The Heart of Gold

Ever since 1955, Cleveland's M. A. Hanna coal and iron company has had its eye on a South American lode that would make any miner sharpen his pick. The property: Brazil's St. John D'el Rey, which Brazilians romantically labeled the "heart of gold within a breast of iron." Spreading over 100 square miles in Minas Gerais state, some 200 miles north of Rio de Janeiro, the D'el Rey mines produced only gold for 120 years--and in recent times some heavy deficits for the company's British owners. What magnetized Hanna, which had been built into a $250 million empire by former Treasury Secretary George M. Humphrey, was not the gold heart; it was the iron breast, 2 billion tons of high-grade (60% to 70% pure) ore in the surrounding hills. But getting it was another matter.

Three for One. For a starter in 1956, Hanna quietly began to buy D'el Rey stock, then selling at $2.80 per share, bought 12% of the company. Then it discovered that it had competition. German-born Manhattan Investment Banker Leo Model, partner in Model, Roland & Stone and a man who had made (and lost to the Nazis) several fortunes, was also interested, bought in until he had 10% of D'el Rey's stock. When a third group--led by the small Manhattan brokerage firm of Osborne & Thurlow--started bidding and pushed D'el Rey stock up to $12 per share, both Hanna and Banker Model backed off. Eventually the Osborne syndicate picked up 35% of the stock and control of D'el Key. The only trouble was that the new owners lacked the capital and the mining know-how to make the mine pay off, and asked Banker Model for help. He, in turn, went to M. A. Hanna.

The man who came up with the answers was Humphrey, Hanna vice president and a director. He was interested in nothing less than complete control, and took off on a whirlwind trip to Brazil. He looked over the mine, talked to Brazil's President Juscelino Kubitschek and in six days lined up a deal. Said D'el Key's British manager: "A very dynamic chap, Humphrey. He never even stopped for tea."

Last week M. A. Hanna announced that it had control of St. John D'el Key and would operate it. The details of the deal were secret, but there was no secret about the richness of the prize. Though D'el Key's British owners dug nearly $300 million worth of gold over the years from a maze of galleries running five miles into the earth, they never laid a serious shovel on the iron. In fact, they had bought the lematite ridges humping hundreds of feet high around the property only to protect water rights for their gold mining. Hanna will modernize the gold mine, but the main play is iron.

Gold from Iron. Hanna's goal is to turn D'el Key into a major ore supplier for the U.S. and Europe; D'el Key will be almost as big as Hanna's Labrador project, which shipped about 12.5 million tons last year. It plans to spend something like $300 million for equipment, a railroad and a port to get the ore to market. In winter, Hanna's fleet of 40,000-ton ore carriers will shift southward from ice-locked Labrador to Brazil, cut around the world carrying 10 million tons of ore annually to U.S. and European customers. Nor will the ships go down to Brazil empty. Hanna will load them with U.S. coal, hopes to supply Brazil's entire need. Hanna's timetable : full operations within three years.

To Brazil, Hanna's new project promised a bonanza of new jobs, new power supplies--and possibly $100 million annually of badly needed foreign exchange to help make up for slipping coffee exports. Hanna has made no estimate of the profits it expects, but they should be impressive.

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