Mexico’s proposed higher mining royalties could block nearly $7bn in investments
The Mexican government proposed raising mining royalties under the argument that metal prices have risen in recent years.
By Nelson Bennett
By all accounts, Frank Callaghan has a gift for raising money and expectations.
Sometimes likened to the late flamboyant stock promoter Murray Pezim, Callaghan has demonstrated a knack for selling investors on dreams of the next big gold strike.
But his detractors – among them disgruntled investors – might say that as a builder of mines or profits, he has the reverse Midas touch.
Over his long career, which he started in his late teens prospecting in Flin Flon, Manitoba, Callaghan has raised many millions and has founded or headed more than half a dozen junior exploration companies, only one of which has come close to putting a mine into production.
“He is an old-school Vancouver promoter without a track record of success,” said Mickey Fulp, who publishes the Mercenary Geologist newsletter.
“He’s a lot like the Pez [Pezim] used to be,” said Tim Termuende, CEO of Eagle Plains Resources Ltd. (TSX-V:EPL), who defends Callaghan, despite having seen his own investments in one Callaghan company evaporate. “The difference is the Pez had a score every now and then. Frank never really had the score where he got to cash out.”
Not yet, anyway.
There’s still Barkerville Gold Mines Ltd. (TSX-V:BGM), a Callaghan-founded company that some believe still has the potential for success, despite its recent setbacks.
Although he resigned last year as CEO and this year as a director, Callaghan is still Barkerville’s second-largest shareholder. The largest is Eric Sprott, founder of Sprott Asset Management, who now holds 41% of the company.
“When you’ve got a billionaire gold bug as your single largest shareholder, it doesn’t get any better than that,” Callaghan said.
Despite doubts that were cast on a resource estimate the company publicized in 2012 for its Cow Mountain property – doubts that led to a 14-month stock-trading halt and a retraction after the BC Securities Commission found the estimate not be be properly backed up by technical reports – Callaghan believes Barkerville has huge potential as a gold mining district.
“The ounces that I’ve identified, that’s only one mountain,” Callaghan said. “The ones on either side of it are the same.”
Callaghan’s other ventures haven’t ended so well, however, which may explain the cynicism among some investors and insiders. They point to lavish spending on travel and promotions, something Callaghan defends by saying most of the money he raised was from outside B.C. They also question contracts awarded to Callaghan’s own drilling company for much of his companies’ exploration work.
Blind Creek Resources (TSX-V: BCK) is one company that has drawn criticism. Within one year of going public on the TSX Venture Exchange in July 2011, the company’s stock collapsed, losing 90% of its value.
According to annual financial statements, the company spent $1,968,608 in 2011, including $382,230 on travel, promotion and trade shows, $336,761 on professional fees and $235,099 on office supplies and miscellaneous.
It spent $305,077 on exploration, some of which would have gone to Callaghan’s own company, Standard Drilling & Engineering Ltd., which billed Blind Creek $35,547 in fiscal 2011, $299,442 in 2010 and $243,506 in 2009.
With a $17 million deficit, Blind Creek has been largely inactive since 2012, although Callaghan still receives an annual salary of $150,000.
He also still receives an annual $60,000 salary from Golden Cariboo Resources Ltd. (TSX-V: GCC.H), which has a $13 million accumulated deficit and is parked on the NEX – the lowest tier of the TSX Venture Exchange, where dormant companies are placed.
Callaghan defends his salaries, saying he has bankrolled much of the companies’ activities himself.
“It’s the bank of Frank,” Callaghan said. “Go and have a look at the last time any of them were financed. I financed them.”
One of the biggest critics of so-called “zombie” miners – mining companies that do little more than paperwork to keep up their listings – in the Vancouver junior mining space is Tony Simon, who spent years as a junior exploration company deal-maker and consultant.
