Virginia Heffernan, principal of GeoPen Communications, is a science and business writer who specializes in writing about mineral and energy resources. She provides research and writing services to both corporate and government clients and is a regular contributor to publications such as Investment Executive, The Northern Miner and Canadian Consulting Engineer. www.geopen.com/
“From the Ground Up” is an autobiography of one of Canada’s most notable mining women, Viola MacMillan, best known for her involvement in the infamous Windfall mining scandal of 1964. Although her autobiography presents her side of the controversial story some gaps and context were missing. Virginia Hefferernan’s thorough investigation cleared up many of those gaps and provided much needed context in the “Afterword” final chapter of the autobiography.
Afterword (March 2001)
The name Viola MacMillan evokes one of two responses. Those who knew her personally describe a generous and dynamic professional who became the sacrificial lamb of a corrupt Bay Street. Those introduced to her by the press recall a scoundrel who swindled innocent investors out of their savings. Will the real Viola Rita MacMillan please stand up?
If MacMillan were alive today, she would readily rise and state her case, just as she did on the 1960s television program, “To Tell the Truth.” As her memoirs divulge, she was an aggressive personality who rose from humble beginnings to achieve success in the mining industry: Canada’s own Horatio Alger, some would say. Despite her tiny stature – she stood just five feet tall and weighed little more than 100 pounds – she fought her way to the top of a man’s world by sheer force of will and a refusal to take ‘no’ for an answer. “Anybody, regardless of sex or circumstance, can do anything they want to do. All you need is the guts to stick to things,” was her favourite response to queries about the secret of her success.
But she rarely spoke of what became known as the Windfall affair, a mining scandal in the 1960s that triggered a royal commission investigation, exposed weaknesses in the market regulatory system and shamed several high-ranking officials. Even MacMillan’s otherwise detailed autobiography gives scant attention to an event that not only rocked her world, but changed the dynamics of share trading in Canada forever. MacMillan carried a long list of accomplishments to her grave, but her name will always be synonymous with Windfall.
MacMillan and the mining industry were joined at the hip. She spent her waking hours lobbying on the industry’s behalf, organizing professional and social activities for miners and prospectors, combing the bush for signs of hidden mineral wealth or nurturing her children: the bevy of junior mining companies that she ran with her husband, George. “If you want to see Viola, you’ve got to get up early and catch her on the run,” George MacMillan told Maclean’s Magazine in 1957. The mining industry was the stage upon which MacMillan orchestrated some of her finest performances and, in return, she was the industry’s most vocal advocate. Even their fortunes seemed in sync.
There was less balance in her marriage. Observers say Viola dominated while the happy-go-lucky George was content to take instruction from his more assertive wife. Their business alliance mirrored their personal relationship. Viola was the financial whiz and dealmaker who called the shots, George the technical expert who handled most of the hands-on fieldwork. “She took a lot of the glamour, but he was the prospector,” remembers Mort Brown, former editor of The Northern Miner.
Judging from their success, they made a good team. Among the couple’s mining coups were the discovery of the Hallnor gold mine in Ontario and the development of the Victor lead-zinc (ViolaMac Mines) and Lake Cinch uranium deposits in British Columbia and Saskatchewan, respectively. “There are few mining camps that did not feel the tread of George’s boots in the bush and the two as a team made a deep impression on the progress…. of many (mining) areas,” read George’s 1978 obituary in The Northern Miner.
Let me call you sweetheart
But before the Windfall affair would cast a shadow over her public image, Viola MacMillan was best known for her leadership of the Prospectors and Developers Association of Canada (PDAC). Under her reign as president from 1944 until she resigned in 1964, the organization’s membership grew from a handful to more than four thousand. The annual convention she organized at the Royal York Hotel in Toronto became the place to option properties, to discuss issues relevant to exploration and — just as importantly to those who spent the remainder of the year in the bush — to party.
