The founder, president and CEO of Flemish Gold knows the company’s jurisdictions of choice – Burundi, Rwanda and Uganda – make people nervous.
“When you mention Rwanda to potential investors, the first thing they do is the sign of the cross and say, ‘Why do you want to go there? It’s a dangerous place,'” says Jean-Charles Potvin.
“In fact, you’d be surprised how beautiful (Rwanda) is and how well organized it is today,” he continues. “The genocide happened 17 years ago. . . Half of the population today wasn’t even born (then).”
Despite the typical reactions to Rwanda and neighbouring Burundi, which hosts Flemish’s flagship project, Potvin has raised more than $13.6 million and coaxed Flemish’s share price up from 3¢ in March 2007 to $1 (including a warrant) at its last financing. Since last year, he’s signed up five institutional investors, and he may sway retail investors as well when he takes the company public in the fourth quarter.
That’s because the geologist and former top-ranked gold analyst has a track record that speaks for itself.
Potvin was the driving force behind Pangea Goldfields, a first-mover in Tanzania that attracted a $204-million, all-cash takeover bid from Barrick Gold (ABX-T, ABX-N) in 2000 – a year that was so tough for mining companies it was dubbed “The Year of the Survivor” by The Northern Miner.
Pangea’s success didn’t come out of nowhere. Nor have all of Potvin’s ventures been successful. But the common thread in Potvin’s 30-year career is that it has been built on passion – for geology, discovery and for the business.
In 1981, Potvin was working as a financial analyst at Union Carbide’s Toronto headquarters when a headhunter, looking to fill an opening for a new mining analyst at Burns Fry, called him up.
Potvin had never heard of the leading brokerage firm (now part of BMO Nesbitt Burns), but the job sounded more interesting and more directly linked to mining than what he was doing at the time – drawing up budgets for Union Carbide’s ferro-alloys division.
And what he lacked in knowledge about investment banking, he made up for with enthusiasm – and candor – during his initial interview with Burns Fry manager of research Roland Bertin.
“He asked: ‘Where do you want to be in twenty years?’ Potvin recalls. “And I said ‘Well, one day, I will have a mine. I don’t know what metal, I don’t know where, and I don’t know when, but I will have a mine.’
“He still laughs about it today because he says it was the first time he interviewed somebody who said in the first interview he’s going to leave,” Potvin chuckles.
Potvin got the job anyway, and spent the next 13 years travelling the world to evaluate mineral projects.
The job was a natural fit for Potvin, who, as a kid had always collected rocks. It was something his father, born and bred around farming, didn’t understand about his firstborn son – although he did allow a 13-year-old Potvin to bring his collection when the family moved from Ottawa to Cornwall.
“He thought I was crazy and so did the movers,” Potvin remembers.
His family was far from wealthy, but having grown up without a lot of money gave Potvin the drive to better his lot. When he graduated from high school, Potvin funded his first year studying geology at Carlton University by doing exploration work in the summer – saving rent by living in the bush. Still, he had only $400 to his name at the start of the year, well short of the $650 tuition fee, never mind other expenses.
“I scrounged. I ate a lot of yogurt and sardines and McCormick cookies, which you could buy in a huge bag for not much money. That was basically my diet.”
Potvin’s first job after graduation, exploring for gold and uranium in Quebec with Noranda Exploration, only lasted a year and a half before he was laid off, the victim of a downturn in the economy. He decided to upgrade his education, reasoning correctly that an MBA at the University of Ottawa would open up his career options.
At Burns Fry, Potvin brought an enterprising spirit to his job as a gold analyst. He achieved top rankings in analyst surveys, and in the mid-1980s even cracked the puzzle of how gold companies were valued in the market.
“We all knew that gold stocks traded at high multiples and everybody said they don’t make sense,” Potvin explains. “I said, well there has to be a pattern, there has to be a reason why stocks are trading at 15, 20 times earnings.”
Most analysts only covered a handful of stocks at the time, and without a model to work with, gave them largely arbitrary valuations, Potvin says. In the very early days of personal computers (Potvin received the third PC handed out at Burns Fry), he started experimenting with models on Lotus software, looking for patterns in the data of 40 or so gold companies.
He found one: Potvin discovered that companies in safe jurisdictions traded at the hypothetical value of the profits they could make if they mined all their reserves or resources in one day – accounting for capital investment.
The model he came up with – the zero-discount net present value model – became the basis for present-day models.
“I was laughed at initially, but the model worked,” he says simply.
Not surprisingly, Potvin was promoted to a vice-president and director of Burns Fry in the late 1980s. But he hadn’t forgotten about his dream of building his own mining company.
