The Gold Standard

The Gold Standard

ENTREPRENEURS by Mark Gordon | Managing Editor

After his high-tech software company failed to produce profits, Pierre Quilliam headed west - the Old West of Gold Rush fame.

Pierre Quilliam is a true gold digger.

Sure, in a career that stretches more than 40 years, Quilliam has been lots of other things, too. His eccentric resume includes executive positions in a building materials company now partially owned by Warren Buffett, selling electric cars in California and even owning a professional lacrosse team in Vancouver, Canada.

In Quilliam's case though, that eccentricity has been like a magnet for big risk and in some cases, big failures. For example, one of his more recent companies, a business formed to sell facial recognition software to government agencies in a post 9/11 world, lost almost $8 million in 2003, according to SEC documents. That company, DICUT Inc., was also named as a defendant in several now-settled lawsuits, most of which involved missed payroll accusations.

But the past few months, from a home office in Bradenton, Quilliam has been assembling a 20-employee, publicly traded company put together solely to dig for gold. The company, Silver Falcon Mining Inc., is already undertaking its first mission: It signed a 15-year lease in November for 85% of the gold and silver mining rights on War Eagle Mountain in Silver City, Idaho, about 30 miles south of Boise.

The company trades under the symbol SFMI on the Pink Sheets exchange. The listing, an alternative to the major stock exchanges, doesn't come with the same reporting standards that companies on the Nasdaq or NYSE face, such as quarterly earnings or yearly revenues, but it normally also doesn't come with as much access to cash, either.

The company's mountain lease is also somewhat unconventional.

Quilliam and a Silver Falcon spokesman concede the lease, worth $16.8 million over the 15 years, is a complicated legal arrangement between two entities - both of which have multiple connections to Quilliam.

In addition to his role as investor, president, chief executive officer and board member of Silver Falcon, Quilliam also has a financial stake and holds several leadership positions with GoldCorp Holdings Co., which owns War Eagle Mountain.

GoldCorp, which is holding on to a 15% stake of the mining rights of War Eagle Mountain, shares offices and a Web site with Silver Falcon, too. GoldCorp bought the mountain from a consortium of Chinese investors earlier this year, says Rich Kaiser, investor relations director for GoldCorp and Silver Falcon.

A no-brainer

What isn't complicated, Quilliam and Kaiser contend, is determining if there's actually gold inside War Eagle Mountain.

"It's a given that there are ores of silver and gold there," says Quilliam, who hasn't personally visited the mountain yet. "How much is an unknown."

Nonetheless, Quilliam has some projections. For one, he says the 14 deep-shaft mines on the mountain produced 415,000 ounces of gold for the previous owners, including the Chinese businessmen - loot worth about $270 million.

A team of Silver Falcon geologists has studied the mountain, too, and they prepare regular reports on it. According to a Silver Falcon investor's prospectus, the mines have a 15-20-year gold and silver producing time frame and "annual yield, at full capacity, is estimated to be $215 million," given a price of gold at $650 an ounce. (Gold prices have been as high as $799 an ounce in December.)

What's more, Quilliam, in both interviews and company statements, says another big plus is that the other two open-mine mountains in Silver City are owned and operated by Kinross Gold Co., one of the largest North American gold mining companies. A Silver Falcon press release states one of those nearby Kinross operations "has reportedly produced approximately 67 million ounces of silver and 1 million ounces of gold, worth $1 billion."

While Toronto-based Kinross did indeed mine those two mountains for gold and sliver, it hasn't done any digging there since the mid 1990s, according to the company' s Web site and annual reports. The mountains aren't listed on Kinross' current operations list.

A Kinross spokesman says he was unaware of both Silver Falcon and any statements from Quilliam touting a positive connection with Kinross- operated mines. The spokesman declined to comment further.

Still, Quilliam, who says he looked at several other mountain deals before War Eagle, including a few that fell apart after the letter of intent stage, considered this deal a no-brainer. Says Quilliam: "It struck me in the face as a deal I had to do."

Big losses

Quilliam could have likely said that about his previous business venture. He bought that initial entity, DICUT, late in 2001, when it was a Virginia-based air conditioning parts company with no revenues and little assets.

Quilliam and some partners quickly moved the company to suburban Atlanta. They rewrote the business plan to focus on research and development of facial recognition technology that could be used by law enforcement agencies at airports, train stations and other high-traffic public areas.

With homeland security the buzzword, it was a classic follow-the-money move.

But, says Quilliam, he made his move to early. "At present, the world doesn't have the computer power and knowledge to do it," Quilliam says of the facial recognition software DICUT was developing. "It's an idea ahead of its time."

The company hemorrhaged money while figuring that out. It reported a net operating loss of $2.7 million in 2002 and $7.75 million in 2003, according to SEC filings. Quilliam says the losses stem directly from the expenses in biometrics research.

DICUT, says Kaiser, ultimately went through a restructuring and a reverse stock split. Quilliam says Silver Falcon, at first a DICUT subsidiary, became the new company.

But in addition to financial losses, DICUT was involved in several legal tie-ups as well. In one 2002 case, Fifth Third Bank sued the company for $556,000, claiming the company made improper transactions in order to meet payroll, according to documents and Quilliam. That situation was settled out of the court, says Quilliam, adding that the bank was "confused" about the situation and DICUT executives did nothing wrong.

The company, according to SEC filings, also had several other problems meeting payroll.

One case involved four separate lawsuits in an Indiana small claims court, from plaintiffs alleging DICUT didn't pay wages there. The company didn't defend itself against the allegations, the SEC documents show, and a maximum judgment of $6,000 for each case was levied against DICUT.

Also in 2002, a vendor sued DICUT for $42,000, according to the SEC, alleging that it didn't get paid for installing a security system for a U.S. Veterans Administration facility.

DICUT officials, the filings state, claimed the vendor did the job incorrectly. The suit was ultimately settled out of court.

Finally, toward the end of 2002, according to Quilliam and SEC documents, DICUT was late on paying about $400,000 in payroll taxes. What Quilliam called an innocent mix-up ended up costing him and the company $172,000 in fines and late payments, he says.

Going for gold

Quilliam says all of the accusations levied against him and his DICUT partners were essentially misunderstandings, and regardless, he had no malicious intent. He adds that the past problems with DICUT should have no impact on whether Silver Falcon is a success. Says Quilliam: "The lawsuits and the losses are gone."

After dropping DICUT, Quilliam, who was born and raised in a small town near Montreal, moved to Bradenton to run Silver Falcon.

And as far Silver Falcon actual getting the gold and silver, that's going to have to wait until at least the spring - snow and freezing temperatures prevent any major mining work from happening. Quilliam is instead spending the time assembling a team of geologists, scientists and actual diggers, so he can be ready to go for the gold by the spring.

While Quilliam maintains his confidence that War Eagle Mountain is indeed a gold mine, other challenges linger, including getting the materials out in a way where the cost doesn't exceed the value.

"Mining," says Quilliam, "isn't a cheap affair."

REIVEW SUMMARY

Business. Silver Falcon Mining Co., Bradenton

Who. Pierre Quilliam

Key. Company signed a $16.8 million lease for majority mining rights to a mountain in Southern Idaho it says has millions of dollars worth of gold.