Saturday, July 19, 1997
Don't call him a promoter
Pierre Gauthier's reputation for smooth talk may help or hinder his play for
Cuban nickel
By PAUL BAGNELL
Mining Reporter The Financial Post
Ask people in Canada's mining business what they think of Pierre
Gauthier and they often begin by grasping for the right adjective.
"He's flamboyant," says one. "Well, not flamboyant in a Las Vegas
way -- but he has a presence."
"He is what he is," snaps another, who counts himself among
Gauthier's critics. "He's a mining stock promoter."
What friends and foes seem to agree on is Gauthier's almost fabled
ability to raise money for his mining ventures.
Nor is there much dispute that, although Gauthier has become a very
wealthy man, his mining projects have yet to set the world afire.
That may change if 51-year-old Gauthier can pull off his biggest deal
ever: raising US$300-million for the Cuban nickel mine project he
announced earlier this month.
Gauthier is the chairman and main stock holder in Montreal-based St.
GeneviŠve Resources Ltd., a holding company that controls a stable of
seven resource companies.
One of those companies, tiny KWG Resources Inc. of Toronto,
surprised the mining industry on July 10 by declaring it is close to
gaining a 50% share in a major Cuban nickel mine.
The Cupey mine is a 75%-complete facility that is forecast to produce at least 30,000 tonnes of
nickel a year -- more than the Moa mine in which Canada's Sherritt International Corp. is a 50%
partner.
Gauthier has until November to raise the US$300 million needed to complete construction of the
mine and build a refinery in Eastern Canada.
"I'll believe that one when I see it," says a mining executive who has known Gauthier for years.
"That's a large, large sum of money for a tiny company with no cash flow and a very small staff."
Gauthier says KWG jumped on the Cupey deal when South African giant Gencor Ltd. let an option
lapse. The fact that KWG, St. GeneviŠve and one other company in the Gauthier stable have
invested heavily in Cuba helped move negotiations along, he says.
The Helms-Burton law in the U.S., which penalizes foreign firms doing business with Cuba,
probably scared off a number of would-be competitors, he says.
None of the Cupey assets, however, ever belonged to American owners -- the key criterion of
Helms-Burton.
Gauthier plans to use loans from banks in Europe and Canada in raising the US$300 million, and
says the loans will likely be guaranteed by the federal government's Export Development Corp. and
the Quebec Investment Development Corp.
Gauthier says the Cupey mine suits perfectly his preference for "third base" mining projects, where a
previous owner has done most of the pre-production spade work.
The collapse of the Soviet Union, he says, opened up a vast field for mining assets like that, which
just five or six years ago were out of bounds for western companies.
KWG won control of a three-million-ounce gold deposit in Russia, where Gauthier stepped in after
US$60 million had been spent confirming a mineable deposit.
KWG is now developing the mine and expects it to produce 150,000 ounces of gold in 1998.
It's the kind of deal that made him envious when he was a wildly successful stockbroker in Montreal
in the 1970s and '80s. He worked in corporate finance, first for Dominion Securities Pitfield and
later for Bell Gouinlock.
He left the business in 1986 to begin raising money for companies of his own. "I always envied the
role of the principal, who was building the business," he says. "I felt I needed to get more creative
than simply collecting a fee for raising money for people."
Even the mining executive who is critical of Gauthier admires his energy.
"Pierre has a firecracker in him. He's a pretty aggressive guy," he says. "But I've always been
dismayed at how many irons in the fire the guy's got. You really wonder how he can focus on all
these things.
"And he's had some things that are very promotional."
Asked to respond, Gauthier points to the recent profit history of St. GeneviŠve, the senior company
in the group. The company had net income of $20 million last year, compared to $9 million in 1995
and $3 million in 1994.
But Gauthier's critics have pointed more than
once to KWG's Gaspar gold project in Cuba as
a promotion that has not lived up to its billing.
