When I scheduled an interview with Minefinders (AMEX: MFN ) CEO Mark Bailey to coincide with my recent trip to Vancouver for the Cambridge House Resource Investment Conference, I was hoping for an opportunity to bring a much-deserved spotlight back to this quality company and its gold and silver thoroughbred named "Dolores." It's something I've been attempting to do for years to ensure that my readers didn't miss this noteworthy story.
But never in my wildest imagination did I expect a context for the interview like the one that abruptly developed. When I saw, on the morning of my appointment, that Pan American Silver (Nasdaq: PAAS ) announced it would acquire Minefinders in a deal valued at $1.5 billion -- a huge announcement for the silver industry at large -- I thought for sure they would cancel the interview. To my delight, Mr. Bailey and some of his staff instead sat down with me at their Vancouver office for more than an hour, presumably leaving the celebratory champagne on ice while we took a moment to ponder the full breadth of this remarkable and seldom-told success story within the mining industry.
The following is a series of excerpts from our discussion. Please stay tuned for additional selections to follow -- along with several other interviews conducted during the conference -- by bookmarking my article list here, or subscribing to my Twitter feed. Part 1 below will focus primarily on the fascinating retrospective tale afforded by this timely discussion with Minefinders' CEO Mark Bailey. Part 2 will take a closer look at the transaction and what the combined company will look like.
Christopher Barker: I wonder if you could speak for a moment about what this transaction means to you personally, and what it conveys about the company.
Mark Bailey: It's bittersweet, I guess. It brings a lot of satisfaction to me that we were able to make grassroots discoveries; the successes we've had through an extended exploration phase -- years and years of exploration. The success we had to develop and construct and put this mine into production, and to end up with an attractive asset that someone else would find attractive ... especially a company of the quality of Pan American. I take a lot of satisfaction in that success because it was a long 17 years of my life. And not just me -- a good team of people did all this work. With Pan American, it's a solid company with a lot of expertise and experience; and with our assets and their assets combined, I think it's going to be a real positive for our shareholders. I am one, and so I look forward to that as well.
So I think it's one of those things where you take pride in your efforts over a long period of time, and I think this is some sort of endorsement that what we did was right. It's like someone else endorsing your work. And that part is satisfying.
Barker: Other than today, what was your proudest moment in the Minefinders journey?
Bailey: Obviously as a geologist, drilling that discovery hole is always exciting. In the case of Dolores, the first hole was the discovery hole: 100 meters of 2.5 grams of gold. So, sighting that, doing the geology. Hiking up and down the hill and mapping it was not that exciting. But when we drilled the first hole and it actually confirmed that the mineralization went below the surface, that was pretty exciting.
Not quite as exciting at La Bolsa, because when we made the discovery there we actually had interpreted the geology wrong. It was a discovery hole, but it told us the geology was different than we thought.
But Dolores was exciting, making that discovery there because it's rare that you find a big deposit, put in a lot of work, and actually have a successful drill hole. It had never been drilled before. It's one thing to buy something that already has a resource defined on it, and you're just kind of following up or expanding on that, but this was one that no one had ever drilled on. There had been some mining done there in the 1900s, but there hadn't been any work done since 1929. There was an underground mine, but not where we drilled. Our discovery was away from the other mine.
Barker: What was your most challenging moment along the way?
Bailey: Probably several. Funding the company was challenging during the late 1990s and 2000, when the markets were $250 gold and $3 to $4 silver, and no one wanted to have anything to do with gold and silver companies. We discovered Dolores in 1996, and we had a good deposit, but we were running short of money. I didn't want to raise money at less than $1 per share. So we had to stop drilling and we had to curtail a lot of our activities, and minimize our expenses for a couple of years while we really would like to have been advancing the property. And that was very challenging to weather that period and come out at the other end without having to raise money in a really bad environment or lose the properties.
Second most challenging was probably when we were trying to build Dolores, with all the challenges with the engineers.
Barker: As a former shareholder, I recall learning of the tear in your leach pad, and imagining how frustrating that must have been for a company that had worked so hard to get that mine into production. Can you tell me about what it was like when you heard the news, and what it meant for the project?
