries as a land of riches. As early as 1535, French explorer Jacques Cartier was told by native North Americans of a gleaming, lustrous metal found in the North. During their trip in 1665, coureurs de bois Radisson and Groseilliers reportedly traded for gold with the local tribes, and in 1869 a native prospector and guide, Moses PeKong-Gay, found gold nuggets in the Hemlo region.

In 1945, storekeeper Harry Ollman and native prospector Peter Mogeg discovered gold, and one year later guide Moses Figher and geologist Trevor Pages staked ground around what is known today as the Williams claim. Prospector Roy Newman and geologist Bob Schaaf came close to becoming millionaires when they found gold in the area during 1974. Even though adventurers, explorers, prospectors, and geologists staked numerous claims and mining companies worked the ground in search of the precious metal, no one was able to locate the quartz rock veins in which Canadian gold is usually embedded. The gold that was found during these attempts did not have the grade to be commercially profitable.

Not finding gold, most of the prospectors and geologists eventually gave up on Hemlo, but Don McKinnon and John Larche remained patient--and became millionaires. Larche had quit school at 15 and gone to work in the gold mines near the Porcupine River in Timmins, Ontario. He worked for short periods in automobile and airplane plants before he turned to prospecting full time. Larche, with a wife and four children, had once gone for 18 months without earning any money. McKinnon also left school at an early age and moved to Timmins from Cochrane, Ontario. In Timmins he supervised lumber crews for a paper company before leaving to become a prospector.

Both men had studied the Hemlo area for almost 20 years: Larche grubbing the ground with a tractor and backhoe and McKinnon grubbing by means of mining publications, geological surveys, and public and corporate reports. When claims in the area that both men coveted reverted to the Crown in December of 1979, they immediately acted on the opportunity.

Relying on their research and intuition, they began by staking a claim in the traditional manner. A prospector brings an ax, compass, and four-foot-long post with the information about the claim attached to it, or he cuts a tree to the same proportions in the northeast corner of his 40-square-acre claim. Then the prospector cuts down the trees in his path as he paces to the three corners of his "grubstake." While McKinnon watched, Larche marched the 460 paces for each quarter mile that enclosed their claim.

With the cost of drilling 1,500 feet into the ground for samples at a prohibitive $25 to $30 per foot, McKinnon and Larche lacked the money to work the land themselves, but they did not want to sell the claim outright either. The only alternative was to find a mining company that might be interested in funding an exploratory site. When the men began to search for an investor, they discovered that the history of geologists' reports on the Hemlo area weighed heavily against them.

After pounding on the doors of big exploration companies without any results, the two men met David Bell. An independent geologist who had had an eye on the Hemlo area for some time, Bell was eager to sink his drill into the claims staked by McKinnon and Larche. Bell had a theory that no one considered before, namely, that within the Hemlo area there was no quartz rock. According to Bell, the reason for this was due to the fact that the gold was scattered throughout volcanic sediment in wide and fine amounts--similar to the deposits in some of the richest goldfields in Africa.

Bell suggested the men look for a "junior." A junior provides enough money for exploration in the hope that a major mining company will eventually take over the entire operation and give the prospectors a share of the profits. Bell soon found Vancouver businessman Murray "The Pez" Pezim. Pezim told Bell he could raise enough money for exploration through a junior called Corona Resources. For a negligible amount of cash, shares of stock, and a 1.5 percent royalty on every ounce of smelted gold for each of them, Larche and McKinnon gave up their claims at Hemlo to Corona Resources.

In January of 1981, Bell started drilling his first hole near the Trans-Canada Highway. Unable to find high grade gold-bearing material even after 70 holes, he continued drilling with Pezim's encouragement. Turning toward the southwest and away from the highway, Bell drilled at different depths and tried different angles. Finally, on hole 76 at an angle of 50 degrees and a depth of 336.5 feet, Bell found a sample that graded .29 ounces of gold per ton. On May 7, 1981, Bell had made one of the most important discoveries in the history of North American mining. With an additional $20 million from Pezim to help continue digging, by hole 120 Bell had delineated a 250,000 ton deposit grading out at .25 ounces a ton.

