November 2013

Yellowknife’s goldless gold mine

Insert article's subtitle here

By Ryan Silke

In 1945, Yellowknife was the hotspot for mineral speculation, following the discovery of gold-bearing shear zones at Giant mine. The gold town, founded in the 1930s, experienced a downturn during the war, but the Giant discovery reignited interest, making Yellowknife properties bestsellers on the Toronto Stock Exchange (TSE). And while enterprising prospectors of that time could be creative in drum­ming up capital, a few managed to cut out looking for gold altogether.

It was up to the investing public to provide capital for new mining projects, and in the 1940s, few rules existed to prevent market manipulation. Enter Beaulieu Yellowknife Mines Limited, the brainchild of Emil Schnee, who secured an option on a prospect near Beaulieu River, 75 kilometres east of Yellowknife. Well-reputed Toronto lawyer Samuel Ciglen provided Schnee with financial backing and became company president.

Beaulieu’s purported gold zone was a quartz vein hosted in sedimentary strata. Early assays were impressive. Hole #57 was probed to a depth of 185 feet, with grades of 1.25 ounces per ton over 27 feet of vein. Chip sampling in old trenches revealed up to 38 ounces per ton. Naturally, these incredible assays fostered investor intrigue. Intersections were publicized with emphasis on high-width assays, and engineer reports were carefully edited to highlight potential. Beaulieu stock, trading on the TSE, climbed from 50 cents to $2.65 in May 1946 and became the hottest ticket in an otherwise depressed market.

Ciglen did his best to boost the property, comparing Beaulieu’s ore body to recent discoveries in South Africa. Skeptical editors at The Northern Miner grew suspicious, questioning the “indefensible assumptions” in calculating an ore reserve by probing the same ground repeatedly and ignoring the low assays and short lengths, which did nothing but produce a flow of high-grade assays for market purposes.

Despite Ciglen’s defence of the company, Beaulieu stock began to tumble on the markets. By June 1946, it was trading at 73 cents per share. At its annual general meeting, Ciglen got an earful from investors who suffered heavy losses. The president had theories of his own as to why the stock fell, arguing that short sellers were preying on the company. He criticized the TSE for lax rules, but others remained convinced that Ciglen was the one gaming the market.

The Ontario Securities Commission launched an investigation, and while it could not pinpoint fraudulent activities, it agreed that Ciglen had run up Beaulieu’s share value and that short selling had also taken place. The inquiry raised many questions, but it later showed that nothing done was illegal. The case was closed and Beaulieu was free to continue trading activities. Schnee recommended constructing a shaft, agreeing that a bulk sample was necessary to reveal a true ore average, and the company set an ambitious development schedule.

Art Ames was brought on as resident engineer to oversee underground work. Ames had a good rapport with his workers despite his dubious job qualifications and his reputation as an alcoholic.

Construction of a mill and shaft continued in 1947, while the company re-evaluated its ore deposit and decided with great fanfare that the mine had potential for 104,000 tons of ore grading one-ounce per ton to 250 feet depth. This figure appeared to materialize out of thin air, as no additional work had been accomplished since a 14,000-ton reserve was calculated the year prior. The assayer was unnerved by the dismal assays he was obtaining and staff expressed their concerns to Ames, but he heard none of it. Feasibility be damned, Beaulieu would pour a gold bar by the end of 1947. A celebratory date was set, with celebrities like former heavyweight boxing champion Gene Tunney on the guest list, and the media ran with the story.

The mill started churning, but the results were so poor that, when it stopped a month later, only seven ounces of rough gold had been recovered. Ames was shame-faced. Out of desperation, it is said he approached another mine asking if he could borrow some gold. The party was cancelled. A brief geological investigation followed and the ore reserve was revised to a mere 1,200 tons.

Beaulieu, the goldless gold mine, was left to decay in the Yellowknife bush, becoming both a local curiosity and a cautionary tale. The embarrassment revealed flaws in the securities business, encouraging investors to pay more attention to information promoted by companies.

Post a comment


PDF Version