₪ David Pescod's Late Edition March 15, 2006
KIRKLAND LAKE GOLD (T-KGI) $6.22 +0.10
GOLD $554.40 +1.40
Yes, it’s true. The rich are more interesting! In fact, some
are much more interesting! As evidence, we talk with Harry
Dobson, the intriguing Scot with huge real estate interests in
Ireland plus absolutely enormous interests in race horses. He
has an interesting view of the world and a few of us were glad
to have breakfast with him as he is on a bit of a cross-Canada
tour after visiting the PDAC.
Dobson is the first to mention that he has no formal training
or schooling and that anything he has done, he’s been selftaught.
But he has certainly done quite well.
While I was intrigued to meet him, there was another family
member that had to know everything about him. Our 16-year
old son, had up until a while ago, had the typical Canadian
dream—to be the starting right-winger with the Edmonton Oilers.
And then evil and disturbing influences got a hold of him,
and suddenly he wants to be a keeper for Manchester United.
Yes, his parents hearts were broken, as all of a sudden he is
interested in that girly, European sport of soccer.
Our sons heart had been almost broken because Dobson
and his partners had just recently sold Manchester United. It
just wasn’t the same cheering for that team, now that “that”
American owned it. Oh yes, Dobson had big interests in soccer.
He and his partners had taken the Manchester United
team (which was already well-known) and made it one of the
universes most lucrative sports franchise.
Which gets us to why he was in Edmonton. He is also a big
believer in gold. His view of the world includes a not particularly
favorable view of what has happened to and in the United
States of late. He doesn’t like the way that their printing
presses are devaluing the American dollar and while many of
us folks are talking about Chinese demand for commodities,
Dobson suggested a big part of what’s going on, is simply that
you are paying for things with devalued American dollars.
He thinks “gold over the next two years could easily double
although along the way, there is going to be corrections and
there will be times when you are up late at night, wondering if
you’ve got this thing figured out at all!”
Which get us to Kirkland Lake Gold’s Chairman. I did say he
had varied interests, didn’t I? As a matter of fact, some of his
first coups were in the mining business and in Canada in particular.
He was one of the founders of Breakwater Mines and in one
of his better plays, in 1986 he bought a small company—
American Pacific Mining for £$9 million pounds with a partner
and two years later, sold it for over £$75 million pounds.
As to his world view, he is also worried about the global
scene. “Can you remember a time that so many people around
the world have been so pissed off at the Americans?” he asks.
That’s why when he figured that one of the fields he had to get
back into was mining and gold in particular, he wanted to make
sure that that gold was to be found in safe locales.
He points to lots of mining companies these days that are
not in the safest countries that are sporting high market caps
and he suggests that there can easily be another foot to fall on
some of these mining ventures, and that he is looking for
safety. Five years ago when he started his search for ways to
invest significantly in gold, he searched the world for opportunities.
Which brought him to Canada and ultimately to the old Kirkland
Lake mining camp. This is a historic mining area in Canada
and the chart at the left shows you the production that has
come out of these five mines. Despite a great mining history,
with gold prices so weak a few years ago and some of the
mines in this group thought to be played out, when Dobson and
his group were scouring the world for some good gold plays (I
was in the used-mine finding business at the time, he suggests)
and after checking out 100 different possible investments
around the world, Kirkland Lake was what attracted them. It
looks like they got a heck of a deal.
The picture to the left shows you the infrastructure that came
for a price tag of a mere $5 million. For that, they’ve got four
old mines, but with unknown resources.
Fellow director, George Milton, grew up in the Kirkland Lake
area and actually did some mining there in his younger days.
Before he retired he was a high-profile Edmonton stockbroker.
He is a fellow board of director member with Dobson and he
suggests that the Kirkland Lake story “isn’t a 150 page romance
novel, but an epic.” And he’s right!
This is an area that was mined for almost 80 years and made
at the time, some of Canada’s biggest family fortunes. The Hargreave’s
family came out of the Hargreave’s mine where as the
Oaks family became one of Canada’s richest families because
of their ownership of the Macassa Mine. Teck, the enormous
mining company also got its start here.
In the day that these mines were at their peak, no one in
management at one mine talked to the other. It was like a cold
war, there was no information given from one company to the
other and we hear even the hockey games between the different
companies were hard-fought events.
One company could be mining right up to the others border
on a rich zone and stop at the border and never tell the
miner on the other side, what they might have, that might
continue onto their property.
It was that secretive in those days and no one knew what
the other had a few yards away. Now the new company of
Kirkland Lake, which picked up all this infrastructure probably
worth $300 million in today’s dollars plus three shafts
plus all the old workings, is working to find how much reserves
are left. As the chart to the left shows, it’s building
up slowly.
Part of their first efforts were to hire 15 technical school
grads to digitize all the data from the four different mines
and see what went where.
Drilling results of late have been simply amazing. How
about 124 feet of 1.43 ounces per ton. Or another hole of 90
feet of 2.3 ounces. They are sporting a very high success
rate in their exploration drilling. Dobson says, “that number
could be as low as 60% or as high as 80%.” By mining standards,
either number is quite high. Of particular interest to
us in the presentation was a ramp they were building to a
new area not yet explored that they hope to drill both up and
down and should be giving some results by late summer.
Should this come in as some of their geologists hope, Dobson
might be onto something big, yet again.
But again, back to his take on gold. He is a big believer
in it. He suggests that “It’s just the beginning of the beginning,
you only start worrying if and when the Americans
stop printing money”. He suggests, “Every time there is a
100 or 200 point bump in the stock market, the Fed is printing
hundreds of billions of dollars to give to 24-year old currency
traders to make things better”. He suggests the current
run in gold is just like the early part of the 1930’s. That
was a time when mining gold was incredibly profitable, particularly
in Canada. He also compares the recent move from
$250 to $500 to the time in the 1970’s that saw gold move
from $60 to $100.
Safety is again a concern which is why he ended up in
Canada. Comments he made about those who decided to
invest with Crystallex (KRY) in Chavez’s country of Venezuela,
well, let’s just say you might not feel as comfortable
owning those shares after you hear his thoughts. There is
no shrinking violet here on those thoughts as he suggests
Fidel Castro must be having the time of his life and that
while his people are in penury, he, through Chavez and
Venezuela seems to be taking an ever more significant role
in what happens in Latin America.
With such as track record, it’s hard to disagree with Dobson
on his predictions for gold. But should he be right, it will
pay to own some gold stocks, preferably in a safe locale.
As to Kirkland Lake’s 4 1/2 years into the story he admits
they are a little behind schedule. “It took longer to get the
old mines pumped out” (three times as much water as expected)
and there was big trouble getting experienced mining
personnel (now taken care of).
Now, this year, it looks like they’re getting to the interesting
part. Lots of drilling and meanwhile, they are a producing
mine (no eight to 10 year wait for production approval) and
looking to expand reserves dramatically.
And I guess we should point out that management owns
more than 30% of the stock.
Apparently, billionaire Dobson senses yet another opportunity.
Disclosure: Kirkland Lake Gold : Canaccord Capital covers this stock and has a Speculative Buy rating on it. (Speculative buy: Stocks bear
significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss.)
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