To this day, the PDAC’s March convention remains a colorful event where the booze flows freely, the dancing extends well past midnight, and promotors are granted three full days to shout from their soapboxes to a captive audience. The networking events coincide with technical talks and short courses given by some of the brightest in the business. Today’s 6,000-plus attendees can thank MacMillan, so dedicated to the event that she would drive drunken prospectors home in the wee hours of the morning, for what has become the best-known mining gathering in the world. “She did a lot of arm-twisting to obtain high-quality speakers and other seminar leaders to participate and generally made the conventions happen,” says her former accountant Robert Ford.
Winning over the heads and hearts of her fellow miners did not come easily. There were some PDAC members who resented the appointment of a female president, including the organization’s founder, Walter Segsworth. But MacMillan gradually earned the respect of many of her peers. Eventually, her gender became a non-issue. “The great and not-so-great have ceased to wag their heads and wonder,” reads a profile of MacMillan in Men and Mines, published in 1962. “They know Viola MacMillan is an outstanding pioneer of Canadian mining, who commands respect not because she is ‘Mrs. President’, but because of her own achievement.” To express gratitude to the tiny bundle of energy that was their leader, PDAC members would serenade MacMillan with a rendition of Let Me Call You Sweetheart whenever she stepped up to the podium. “The PDAC was her life,” explains Robert Ginn, who followed in MacMillan’s footsteps as PDAC president in 1989. “No one was willing or able to spend as much time on the organization as she did.”
What was it like to be the only powerful woman in a man’s world? This question fascinated the press, becoming the subject of many a magazine feature and column in the women’s pages of daily newspapers throughout the 1940s and 1950s. MacMillan’s membership in the mining fraternity earned her a file folder of nicknames, including “angel of the sourdoughs,” “Queen Bee” and “sweetheart of the mining men.” But she was too busy getting things done to ponder her unusual status. She was scornful of the feminist movement, believing a woman could be successful in any career with a little luck, a strong will and lots of hard work. “I see no reason why girls can’t take their places beside the men in the field,” she said in a 1948 radio broadcast. “Mind you, they must expect to pull their weight and not be cry-babies when things don’t go too well – when it rains and the fire goes out, or when the black flies make life miserable.”
The “girls” may have taken their place beside the men in the bush, but they haven’t advanced much further. The reins of power in the mining industry remain in male hands. Although working in the field is difficult for men with families, it is virtually out of the question for married women still taking the lion’s share of domestic responsibility. University geology and mining engineering classes may have an equal proportion of men and women, but most female graduates eventually develop related careers in research, education, communications or finance. They rarely make it to the executive ranks of the mining industry.
The most notable recent exception is Margaret (Peggy) Witte, the audacious promoter named Woman of the Year by Chatelaine magazine in 1994. A metallurgical engineer, Witte oversaw the rise and fall of Royal Oak Mines, a medium-sized gold producer with major-league aspirations. Before Royal Oak collapsed under the weight of high debt, low gold prices and environmental liabilities, Witte successfully restructured three money-losing gold mines and launched a bold (but ultimately unsuccessful) takeover bid for one of Canada’s top-tier companies, Lac Minerals.
She also made a lot of enemies. During a bitter, 2-year strike at the company’s Giant mine in The Northwest Territories, she hired scabs to keep the mine running, an unusual and provocative move in the mining business. The striking miners were outraged and took to calling her “Miss Piggy.” Their fury culminated in an exploding bomb that killed nine people, including three replacement workers. A former Giant miner set the bomb, but the responsibility for the attack fell on Witte’s shoulders. She later took the fall for Royal Oak’s demise. Today, Witte is trying to rebuild her reputation as chairman and chief executive officer of Eden Roc Mineral Corp., a junior exploration company with properties in West Africa.