Earlier this year, Simon came up with a list of close to 600 resource companies on the Toronto Stock Exchange and TSX Venture Exchange that have negative working capital. Four companies that Callaghan founded, including Barkerville Gold, are on Simon’s list.
And yet Simon vigorously defends Callaghan and counts him as a friend.
“Lots of jobs have been created by Frank over the years,” he said, “more than most other people in the business. If he hadn’t used his own drilling company, most of the exploration would not have got done.”
Termuende agrees, despite the fact that, as a founding shareholder of Barkerville’s earlier incarnation, Wayside Gold, he would have seen his shares rolled back twice – a total of 500 to 1 – by the time it became Barkerville.
But that’s the exploration business, he said. Callaghan, he added, was one of the few people drilling in B.C. in the 1990s, when there was an exodus of junior exploration companies and investors from B.C.
“I know at times a lot of people said, ‘Holy cow, how can he run his own drills and circle that money through?’” Termuende said. “The flip side of that is, when there was no money years ago, he was still drilling because he was lending the project the drills and [saying] ‘I’ll pay myself later’ and that kind of thing. That money eventually came back around into a financing for the company.
“I know for a fact that [Wayside] was living off his credit cards for a while. And I know for a fact too that if it wasn’t Frank’s own drilling company around there, a lot of times that thing would have sat dormant.”
The seed of Barkerville Gold was Dawson Range Mines, which Callaghan had invested in and later become a director of in 1991. Its Wayside mine project was too small to attract any investment, so management decided to fold the company.
“They weren’t going to pay the sustaining fees,” Callaghan said. “I actually bought it on Visa. I actually paid the sustaining fees on Visa and took control of the company.”
With money left to him when his father died, Callaghan bought drilling equipment and used it on the properties he optioned over the years.
The Barkerville district is renowned for its mineral riches and was the heart of the Cariboo gold rush. But all of the deposits Callaghan identified as having potential in the region were too small to raise much interest.
So he set about assembling a number of claims and tenures into one large 60-kilometre-long belt containing three main zones: Bonanza Ledge, Cow Mountain and Island Mountain.
“One thing I really give Frank a lot of credit for – and I don’t think people do enough – is the way he consolidated that land district,” Termuende said. “Not many people or many companies would have been able to put that package together.”
When Callaghan drilled into Bonanza Ledge, he found a type of mineralization that had not been identified before, which caused a stir. In 2004, Sprott took a 9.9% share in Wayside, and an equal amount in Golden Cariboo and Lions Gate Energy.
But on two occasions, Wayside/Barkerville has been the subject of cease-trade orders, after Callaghan published resource estimates that were called into question by the BC Securities Commission – in 2000 and again in 2012.
The second trade halt lasted 14 months, while the company went back to the drawing board to come up with a new technical report, which ended with a resource estimate that was a fraction of the 10.6 million ounces of gold that Callaghan had projected in 2012.
When Barkerville shares began trading again, it was well into a bear market, and shares plummeted. Sprott rescued the company with a $15 million loan, which he recently converted to a 41% equity position.
Despite Barkerville’s troubles, Callaghan had managed to put Bonanza Ledge into production and was on hand for the pouring of the first gold bar on July 24, 2014.
However, five days later, Callaghan announced his resignation as CEO. Earlier this year he resigned as a director, and the new management shut the Bonanza Ledge mine down. The company is conducting a new drilling program to get a better idea of how to mine Bonanza Ledge.
Callaghan said he and Sprott had agreed that, once Barkerville had poured first gold, he would step aside and bring in an experienced mining CEO.
Callaghan is now focusing on reviving some of his mothballed projects, including Lions Gate Energy. On July 24, the company announced a name change and six-to-one share consolidation.
The newly renamed company, Starr Peak Exploration Ltd. (TSX-V:STE), is focused on the El Toro copper-molybdenum-silver property in the Smithers, B.C., region.
Callaghan did not stand for re-election to the board of directors but still owns 19.9% of the company.
