Glencar boss sees money turn to gold

The glitter of gold has been attracting the eye of Hugh McCullough for almost 30 years. The excitement and buzz he gets from mining for the precious metal is shared by thousands of small shareholders around Ireland who are prepared to put their money on the line on a vague promise that gold will come out of the ground - some day.

However, unlike many other companies in the Irish exploration sector, Mr McCullough's Glencar has succeeded in extracted something from the ground. It poured the first gold bar from its Wassa mine in Ghana earlier this year.

Whereas investors in other exploration stocks have seen their money poured into a hole in the ground with little or no return, Glencar's shareholders have witnessed its revenue rise from nothing to $43 million (€39 million) since the gold started pouring in January.

Mr McCullough, a trained geologist, has been managing director since 1982 and is predictably relieved that gold is finally being produced.

It has been a long struggle to get to this point and he admits that Glencar had "a bit of luck" which other exploration companies have lacked.

He says other mining companies have congratulated the management team at Glencar and expressed the hope that its achievements will lift the image of executives in a sector which has been dogged by a chequered history.

Mr McCullough says the ethos at Glencar is to "deliver on promises" and to steer clear of hype.

When asked how much more gold is left in Wassa he is circumspect, although the company's brokers estimate there may be five million ounces to be mined near the current site. More gold means more revenue, says Mr McCullough.

Glencar has been chasing the illusive metal since 1971 when a small group of private shareholders established the company as a vehicle for their investment ambitions.

It never mined any gold while operating in the Republic and shareholders, most of whom have remained on the register, have borne considerable pain for years.

Mr McCullough, who worked as a consultant for Glencar in the 1970s, remembers scouring the Republic looking at potential licences and "banging a lot of rocks together". He describes the company's approach then as "informal" with the small group of private shareholders having to dip into their pockets on several occasions.

Finance in Ireland for mineral exploration was virtually non-existent, he recalls, and "banks would not even return your calls". However, by 1983 the climate had improved and Glencar decided to take a listing on the Irish Stock Exchange.

By then Mr McCullough had become managing director and was determined the company would raise fresh finance to move forward and make a gold discovery - the holy grail of the mining industry.

However, the Irish exploration scene was becoming crowded with big international players looking for lead or zinc, with access to every piece of ground fiercely contested.

Glencar switched its focus to Africa, and Ghana soon came to the fore as a promising location although some thought the company's board had lost its collective sanity, he says. At one annual general meeting, when the company was trying to raise £500,000 in finance for Ghana, one elderly shareholder from Cork dismissed the board as "crazy", Mr McCullough remembers.

"He asked us what we were doing and said £500,000 would not even buy a respectable house in Cork, never mind anything substantial in Ghana," he says.

Ghana, while it was once known as the Gold Coast, was also noted for decades in Europe as the "whiteman's grave", because of the prevalence of malaria.

However, Mr McCullough says the sometimes oppressive conditions in the country were not sufficient to put the company off.

When he first visited Ghana he was a little taken aback. "It was very ragged, there was no food in the shops, no petrol, no hotels and you could not even make a phone call in or out of the country, we only had telex," he says.

However, he remembers travelling into a local village late one night and being offered warm beer by the local people whose interest was aroused when he told them Glencar was thinking of starting up a gold mine nearby. The same village is now bustling with commercial activity, he says, and adds that Glencar has helped to fund new schools and roads in the village and surrounding area.

To date the company has paid $1.5 million to local cocoa growers for using their fields in the mining operation.

"The people in Ghana have been integral to the success at Wassa, they are hospitable and open and have no chips on their shoulders about black or white," he says. Almost 300 locals are employed in the mine and the Ghanian government has a 10 per cent stake in the Wassa project and is also paid royalties.

Glencar's initial commercial dealings in Ghana were disappointing. The company acquired the Teberebie mine in 1984, but was forced to sell it after the stock market crashed in 1987 and finance for its development dried up.

This mine later turned out to be the second biggest in Ghana and, even now, Mr McCullough regrets things did not work out as planned.

The main attraction of Wassa, purchased from a local contractor in 1994, was that locals had done some elementary mining there before.

While their work with "wheelbarrows and buckets" only gave the slimmest of clues about its potential, Mr McCullough says it was not long before he "felt really good about this particular licence".

Most of 1994 was spent drilling and there were "constant ups and downs" as different sets of results were sent back to Dublin. Eventually the drilling stopped and Mr McCullough went to the banks for money.

To the surprise of many, Standard Bank and the Commonwealth Development Corporation, both based in London, agreed to finance the full cost - $42.5 million - of the mine.

It is now estimated that by 2003 Glencar will have paid this money back, allowing it to concentrate on further developments at the Wassa site and possibly acquire other licences.

However, before the company gets to that stage it has the pleasure of seeing gold bars coming back from Ghana every day. Apart from its inherent value, Mr McCullough likes gold because it is one of the world's oldest commodities and can be sold almost instantly on international markets.

This is something which others obviously realise, and with each bar worth about $200,000, security at Wassa has been stepped up since gold started coming on stream.

Mr McCullough says that once the bars are poured they are transported into a vault which lies between two reinforced concrete walls. A network of electric doors control access to the vault which is covered by a steel mesh. Tight security is maintained around the complex.

Eventually the gold is put on trucks and within three days it is sold on the open market in London. Half Glencar's output is sold forward or "hedged" to international buyers.

When the first bar was poured a colourful party was held at the site, says Mr McCullough, although he was not allowed to keep it as a memento. "We needed to sell it straight away to make a start on paying back our loan," he added.

The only cloud since the gold arrived has been falling world prices, which together with the relative size of Glencar means the share price has been sluggish.

Another Irish exploration company - African Gold - has suspended a significant amount of work at its mines in Zimbabwe because of the depressed price. Mr McCullough admits that Glencar got Wassa "up and running probably just in time".

While the shares have been weak, Glencar's new relationship with its bankers should mean finance is available to start the great search again in Africa - it has other licences in Ghana as well as some in Uganda.