Inevitably, comparisons have been drawn between MacMillan and Witte. Both ignored their “female handicap” to become leaders in the mining industry. Both dominated in their marriages: MacMillan by taking the upper hand in her personal and business dealings with George; Witte by hiring her husband, Bill, who later walked out of the job and the marriage. Both enjoyed the trappings of their success: Witte gravitated towards private club memberships and yachts; MacMillan preferred fur coats and the latest Fifth Avenue fashions. Both acquired a high public profile, only to plunge into obscurity when their dreams failed and their integrity was questioned. The main difference between the two was the degree of femininity. “Viola used her feminine guile in business. Witte was much more aggressive,” says Ginn.
The lure of the lottery
But if the character of mining’s female leaders hasn’t changed much, the industry has. Following World War Two, North Americans were optimistic and ready to rebuild their lives and countries. Metals for new cars and infrastructure, and for the huge reconstruction taking place in Europe and Japan, were in demand. Canada was considered a vast reservoir of these metals and exploration from British Columbia to Nova Scotia took on new urgency.
By 1951 the value of Canadian mineral production hit a record $1.23 billion, more than double the figure a decade earlier. “I hope you will agree with me when I say we cannot avoid the conclusion that the leading place in the next half-century in the mineral world belongs to Canada,” said MacMillan, then PDAC president, to the Colorado Mining Association in 1952.
Her comments would prove prophetic. By 1999, the mining industry was contributing more than $27 billion annually to the Canadian economy and had become the second largest earner of foreign exchange. Canada now ranks first in the production and export of potash and uranium, second in nickel, zinc and cadmium and third in aluminum and platinum group metals. Canada is also the mine financing capital of the world, where about 40% of the money for new mines originates. International mining companies, including Normandy Mining of Australia and Boliden Limited of Sweden, have listed on the Toronto Stock Exchange (TSE) in order to take advantage of Canadian markets to finance the exploration and development of mineral deposits the world over.
There are three stages to building a mine. First, the ore deposit must be found through exploration. The second stage involves development, when the infrastructure and mine facilities are built based on economic, geological and engineering parameters. Finally, the mine enters the production phase when ore is extracted, refined and sold and the huge capital input required during the development stage is slowly repaid. It can take anywhere from three to six or more years for a mine to pay back upfront costs.
Exploration is the riskiest of the three stages. Only about one in 1,000 properties yields an encouraging discovery and about one in 100 discoveries develops into a mine. But the exploration stage can also be the most rewarding because the costs are relatively minor compared to the potential wealth generated by an economic find. This high-risk/high-reward scenario is a magnet for speculators who will readily invest in penny mining stocks in return for the slim chance of participating in a bonanza.
Indeed, the speculative money raised by junior mining companies on Canada’s stock exchanges pays for exploration worldwide, with the exception of projects financed by producing companies through cash flow from their operations. After enjoying a spectacular run in the mid-1990s, junior mining stocks fell from grace when the Bre-X scandal erupted in 1997. But the speculative market activity was reincarnated in the high-tech boom that fueled market advances during the late 1990s, when just about everyone with money in the stock market participated in the technology sector. The risk-reward factor associated with exploration is akin to the risk of research and development in technology: they both carry a wide range of potential financial outcomes.
After the war, all the ingredients were in place for a penny stock market explosion: a loosely regulated exchange that encouraged speculation; non-taxable capital gains; high metal prices; seemingly limitless demand for certain metals; and an optimistic public ready to take a gamble. “During the two decades immediately after the Second World War, a large section of the general public in Ontario purchased penny stocks at one time or another,” wrote geologist Franc Joubin in his memoir, Not for Gold Alone. “Practically all forms of lotteries or games of chance were then illegal, save for official racetrack wagering and modest church-or charity-sponsored fundraising. The considerable inherent speculative instinct of the public responded enthusiastically to such penny stock involvement. In many circles, discussion of various penny stocks was often as common as discussion of the weather.”