"They promoted the hell out of that thing," says
the anonymous executive. "And none of it has
come to pass."
KWG's stock rocketed to $21 a share from
$3.35 in January 1996, when a Toronto mining
analyst said the property could contain as much
as 20 million ounces of gold.
No test drilling had taken place on the property,
however. The high hopes were based on
significant gold values in rock samples taken
from trenches dug in the property's surface.
When Doug Leishman, a Vancouver mining analyst known for his skeptical view of many
early-stage gold projects, said the Gaspar hoopla was premature, Gauthier responded angrily, and
publicly.
Now he admits Leishman was correct.
KWG is currently calculating a gold resource estimate for the Gaspar property, he says. The
company's shares (KWG/TSE) closed on Friday at $5.20.
"We didn't overpromote that," insists Gauthier. "We had trenches that were running 400 metres of
two grams [of gold per tonne of ore]. So if you were judging the potential of this property from the
surface, it looked huge."
In April, 1995, KWG declared it had found a promising diamond lode and that a mine was
possible. The announcement was based on just two drill holes.
Spider Resources Inc., another of the companies in the St. GeneviŠve structure, is still exploring the
site.
"He's a real financier," says the mining executive. "He's been particularly successful in Europe -- in
France and the other French-speaking areas. He can schmooze."
Leave aside his bilingualism and the description brings to mind another well known Canadian stock
promoter, Robert Friedland.
"People are amazed at Friedland's verbal skills and his ability to talk without notes and without
stumbling. Pierre's got the same knack."
A mining analyst who has followed Gauthier for years -- also not willing to be named in print -- is
more critical.
Gauthier is more adept, he says, at shuffling stock around than his companies are at finding minerals.
"A few years ago, KWG was a diamond stock. Last year, if I remember correctly, it was a Cuban
gold stock. This year, it's a nickel stock.
"That's not to say a lot of institutions don't own the stock. I just wonder why they do.... He knows
as well as anybody that if he wants to keep KWG going, he needs a new story."
The analyst says he would urge caution on clients interested in the Cupey deal. But, perhaps
tellingly, he freely admits he took the same skeptical stance when Friedland's Diamond Fields
Resources Inc. was exploring in Labrador.
Diamond Fields, of course, found no diamonds but did unearth a gigantic nickel deposit at Voisey's
Bay in Labrador and became one of the decade's greatest investment stories.
And there's plenty of evidence so far that Gauthier's play for the Cupey mine is more than a
promotional story.
The Cuban government and its East Bloc allies poured about US$600 million into the project
before work ground to a halt in 1992, as the Soviet Union imploded.
The mine is now three-quarters finished and sits within a few kilometres of three major producing
nickel mines, including Sherritt's 50%-owned Moa mine, which produced 26,000 tonnes of
nickel-cobalt in 1996.
Sherritt refused to comment on whether it had considered buying into the Cupey mine.
The other two large mines are wholly owned by the Cuban government: Nicaro, which produces
about 26,000 tonnes of nickel-cobalt a year, and Punta Gorda, which turns out 14 million tonnes of
nickel-cobalt a year.
One of Canada's most respected mining engineering firms, Watts, Griffis and McOuat of Toronto,
has told KWG that production could begin at Cupey as early as 18 months after the necessary
money has been raised.
The consultants, who reported to KWG as part of KWG's due diligence review of the deal, also
said nickel can be produced at Cupey using the same processes employed for years at the
neighboring mines.
The question, then, seems to be whether Gauthier can produce the US$300 million by November.
Naturally, Gauthier says he can.
"We've had 10 different investment dealers give us presentations, wanting to get involved in this
financing."
Last year, he points out, he raised about $150 million for various projects around the world.
"Good projects attract capital -- OK? It's as simple as that."
He doesn't like being called a stock promoter.
"Yes, I do object a little" he says. "Because you know what the difference is between a stock
promoter and a mining executive? One large mine."
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