News of the discovery jarred the mining companies into action. Teck Corporation reached an arrangement with Corona to take over the development of the claim, and Long Lac Mineral Exploration purchased properties adjacent to Corona's. Goliath Gold Mines and Golden Sceptre Resources, two exploration companies based in Vancouver, also optioned a number of claims. In 1982 Bell moved his drill from the Corona properties and started working the ground on Goliath's and Golden Sceptre's purchases. His drilling program resulted in finding what is now called the Golden Giant mine, with an estimated deposit of 6.5 million tons grading at .25 ounces of gold per ton.

A short time later, one of the largest mining companies in Canada, Noranda Mines Ltd., reached an agreement with Goliath and Golden Sceptre. For a 50 percent interest in their claims, Noranda agreed to provide $290 million to finance all capital expenditures, construct the mine, and complete the exploration project. In 1983 Noranda, Golden Sceptre, and Goliath purchased one-quarter of an adjoining claim from Teck-Corona's Operating Corporation's David Bell mine for the site of the shaft and surface facilities.

Site clearing and building of the mine were initiated in April of 1983. Construction of the mine and mill went quickly and the first bar of gold bullion was poured on April 6, 1985. During the early months of 1987, the interests in the Golden Giant mine held by Noranda, Goliath, and Golden Sceptre were merged into one company, Hemlo Gold Mines Inc. At the same time, the new company struck an agreement with Noranda that allowed it to draw on Noranda's expertise in mine management, exploration, marketing, and technical research. In October 1987, less than five years after the original agreement had been signed to develop the claim, Hemlo announced its first dividend.

From 1985 until the end of 1991, the Golden Giant mine produced 2,300,000 ounces of gold. In 1991 alone, a record 443,400 ounces of gold at an average operating cost of $126 was produced at the mine. In 1992 Golden Giant produced 492,100 ounces of gold, nearly 5 percent more than the previous year, at an average cost of $113 per ounce. Proven and probable reserves estimated during the same year figured to include an additional 5,300,000 ounces of gold sufficient for another thirteen years of mining. Management estimated an annual production rate of 360,000 ounces for the mine's remaining life.

Hemlo acquired a 55 percent interest in the Silidor Mine, located in northwestern Quebec, and as part of the acquisition from Noranda, it became operator of the mine in May of 1991. During the last eight months of 1991, Hemlo's share of production from the Silidor mine totaled 25,900 ounces, and operating costs averaged $287 per ounce of gold. Hemlo estimated that its share of production from the mine would average 35,000 ounces of gold per year, and projected in 1992 that six years remained in the life of the mine.

In addition to the Golden Giant and Silidor mines, Hemlo had two projects under development which were estimated to provide nearly two million ounces to the company's reserves. At a projected average operating cost of less than $180 per ounce, these two sites had the potential of adding 150,000 ounces of gold to Hemlo's annual production by 1996. The New World Project in Montana, in which Hemlo owned a 60 percent interest, was projected to have an annual production of 80,000 ounces of gold by 1996. Hemlo had a 55 percent direct and indirect interest in the Holloway Joint Venture located in northeastern Ontario, and its share for the company promised another 70,000 ounces by 1995.

The men that set off one of the largest staking rushes in North America remained involved in mining. Geologist David Bell turned his attention to exploring sites in western Europe, South America, and Australia, while maintaining an office in Hamilton, Ontario. McKinnon used the proceeds from his share in the claims to buy a house in Guelph, a farm in Timmins, a cottage in Peterborough, and a winter home in Florida. After his work with Larche, he became involved in projects in the Mishibishu area about 100 miles south of Hemlo. John Larche served two terms as president of the Prospectors and Developers Association of Canada during the late 1980s, but suffered severe injuries from a plane crash in 1991, from which he was fortunate enough to recover. He had ongoing exploration projects in British Columbia and other areas in North America. Clearly, each of these men benefited enormously from the interest they received in the gold recovered by Hemlo Gold Mines Inc.

Further Reading:

• Anderson, Scott, "Greening of a Giant," Canadian Mining Journal, May 1991.
  Mining Life, summer 1992, pp. 12-42.
• Skillings, D. N., Jr., "Hemlo Gold Mines Inc. Marks Further Gold Production Record in 1990 at its Golden Giant Mine in Ontario," Skillinas' Mining Review, April 6, 1991, pp. 2-4.

Source: International Directory of Company Histories, Vol. 9. St. James Press, 1994.

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