Though there were many more losers than winners, the post-war investment in exploration paid off. Prospectors relying on grubstakes from informal financing syndicates or speculative share companies discovered several significant deposits, including the Manitouwadge base metal mines in northern Ontario. Joubin, for instance, financed initial staking of what was to become the $30-billion Blind River uranium field in Ontario from a $15,000 “mad money” account set up by Toronto promoter Joe Hirshhorn to allow Joubin – who had a good nose for new mines — to act on his hunches. “Unquestionably, many of the great mines of Canada emerged through the use of penny-share financing,” said Joubin.
Viola MacMillan was in the thick of the market action. She was already a veteran prospector who had made some serious money on the Hallnor gold mine. While Joubin was staking one of the biggest uranium deposits in the world, MacMillan was reaping the profits from her Victor lead-zinc-silver mine in British Columbia. (Unbeknownst to the two up-and-coming prospectors was that they would become best friends in their old age). MacMillan reinvested the Victor returns in more than a dozen junior companies and joined the uranium rush that was taking shape across Canada. Meanwhile, she was winning respect for her decade-long leadership of the PDAC, which hit the 1000-member mark in 1952. “I have never been happier, or busier, than I was in the 1950s,” she remembers in these pages.
During these boom days for mining, exploration financing was handled by slick promoters who worked the city phones while their technical sidekicks scoured the bush for new deposits. If a promoter decided to take on a new prospect, he would form a public company and issue a few million shares, then split about a quarter of the issue with the prospector as a reward for taking the initial risks. In Toronto, these promotors were known as the “Bay St. Buccaneers” for their skills at wheeling, dealing and risk-taking. They were the catalysts that brought together properties in the deep bush with cash from the big city. MacMillan was both promotor and prospector, as happy placing calls from her downtown penthouse as she was operating out of a tent in the bush. “She could make the time of day seem exciting,” recalls Ford.
Promoters are as vital to exploration as marketers are to consumer products. They create a market for early-stage exploration opportunities that would otherwise remain untested. They fund the long-shot, the hole in the bush that will either hit the jackpot or, far more likely, come up barren. Their ability to spin a story and convince the public to invest in imaginative but risky ventures is the underpinning for new wealth creation in the mining industry.
But the greed inherent in penny stock speculation combined with loose regulations and enforcement establishes a fertile breeding ground for unscrupulous activity. This lethal combination was particularly evident in MacMillan’s heyday. Petty crimes like wash trading, in which stock was bought and sold by the same company or individual to create the impression of strong market activity, were usually overlooked, just as jay walking might be today. “It was like the Wild West on the (Toronto) Stock Exchange,” says Justice Patrick Hartt, who acted as counsel on the royal commission investigation into the Windfall affair in 1965. “Wash trading was a common practice.”
Outright fraud, in which a promotor would talk up a worthless property otherwise known as “moose pasture”, then take profits when the stock appeared to be nearing its peak, was frowned upon but often left undetected or undisciplined. “In those days you could do anything. It was the norm,” says Brown. The cardinal rule in stock promotion was never, ever marry your own deal. In other words, be prepared to bail out of a sinking ship before the passengers find out it’s going down.
The regulatory bodies in Canada cooperated by looking the other way, either too understaffed or too timid to discipline the roguish elements of the penny stock community. “The Canadian markets were regarded, by and large, as just about as crooked as any game on earth by foreign investors,” says Grant MacMillan, an insurance executive and distant relative of George MacMillan. “It was embarrassing to hear the government and the justice system being denounced because of rapacious crooks that showed up in Europe with valises full of worthless paper that would be laid off at great prices with many lies.”
Ironically, in 1964 – just before the Windfall scandal broke – the TSE rules for mine listings were called too restrictive by prospectors, who felt their livelihood threatened from two sides: new geophysical technology that could pinpoint potential orebodies, theoretically reducing the need for old-fashioned prospecting; and excessive market regulation. Members of the TSE were encouraged to take a more active role in raising initial financing for mining ventures. At that year’s PDAC convention, 2000 prospectors and exchange officials met in Toronto for a panel discussion on whether exchange red tape was delaying financing for prospects. MacMillan – as usual – was at the centre of the fray, issuing threats about forming a junior stock exchange with easier listing requirements if the TSE didn’t loosen up a little.