In 1992, Potvin tested the waters of the corporate world. With fellow analyst Oliver Lennox-King, he cofounded and became the chairman of Tiomin Resources, whose first board included Pierre Lassonde and Ian Telfer.
The next year, he turned 40, and believing that a change in career might mean less time on the road and more time with his wife Lucie, and their three young children, he decided to go all in.
Pooling gold projects in Ontario and Tanzania under one company, in January 1994, Potvin took Pangea Goldfields public as its president and CEO.
In the early 1990s, Tanzania was seen as a risky place.
It was prospective – Placer Dome had an agreement to explore for gold in the Bulyanhulu area in the late 1980s – but the country had a long socialist history. Potvin, however, could see the tide turning with the fall of the Berlin Wall in 1989 and the subsequent collapse of the Soviet Union.
“Russia was losing its influence in Africa and I felt the time was right for a big change in all these governments that were socialist,” Potvin explains. “They had no choice but to open up the doors.”
While Placer had left the country – it had threatened as much in a clumsy attempt to pressure the government to renegotiate an existing agreement it felt was too rich – Potvin saw that as a mistake in strategy rather than a sign of an unpredictable government.
The theory may have been sound, but there were practical challenges to being a first mover.
“The only hotel in Dar es Salaam was an awful place,” Potvin remembers of his first visit to Tanzania in 1994. “It was called the Kilimanjaro and the water was incredibly rusty. There were no screens, no air conditioning, and it cost US$100 a night – which was outrageous then.”
There was little infrastructure in place in the country, and when the company first went to visit the mines director to apply for claims, they looked around the barren office and quickly learned to bring their own paper, pens and printer.
In an era before cell phones or even portable satellite phones, communication from the company’s technical office in Mwanza, Tanzania’s second-largest city, was complicated at first.
“To talk to the guys in Mwanza from Toronto, the guys in the field had to go on a short-wave radio, talk to a ship in the middle of the Indian Ocean that would relay the signal to Johannesburg in South Africa, then it went into a phone line (that went through) an undersea cable to Toronto,” Potvin explains.
The upside of breaking new ground, of course, was that with little competition, Pangea was able to amass more than 2,850 sq. km of promising ground in northwestern Tanzania.
With a trusted exploration team on the ground that included Anton Esterhuizen, one of the property vendors he knew through Tiomin, and who had begun work on the package in 1993, Potvin’s main job was rounding up the cash to explore that ground. That became more difficult in the late 1990s, after the Bre-X Minerals salting scandal broke in 1997.
“The market kind of collapsed and melted and the price of commodities went down for many years,” Potvin says. “It was four or five years of a pretty difficult environment.”
But Pangea’s strategy of joint venturing its projects – adopted initially because it had too much land to handle by itself – kept the drills turning.
And by 1999, Pangea had delineated three gold deposits of between 1 million oz. and 2.2 million oz. in Tanzania: Buzwagi, Golden Ridge, and Tulawaka.
(A fourth deposit was lost to hundreds of artisanal miners, who invaded the property and carried off an estimated 1 million oz. gold.)
There was only one real downside of Pangea’s JV strategy, which soon became obvious.
“If you had less than 50% (of a project), if you were not the operator, you would be trading at a huge discount,” Potvin says. “So that’s when we decided to keep (70% of) Tulawaka for our own account and that (combined with high grades) was the clincher that attracted Barrick.”
In June 2000, a year after the major bought Sutton Resources and its Bulyanhulu project for $525 million in stock, Barrick made a friendly offer of $7 a share for Pangea, a premium of 17.6%.
Tulawaka started production in 2005, followed in 2009 by Buzwagi, which now contributes just under 200,000 oz. a year (or more than 25%) of Barrick spinoff African Barrick Gold‘s (ABG-L) production. Golden Ridge is slated to be developed by 2013, contributing another 70,000-100,000 oz. a year.
“Initially, (Barrick) thought they had perhaps overpaid,” Potvin says, noting the price of gold dropped by around US$50 to US$260 per oz. within days of the acquisition. “But after a couple of years, they actually made a comment that, dollar for dollar, Pangea had been their best acquisition for what they ultimately found and developed.”
A matter of survival
Potvin didn’t survive the tumultuous late 1990s unscathed.
Just a few months before the Bre-X scandal hit, he took over as president and CEO of Tiomin Resources, which was advancing its Kwale titanium sands discovery, in Kenya.
Leading two companies through those uncertain years took its toll on Potvin.
In 1999, he was on a two-day layover in London, England, en route to Kenya with his family, when the stress caught up with him. Only 46 at the time, the classic pains – starting in the chest and radiating down the left arm – hit Potvin at midnight.
After calmly popping a couple of aspirin and taking a cab to the hospital, Potvin was less sanguine when, from his curtained-off bed in the emergency room, he heard the doctors treating a woman in her 80s with heart failure.
