As I write, the 2017 summer field season is in full swing, and the rebound from a five-year drought in financing for mineral exploration is building momentum. Investment in 2017 has been driven by increasing prices for a wider range of commodities, with growing interest in base metal projects.
Mining-related financings on the TSX Venture Exchange are up by over 50% compared to the first half of 2016. Private placements and public offerings remain the most important source of funding for listed companies. While important incentives such as flow through shares continue to help attract investment, companies in 2017 are also being innovative and flexible, adopting new ways of raising exploration dollars and creating new agreement structures that reflect the changing landscape for mineral projects. Several of these new trends were highlighted in a recent research note by the law firm Osler. One is the growing use of royalties. Traditionally thought of as a way to retain a residual property interest, now the sale of a royalty interest to an interested backer has also become a mechanism for financing exploration. An example of this is the $12.5 million raised by Barkerville Gold Mines (BGM) in March by selling a 0.75% royalty on its Cariboo Gold Project in southern B.C. BGM followed up with a more traditional $38-million financing composed of private share placements the following month.
Major mining companies are beginning to invest in more early-stage exploration projects but, as Osler noted, deal structures have shifted to include an initial commitment stage and earn-ins based on value-focused milestones rather than upfront, cash and share payments. These changes suggest that budgets are limited and there is an increasing interest in having more time to assess the social and political risk of projects in which investments are being made.
In February 2017, major mining company Antofagasta acquired the right to earn up to 70% interest in Evrim Resources’ Ball Creek copper-gold property in northwest B.C., by spending up to US$31 million or delivering a prefeasibility study, with an initial commitment of $300,000. In June 2017, Hudbay Minerals acquired the right to earn up to 60% interest in Amarc Resources’ IKE copper discovery and district through staged investments of $40 million over four years for exploration and also completion of a feasibility study and environmental assessment (EA) milestones. The initial $3.3-million drilling program will evaluate the potential of at least three targets near the 2014 IKE discovery. Additionally, Daewoo Minerals Canada, a Canadian subsidiary of one of South Korea’s leading trading corporations, has exercised its right to earn an additional 30% interest in Serengeti Resources’ Kwanika coppergold project in central B.C. This will bring its total interest to 35%, by spending $7 million to initiate a prefeasibility study, having already spent $1.2 million to earn 5% in year one of the agreement.
It is clear that industry is doing its part to mitigate risk and spread the benefits of exploration projects by engaging with communities early and throughout the exploration cycle. Companies like Aben Resources, which is conducting its initial drilling program at the Forest Kerr gold property in northwest B.C., has signed a communications agreement with the Tahltan Central Government to share information with Tahltan communities regarding Aben’s activities in the territory. Meanwhile, at the other end of the exploration spectrum, AuRico Metals and the Tse Keh Nay, an alliance of three Sekani First Nations, recently entered into an Impact Benefits Agreement for the Kemess Underground project, which received its EA certificate from the B.C. government earlier this year through the substituted process, managed by the province on behalf of B.C. and the Canadian Environmental Assessment Agency.
With industry momentum building, exciting new discoveries are being made. In July, GT Gold announced a new high-grade gold discovery at the Tatogga property in the Golden Triangle of northwest B.C., defined by multiple holes along a 200-metre strike length, including intersections such as 13 grams per ton gold over 11 metres. GT Gold has raised some $5.8 million to further explore the new discovery. In February 2017, Engold Mines announced a new copper-gold-silver discovery at its Lac La Hache property in central B.C. Although the geometry of the mineralization has yet to be determined, a recent hole intersected 19 metres of 1.13% copper, 0.14 g/t gold and 5.55 g/t silver some 250 metres from an earlier, equally impressive intersection.
The need for new discoveries is unquestionable. As the world’s population becomes more urbanized, with access to a greater array of conveniences and technologies, its citizens use more of the resources that mining provides. Take copper, for example. China already uses some 45% of the world’s copper production, and the massive migration to its cities continues. In fact, China’s electrical grid is expected to double over the next eight years, dramatically increasing the demand for new copper. Furthermore, citizens in developed nations around the globe are calling for a full-scale change to renewable energy – something that can only occur if additional resources are available to build new green energy generation and transmission facilities.
Despite the growing need for resources, “the ability to access and replace reserves, including access to new projects” is the number-one risk identified by the mining industry in KPMG’s 2016 Insights into Mining Survey; this reality has been clearly borne out by widespread news of challenging business conditions for mining projects in many locations around the world in 2017.
For a jurisdiction like B.C., which has excellent exploration potential and a well-developed regulatory system, provision of a positive business climate, a supportive permitting regime and access to land are critically important if our mineral explorers are to capitalize on the improving investor sentiment and maximize the chance of making those elusive new discoveries that can become the needed mines of tomorrow. The mineral exploration and development industry delivers a range of financially rewarding jobs – from key on-site environmental monitoring to off-site hightech – that build strong families and generate economic development in urban and rural communities throughout the province.
In closing, I encourage all our members active in B.C. to respond to the exploration expenditures survey that AME will be conducting this fall in partnership with EY and the Ministry of Energy, Mines and Petroleum Resources. Our partnership – now in its second year – gives the industry the opportunity to tell a deeper story of what commodities make exploration in B.C. attractive; how exploration contributes so much to local communities through jobs and procurement of a wide range of goods and services; and whether critical early-stage exploration is indeed making a comeback in the province. With this information, we are in a far stronger position to clearly inform the government and public about the vitally important role mineral exploration plays in B.C.