Texas Gulf ignites a rush
But all the squabbling over listing and trading requirements was quickly forgotten in the excitement over a new discovery near Timmins, Ontario, which became the Kidd Creek mine, the richest base metal mine in the world. Rumours had been circulating since the beginning of the year that Texas Gulf Sulpher, an American company, was amassing large tracts of land in the Timmins area and flying unusual quantities of drill core out of the area by helicopter. In fact, Texas Gulf had made the copper-zinc discovery the previous November, but had kept the find secret in order to deter a land grab while carefully securing prospective ground in the immediate vicinity.
In mid-April, Texas Gulf attempted to squash the rumours by announcing that “the work done to date has not been sufficient to reach definite conclusions and any statement as to the size and grade of the ore would be premature and possibly misleading.” But just four days later, under pressure to come clean, Texas Gulf issued the following release:
“Texas Sulpher Company has made a major discovery of zinc, copper and silver in the Timmins area of Ontario Canada. This is a major discovery. Preliminary data indicate a reserve of more than 25 million tons of ore.”
The news was distributed by telegram to newspapers and brokerage offices across the country. The Northern Miner, in exchange for secrecy, had been given an advance scoop so that a full story and accompanying editorial could be written in time for the April 16th edition of the weekly paper. Shares of Texas Gulf – which were trading at $17 when the hole was drilled – closed at $37 dollars that day and eventually climbed to more than $170 as confidence in the economics of the find grew.
Texas Gulf’s first announcement, eerily similar to the release issued a few months later by Windfall Oil and Mines, would spawn a U.S. Securities & Exchange Commission investigation and charges against Texas Gulf and 13 of its employees for issuing a false and misleading press release and using information unavailable to the public to make personal profits. But, in the meantime, the penny stock market was euphoric. The race to find the next Kidd Creek was on.
Trading on the TSE the day after the release was described as “hysterical” as volumes hit a new record. “The 30-million-share activity caused the exchange’s high-speed quotation ticker to be an hour late in reporting floor transactions,” reported The Wall Street Journal on April 20. The story went on to say that “hotels, motels and any other rooming accommodations (in Timmins) are filled (and) hardware stores are sold out of prospecting equipment….. The only two brokerage houses in Timmins were so swamped on Friday that potential customers were lined up in the streets.”
One of the oldest cliches in the business is that “the best place to find a mine is next to a mine.” The saying refers to the tendency for orebodies, particularly the type represented by Kidd Creek, to occur in clusters. For this reason, a major discovery invariably sparks a staking rush by prospectors and companies eager to capitalize on the potential for more deposits in the area. Companies with ground near the discovery usually enjoy a bounce in their share price, regardless of whether or not they conduct any exploration. It’s an irresistible way to make a quick buck for most promotors.
The Kidd Creek rush differed from conventional rushes because of the lag time between the discovery (November 8, 1963) and the public announcement of the discovery (April 16, 1964). During this period, Texas Gulf staked an estimated 60,000 acres under the supervision of geologist Kenneth Darke. But a handful of savvy prospectors, acting on rumors, also managed to grab a considerable amount of land before Texas Gulf issued its announcement.
What was unknown at the time was that Darke was working both sides of the bush. In early 1964, while employed by Texas Gulf, he formed a partnership with two Timmins residents, Nedo Bragagnolo and John Angus, to stake mining claims as close as possible to the Texas Gulf discovery. Darke, either alone or with other Texas Gulf officials, had already dismissed these claims as unworthy of further examination. The partnership spent $7,000 staking the claims, then sold them for a total of $900,000 plus shares to unsuspecting purchasers and their investors. The royal commission investigation later exposed these property transactions as an example of how some prospectors and promoters used the speculative frenzy sparked by the Texas Gulf discovery for personal gain.