“They were zapping her heart, shouting ‘Clear!’ . . . Zap! And I could hear everything because I was just a few feet away but I couldn’t see anything. The lady didn’t make it, so I went, ‘hmmm. . .'” he says, with a nervous laugh.
While Potvin lost a branch of capillaries in his heart and took seven years to fully recover from the heart attack, it likely would have been fatal if it had happened in Kenya.
With that in mind, his doctor prodded him to find less stressful work, but even a brush with death failed to sour Potvin’s love for the industry.
“I really enjoyed the business, so I kept at it,” he says, adding that selling Pangea a year later took a lot of the pressure off.
In 2000, Tiomin produced a positive feasibility study for Kwale, outlining a US$137-million project with a mine life of 14 years that would produce US$47 million in cash flow per year.
Although it was economic, the project had its challenges. Not only did it require the relocation of 377 families living on top of the deposit, but in Kenya’s culture of endemic corruption, the project was seen as a cash cow by just about everyone.
Potvin says the company experienced subtle but chronic delays in permitting that were meant to prompt it to ask: “Ok, how much does it take?”
Instead, Potvin stuck to his guns. “I refuse to pay grease to make things happen,” he says, both as a matter of principle, and because “as soon as you do that, you’re toast.”
In 2001, three locals took the company to court, accusing it of mining without a permit and destroying the environment. Potvin says it quickly became apparent in the eight-month preliminary hearing that followed that the judge – who was later fired in an anti-corruption purge of senior judges – had a vested interest in the outcome of the case.
“Particularly when the judge stood up in court and said, in his entire career, he had never seen a court case that could not be settled for cash,” Potvin adds dryly.
Though the judge eventually concluded the company was innocent, he still ordered it to pay the plaintiffs’ legal costs, calculated at a whopping $2 million. Tiomin appealed the judgment.
“By that time the stock had collapsed, we were out of money, 9/11 happened, the whole world markets collapsed,” Potvin says. “We managed to survive, but it cost us dearly – we had to do a financing at seven cents a share.”
Tiomin eventually won its appeal, and by 2006, Potvin’s persistence seemed to be paying off. The company finally received the permits to develop Kwale, and Potvin, who doesn’t consider himself a minebuilder, relinquished the president, then CEO roles at Tiomin to Robert Jackson, an engineer and cofounder of Jaguar Mining (JAG-T) who had been a colleague at Burns Fry. (Potvin remained chair.)
The company went ahead with the relocation effort, but seven farmers rejected the government-approved compensation package that 370 others had accepted (a payment of ten times the value of their land, compensation for crops, etc., title to alternative land, and priority for jobs), wanting 50 times the value of their land.
The government eventually expropriated the land, but it acted too late. Under its financing agreement, Tiomin was required to have any legal issues wrapped up in time to start accessing funds by early 2007. When that didn’t happen, the lenders pulled out.
Tiomin finally gave up on the project in 2008, having invested roughly $100 million between cash and dilution in the stock. Base Resources (BSE-A) bought Kwale last year for just $3 million and a 1.5% gross revenue royalty. (Base, which is finalizing the financing for the project and expects to begin production in 2013, may have better luck.)
In hindsight, Potvin admits he should have walked away from Kwale a long time ago. And while he is deeply disappointed with the outcome, his patience with Kenya has clearly run out.
“That project would have created hundreds of jobs and with the multiplier effect, it would have been thousands of jobs,” he says. “But you know, after fifteen years, enough is enough. And frankly, I will do anything not to even go to the airport in Nairobi to switch planes – I will just not go back to Kenya.”
More legal fees
Tiomin entered the recession of 2008-09 with one valuable asset – more than $17 million in cash. Looking to put that money to work, in early 2009, it proposed a merger with cash-poor Cadiscor Resources, which owned the past-producing Sleeping Giant mine in Quebec.
But Jaguar Financial (JFC-T) (no relation to Jaguar Mining), which held just over 10% of Tiomin’s shares, didn’t like the deal. In fact, the merchant bank launched a proxy battle to unseat the company’s board, and then launched a derivative action against Tiomin – which would have allowed it to use Tiomin’s money to sue its officers and directors, including Potvin.
Jaguar president and CEO Vic Alboini (who was a vocal critic of several mining deals during the recession) objected to a $7.5-million loan to Cadiscor that would have taken place before a shareholder vote on the merger. He also accused the company of not acting in the best interest of its shareholders and took issue with what he said was a “pattern” of related-party transactions for the company – Potvin was a director of Cadiscor, and Tiomin had also invested $3.4 million in Flemish.
