Old Pierpont Article

In researching  another stock I came across this article by Pierpont from 2003. Yes it is a long article but the key point is how much charity WMC gave to the new boys on the block. Does this story sound familiar?
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WMC plays Santa to the diggers
Friday, August 8th, 2003
The star attraction at the Diggers & Dealers conference in Kalgoorlie this year was a temporary barmaid named Francesca who had overdeveloped mammary glands.
The plight of this poor deformed lass excited so much sympathy among the visiting miners and brokers that they flocked in hordes to the Federal Hotel to keep her company, and some even took  up collections on her behalf. Francesca's need must indeed have been desperate, because returning drinkers told Pierpont that she had hardly any clothing to wear.
Which just shows what charitable people they have in Kalgoorlie. In fact, the spirit of charity has spread even further. One of the main themes of the Diggers this year was the extreme charity being practised by Western Mining, which has become a good fairy to the Australian mining industry.
The benign spirit that moves the WMC board has been apparent ever since they sold Mount Magnet to Peter (Talky) Newton's Hill 50 Gold for a mere $20 million. Talky raised another $20 million through Brent Potts Southern Cross Equities, developed the mine beautifully, and sold the lot a couple of years later to Harmony Gold of South Africa for $250 million. In other words, WMC sportingly doshed out more than $200 million that might otherwise have been wasted on its shareholders and let Talky and his supporters have the money instead.
Since then WMC has turned into the fairy godmother of Australian mining. No fewer than six presentations were given at the Diggers by companies that are making fortunes thanks to buying assets from WMC at bargain prices. For some reason that was doubtless clear to the lads in Melbourne, WMC was eager to get out of gold and Kambalda.
Gold Fields Ltd of South Africa paid $470 million for WMC's gold interests at St Ives in late 2001. That might look a big price to readers, but Gold Fields plainly thinks it was a snap. Gold Fields' vice-president, international operations, John Munro, told the Diggers that he was very happy about his acquisition from WMC and wasn't going to be rude about them, which indicated to Pierpont that he could have been if he felt so inclined.
Suffice to say that Gold Fields' main exploration effort in the coming year will be devoted to St Ives. It will take the bulk of Gold Fields' $70 million exploration budget, making it possibly the world's largest single exploration project for the financial year. Gold Fields believes that all the small hot pits dug by WMC through the salt of Lake Lefroy can be linked into one giant pit. From the tone of John's speech, he plainly expects to recoup a lot more than his purchase price.
Apart from anything else, he must own a mill that WMC had ordered for the St Ives project. The last time Pierpont heard, that mill was standing in a packing case somewhere in Germany awaiting shipment.
WMC was smart enough to retain a royalty after the St Ives sale. The royalty applies to all production above the 3 million ounces that were in reserves at the time of the sale.
The royalty was costless to WMC and could have been retained as a future income stream. Instead, it was for a quick $50 million to Goldlink and Morgan Stanley, which are very happy with the purchase. They reckon that St Ives has been going for 20 years, and if it lasts another 20 at the expanded rates Gold Fields are envisaging, they'll make a fortune.
WMC slung another goldmine to Troy Resources when it sold the Sertao project in Brazil for $US4 million. Troy paid back the purchase price out of the first two months' production and is now clearing about $3 million a month from the mine.
While WMC was flinging goldmines about, it threw Central Norseman to Croesus Mining for $80 million in October 2001. Last financial year, Croesus generated EBITDA (earnings before interest, tax, depreciation and amortisation) of $30 million from  the Norseman interests alone. From the Croesus presentation to the Diggers, Norseman is fairly littered with gold. They're discovering the stuff everywhere.
Pierpont cannot say much more about Croesus because he holds a few shares in it.
For the same reason, Pierpont can't say much about Independence Gold. (One of the best strategies any punter could have used over the past two years was to buy shares in companies that had bought assets from WMC.)
Despite its name, Independence is actually a nickel stock, having bought the Long mine from WMC just over a year ago for $15 million. In its first year operating the mine, Independence made a $3 million profit, unaudited. Independence reckons the mine will produce $60 million net cash flow after debt repayment and tax over the next five years.
Mincor Resources picked up  the Miitel and Wannaway nickel deposits in 2001 after WMC had closed both of them during the low nickel price regime of the late 1990s. Mincor paid $36 million. In the first 16 months operation, the mines generated $32 million cash flow and $11.3 million profit for Mincor. By the latest June quarter, Mincor had produced 10,000 tonnes of nickel for the financial year and was generating a surplus at the annualised rate of $40 million.
Another beneficiary of WMC's nickel divestment was Titan Resources, which picked up Widgiemooltha North for a mere $515,000 plus a 1 per cent production royalty.
Karilyn Farmer, Titan's exploration manager, told the Diggers that re-evaluation of Widgiemooltha North had revealed that it contained significant massive sulphide deposits as well as disseminated sulphides.
The charming Karilyn believed there were heaps of potential in the Armstrong and McEwen shoots at Widgiemooltha North, not to mention the rest of the areas that have so far been only lightly explored.
The known deposits are still on the small side, but they have lots of exploration potential. Karilyn hinted that Titan could be mining fairly soon. If Titan does, Pierpont is prepared to wager that Titan will make a lot more than $515,000 from the mine. Maybe even enough to keep Francesca in outsize brassieres.
To be fair, it won't be fully apparent for another year or so just how much money, if any, WMC left on the table in these deals. But at this stage it looks as though it has been very generous. Certainly all the buyers think so.
WMC shareholders who have watched this redistribution of their wealth to deserving junior mining companies have two consolations. WMC has hung onto the phosphate business and Olympic Dam.
WMC discovered Olympic Dam back in the days when Pierpont still had black hair. Since then, it has been a cash-in mine: that is, the shareholders keep putting cash into it and never get any cash out of it.
Olympic Dam must be the hungriest mine in Australia. The last time Pierpont counted, WMC had spent $3 billion on it and it is still in eternal upgrade mode. Your correspondent sometimes wonders if he will live long enough to see the end of the upgrading and the arrival of positive cash flow.
He also wonders if he will live long enough to see an analyst give a glowing report on the prospects of the phosphate business.
Still, if charity didn't hurt a little bit, it wouldn't be true charity, would it?"
My Comment:
Could the letters BHP be interchanged for WMC in CZI story?
Regards
Buffett