Bailey: It was very disappointing. I'm not an engineer, and as a geologist we were out there looking at where you would site all these things. I had many engineering firms -- not just our engineers, but consultants and everybody else -- who said, "This is simple; we can build anything out here. Oh, this isn't even that rugged." Well, it looked pretty rugged to me, having hiked those hills. And so, they decided the site, and said, "This is nothing. We'll do the earthworks, move the material around … this is a very simple place to build." They build it, and it's all managed by independent engineering firms, reputable companies that we paid a lot of money to. And you trust them to provide the expertise. And to find out after the fact that they engineered it fairly poorly in the design part, and even worse, when they built it there was no QA/QC [quality control]. We knew when they were building it that they had torn the liner a couple of times with the 'dozer, but they admitted that and repaired it. What I think they also did was they stressed the liner a lot, so then when we loaded it up and got 10 million tons on there, it failed. And so, it was very disappointing for me to find out that we had this issue with what should have been a fairly simple leach pad because of poor construction.
Barker: And the timing was heartbreaking, I'm sure, since it was right as you were ramping up.
Bailey: We were right in our ramp-up. We had just placed enough tons under leach and had enough time under leach … fortunately, we had the second pad started, so we had another position to go to. But it was very disappointing because the intent was to finish loading that pad for the next year, and then leach that pad ongoing for the next two or three years and get residual production out of it while we were building our other pads. And then to have to take that out of irrigation, as it still is, and to have a fair amount of gold and silver up there not getting leached … [I]t's been out of irrigation for a year and a half. We've moved part of it, the unleached part we put on phase 2, the remaining part that's left, what we've decided to do now is we'll probably move that material to a dump leach. That's an old waste dump, which is fairly flat, which we'll line and then put run-of-mine low-grade material on there. We'll take the residual material left on the phase 1 pad, which still has recoverable silver and some gold in it, convey that over and mix it with run of mine material and then leach it. That will allow us to open up that whole phase 1 pad area again, redo it right this time with good QA/QC when we line it, and it will give us an area to put another 12 [million] to 15 million tons. And it will be fairly inexpensive to build because it's already built. All we have to do is move material, and there's more than enough recoverable metal in it to pay for that and make a profit, and then it's just a matter of relining it, which isn't that expensive. And now we can put 12 million tons on a new pad. So that's what we're doing now. You know, it wasn't in our original plans, but that's what we're doing now. You know, mining is a risky business; there's always something breaking or something going wrong.
Barker: What's the one thing you'd like people to remember about Minefinders as a stand-alone company?
Bailey: Well, I think that we've done a good job, that we've done what we said we would do. When we were discovering these properties, everybody said "you're never going to build a mine. You're not Minebuilders -- you're Minefinders." It's a name. It's okay if [we] build them too, you know. We're going to find mines, and if someone buys them, that's great. Or if we take it to production, that's great too. So we took one to production, but we didn't change the name to Minefounders or Minebuilders. And Minefinders, I thought, was a good name. As geologists, that's what we're doing is finding mines. But I didn't think it meant we couldn't build a mine. So I would hope people would say, "Well, there's a company that went from discovery to production," and that's rare. Especially for a small company … [W]e didn't have a lot of big bucks behind us. There are some companies that have been successful because they came from somewhere else and had tons of money behind them, and they could probably do it a little more easily. Kevin MacArthur would be a good example with Tahoe Resources (OTC: THOEF). I mean, he had a good history with Glamis and Goldcorp (NYSE: GG ) , and he has a great reputation. He starts a new company, and gets tons of money thrown at him, buys a property from Goldcorp for tons of money. I couldn't have done that. I didn't have those kinds of connections. But Kevin has done a great job, and his Tahoe thing in Central America will be a great mine. I think he's building it now. We were able on a shoestring to take this grassroots discovery through all the bad markets, into the good markets, and timed it perfectly to be producing and selling it at $1,600 gold. That was always our plan. [laughs]