While Tiomin hadn’t broken any rules, regulations or laws, and had standard safeguards in place to ensure any related-party deals were fair to shareholders, the legal bills were eating into its precious cash. It dropped the Cadiscor deal and negotiated a confidential settlement with Jaguar.
“Everything that we do, we do it by the book,” Potvin says. “Having this lawsuit pending just made it literally impossible to look for acquisitions or mergers.”
A few short months after abandoning the merger, Cadiscor was snapped up by North American Palladium (PDL-T, PAL-X) at twice the price Tiomin had offered.
And after examining more than 40 other opportunities, Tiomin purchased Brazil-focused diamond junior Vaaldiam Resources last year, and was reborn as Vaaldiam Mining (VAA-T).
Bloody but unbowed
With Flemish, Potvin is going back to his roots, once again looking for gold in underexplored territory. He’s even reassembled much of the Pangea team to help him do it – including Bruce Milne, Francoise Gauthier, Martin Taylor and Claude Britt.
“We had great success in Tanzania, so looking at the geology map, I said, ‘Well, you know, there’s this band of very nice rock between Uganda, Rwanda and Burundi – essentially very similar geology to the (Democratic Republic of Congo).”
That nice band of rock is the Kibaran belt, an area of extensive hydrothermal alteration. Banro‘s (BAA-T) 10-million-oz. Twangiza deposit is located in the same belt, but in the DRC, 200 km west of Flemish’s flagship Muhwazi project.
Potvin was impressed when he first visited Muhwazi, in northeastern Burundi.
“I’ve never seen so much gold over such a large area being mined by artisanals, I mean it’s just incredible,” Potvin enthuses. “Statistically, there has to be at least one if not more economic deposits in that area of the world.”
The licence had previously belonged to Buminco, a now-defunct parastatal company, and when Flemish applied to take it over in late 2007, the government was reluctant to grant it because Buminco still had some liabilities outstanding.
It took some “stickhandling” to get the licence, Potvin says. But, with a plan to compensate Buminco’s receivers, and by agreeing to contribute $200,000 towards socioeconomic development initiatives in the area as part of the licensing process, he did. Flemish finally received the permit in March 2010.
The Masaka 1 deposit at Muhwazi already has a historic 2001 resource of 738,000 tonnes grading 2.2 grams gold per tonne for 53,000 oz. But that number is likely to grow by the time Flemish is listed and publishes a National Instrument 43-101-compliant resource.
About 40% of the historic drill core from Muhwazi, where mineralization occurs in quartz veins, shears and stockworks, was never assayed.
“(Buminco) had some nice results, although they were totally focused on this big white quartz vein,” Potvin explains. “They did not assay anything else, which is kind of crazy, given that most of the gold is in grey quartz.”
With more than $5 million in the kitty in August, Flemish has three drills onsite, drilling to up to 250 metres depth. Reverse-circulation drill results include 65 metres of 1.63 grams gold (from 20 metres depth), including 5 metres of 3.4 grams gold; 9 metres of 6.78 grams gold; and 4 metres of 1.57 grams gold.
With Muhwazi’s clear potential, the reception to Flemish’s IPO will depend on whether Potvin can convince a skittish market that he can manage the risk of operating in Burundi – and in Rwanda and Uganda, where the company has earlier-stage properties.
Whereas the violence in Rwanda started and stopped in 1994, Burundi has seen periods of ethnic violence since its own genocide in 1993 claimed 200,000 lives. However, the country has been relatively stable since the government signed a peace accord with the last rebel group in 2006.
“It’s not perfect, but it’s certainly workable,” Potvin says.
As for the corruption that stymied Tiomin’s efforts in Kenya, Potvin says Flemish hasn’t experienced any attempts at extortion and has acquired the licences for which it has applied.
Part of the company’s success so far has been a willingness to invest in the impoverished country’s social and economic development. In return for its four licences in Burundi (three of them in the northeast), the company has contributed more than $1 million toward a local health clinic, upgrading of roads, construction of a school and soccer field, and fixing the water system in Muyinga town.
“You have to be cognizant that the needs of the population are great and you have to offer something to help them,” Potvin says.
While Potvin’s previous projects have attracted criticism from non-governmental organizations who believe mining development causes more problems than benefits for local communities in poverty-stricken countries, it’s clear he disagrees.
“The question that should be asked is: who builds the schools, who builds the infrastructure, who builds the roads, who creates jobs in these parts of the world? And it’s not the NGOs,” he says. Flemish now has 60 employees in the country, most of them local.
Despite his disappointment with Kenya, Potvin hasn’t lost his enthusiasm for breaking new ground – or his inherent optimism.
“There’s always the hope that you’ll find one more deposit,” he says. “That’s an incredible satisfaction, finding big deposits that get developed, create jobs: that’s quite a legacy.”