Financial Post Article
nationalpost.com
Saturday, March 04, 2000
A glimmer in the ground
Higher mineral prices and budding investment in exploration reawakens junior mining
Keith Damsell
Financial Post
SUDBURY - On a desolate ridge some 50 kilometres northeast of town, Scott Jobin-Bevans kneels in a crisp snowbank. With a twig, the 33-year-old geologist draws a rough sketch of the Davis-Kelly prospect, a boot-shaped strip of land pockmarked with gaunt white birch trees. He draws an icy arc through the property.
"We know there's a zone that runs through here," he says, pointing a gloved hand toward a distant hill.
Mr. Jobin-Bevans, leader of a small exploration team from Vancouver's Pacific North West Capital Corp., calls Davis-Kelly "an area of indifference." Decades ago, base metals majors scoured the region, finding only traces of nickel and copper. Pacific North West is convinced the same rock hosts platinum and palladium, elusive metals that have soared in value in recent weeks due to reduced supply from Russia and South Africa.
"People think everything has been found in this area. We think they're wrong," he says.
Expect Pacific North West and a handful of promising juniors exploring Northern Ontario to be the talk of next week's annual conference of the Prospectors and Developers Association of Canada in Toronto. The junior exploration sector is counting on a made-in-Canada discovery to finally return it to prosperity.
"The industry is decimated. It is on its knees," says Dorothy Atkinson, analyst at Vancouver's IPO Capital Ltd. "There's no doubt a discovery in Canada would lead to the momentum the industry needs to shift gears."
Less than five years ago, a trio of high-profile discoveries made the junior market a speculator's paradise. In Vancouver, Diamond Fields Resources Ltd. found a massive nickel deposit in Labrador; Arequipa Resources Ltd. found the Pierina gold deposit in Peru; little-known Bre-X Minerals Ltd. claimed to have found the world's largest gold deposit in Busang, Indonesia.
Almost overnight, the Bre-X myth began to unravel, tainting the entire sector with suspicion. By the end of 1997, the value of speculative mining stocks on the Vancouver and Alberta stock exchanges fell a dramatic 60% to about $6-billion. To make matters worse, metal prices plunged to near-historic lows. Asia's economic woes meant a slump in base metals, and gold touched a 20-year low last summer thanks to central bank sales.
It's become more difficult for cash-hungry juniors to go to market. In December, 1998, about 120 firms received an average of $2.5-million from Canadian investors; by July last year, only 80 firms were able to raise an average of $500,000 each. Dozens of juniors have made dramatic change-of-business announcements, abandoning exploration in favour of even more speculative Internet plays. Major mining companies slashed exploration budgets. For the first time in their lives, scores of geologists are jobless.
"We've fallen off a cliff," says David Comba, issues management director of the Prospectors and Developers Association. "There are high-risk investors out there that want to get back in. They want a story to invest in."
But, he says, most investors aren't willing to risk their money in searching out new discoveries.
Now, for the first time in a long while, there are signs of hope. The strong U.S. economy, coupled with growth in Asia and Europe, has helped drive base metal prices back to profitable levels. A cap on central banks sales and reduced hedging has gold testing the $300 (US) an ounce level.
"All the pieces put together are building market confidence," says Glenn Brown, analyst at Toronto's Haywood Securities Inc.
The gains are expected to trickle down slowly to the junior market. The first signs of recovery are in Northern Ontario. In 1991, veteran prospector Mickey Clement was searching for gold near Wawa when he found diamonds. Surveying by the Ontario government confirmed the presence of seven potential kimberlite pipes, the geological anomaly that hosts the gems. Vancouver's Canabrava Diamond Corp. was first off the mark, scooping up a large land position in 1997. Exploration has found a number of pipes with large and small stones. The promising results have attracted $25-million in long-term financing from Kennecott Canada Exploration Inc., a subsidiary of British mining giant Rio Tinto PLC.
"Any time a junior mining company becomes associated with a major mining company there's a vote of confidence for the company's project," says Wendell Zerb, analyst at Vancouver's Pacific International Securities Inc.
Canabrava's success has sparked a speculative boom in Wawa. Band-Ore Resources Ltd., Pele Mountain Resources Inc. and Spider Resources Inc., all of Toronto, are now combing the region for diamonds. Shares of the four Wawa plays have soared in value in recent weeks.
"The search for diamonds in Ontario is on. There's a mine out there and somebody's going to find it," says prospector Jack "The Bear" Robert. In February, Band-Ore agreed to pay Mr. Robert and two partners $1.2-million in cash and two million shares for rights to a 25-square-kilometre diamond prospect.
In Sudbury, Pacific North West is leading the platinum and palladium play. Early results from the 180 square kilometres under its control attracted a $4.3-million exploration investment last August from Anglo American Platinum Corp., the world's largest platinum producer.
Toronto's Mustang Minerals Corp. has since joined the party, signing a $6-million deal with South Africa's Impala Platinum Holdings Ltd. in December. Pacific North West and Mustang shares have doubled in value since January.
"We've been very lucky. The timing is right and we picked the right commodity," says Mr. Jobin-Bevans. The excitement of a potential discovery has left the young geologist jumpy. He can barely finish a sentence before disappearing down an embankment and into the woods wielding his five-pound sledge hammer. To date, there are only five drill holes cut into the Davis-Kelly property. The trick is figuring out where to look.
There's the sharp crack of metal on rock. Mr. Jobin-Bevans emerges cradling a grey piece of rock flecked with what looks like gold. "That's platinum. Right there," he says, grinning. "You got to be an optimist to survive in this business." |