But Texas Gulf did leave behind some desirable claims in an otherwise thorough land acquisition program. Claim stakers often use aerial photographs to help them find their way around the bush and place claim posts accurately. In this case, the staker employed by Texas Gulf assumed, incorrectly, that a road on the photograph covering Prosser Township marked the southern boundary of the claims he intended to stake. As a result, four prospective claims were inadvertently left open, a fact that did not go unnoticed by an observant prospector named Don McKinnon, who promptly staked the claims for himself and his partners, John Larche and Fred Rousseau.
By the middle of April, 1964, the Larche-Mckinnon-Rousseau partnership held 40 claims around Kidd Creek, including the four claims in Prosser Township that Texas Gulf had mistakenly left open. The fact that the Prosser claims contained an electromagnetic anomaly made them even more enticing. Although they often prove disappointing as harbingers of mineral wealth, electromagnetic anomalies indicate the presence of conductive or magnetic material under the surface. The Kidd Creek discovery hole had been spotted on just such an anomaly.
This combination of positive attributes piqued the interest of several potential buyers for the Prosser claims, including a scout from Noranda Explorations Limited, the exploration arm of the giant base metal producer Noranda Inc. The partnership gave Noranda right of first refusal on the land package, but the major rejected the option deal when another buyer expressed an interest in the claims. Waiting in the wings with an armload of cash was none other than Viola MacMillan.
Queen Bee stakes her claim
On April 18th, MacMillan traveled to Timmins to meet Larche, who had worked on a number of her exploration jobs. After hours of negotiations in Larche’s suite at the Empire Hotel that were interrupted briefly so that MacMillan could attend a dinner in nearby Schumacher, the two struck a deal at one-thirty the next morning. In exchange for three separate groups of four claims each, including the Prosser claim package, Larche and his partners would receive $100,000 cash on the spot plus 250,000 shares of Windfall Oils and Mines Limited owned by MacMillan. At the time, Windfall was trading at less than 40 cents per share. MacMillan agreed that the claims would be optioned to the junior company within 30 days. It was a remarkably sweet deal for the prospecting partnership.
As MacMillan states in her memoirs, she was especially interested in the four Prosser claims. Every promoter knows that in order to sell a property to investors, you have to spin a good story. What better story could there be than your company not only holds claims with a known electromagnetic anomaly near a major discovery, but that Texas Gulf would have had those claims for themselves if not for a staking error? In fact, a Texas Gulf representative later stated during the royal commission investigation that the company was not terribly concerned about the omission and wouldn’t have paid more than $5,000 to get the claims back. If MacMillan knew this, she wasn’t about to shout it from the treetops. The stage was set for some serious speculative activity in shares of Windfall Oil and Mines.
But although Windfall moved quickly to get the project underway, initial results proved disappointing. The anomaly MacMillan described as “one of the strongest known in the area” was estimated by the consulting geophysicist as being fourth order: in other words, not very strong at all. Nevertheless, he spotted the first hole on a 45 degree angle to intersect the anomaly at about 400 feet down the hole. Drilling began on July 1st and ended on Saturday morning, July 4th, at 570 ft. The sludge from the drill had turned black at the expected depth of the anomaly the night before, indicating that the drill had indeed entered conductive material. But was the black sludge potentially economic sulphide minerals or mere graphite?
Everyone was betting on the former. The Kidd Creek discovery had whetted the public’s appetite for more strikes in the Timmins area and the chance to participate in the next “big one.” Two of Canada’s best-known and best-respected prospectors, George and Viola MacMillan, were drilling a property near the huge discovery and had paid a huge premium for the privilege. The Windfall claims contained an electromagnetic anomaly that could represent an extension of the Texas Gulf orebody, and the drill had apparently intersected that anomaly successfully. The drillers were already telling their friends in Timmins that Windfall had struck mineralization. Furthermore, George had removed several boxes of the core from the site to deter snoopers, a sure sign that the core contained valuable minerals. The rumour mill had the whole weekend to gather steam and by Monday it was ready to explode.
For part two, please see next posting.