Monday 24th October 2016

Resource Clips

Neglected potential

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There are additional challenges, however. “Basically a junior exploration company in the exchange-traded commodities will look for a deposit that’s economic at a certain price” based on an historic 10-year average.

But with industrial minerals, “generally speaking there is no reliable historic 10-year price. That is the number one stumbling block for exploration companies,” Hodge said.

That’s a problem for end users if there’s no inventory should world markets take off, should business get better, should existing operations run out of supply.—Dave Hodge,
president of Zimtu Capital

“One of the challenges of financing a junior exploration company that’s in the industrial commodities sector clearly is the lack of transparency of price and supply, where many of the supplies move up a proprietary chain in which even volumes aren’t necessarily disclosed…. That’s a problem for end users if there’s no inventory should world markets take off, should business get better, should existing operations run out of supply.”

He called on those companies to get involved in exploration, in at least an advisory capacity, to maintain “a consistent flow of product.”

But if industrial minerals present explorers with additional challenges, why should retail investors consider them? Speaking with after his presentation, Hodge replied, “Because there’s tremendous opportunity in that field and because that lack of transparency and knowledge of volume is going to cause a severe shortage at some point in all of those commodities. As much as it hurts, it causes volatility. And volatility is opportunity.”

He added, “The disadvantage is actually for the end user, because that volatility is going to hurt their business. These guys aren’t in the exploration game, they manufacture widgets. If they can’t get enough crap to make widgets, they’re hooped.”

Hodge attributes the price slump in better-known metals to a lack of confidence. “It’s certainly causing institutions and investors to take a longer, harder look at industrial minerals.” Referring to Zimtu, he added, “One of the advantages that we often have on the street in Toronto is that our story is so different. Professional investors are willing to listen to the story because it’s different, it’s interesting. And that is certainly working in favour of financing industrial minerals.”

Sixteen speakers addressed the conference, four on topics related to financing. Emerge Energy Services NYE:EMES CFO Robert Lane discussed the advantages of moving from private to public markets, which include cheaper cost of capital and debt. Dennis Coker, VP for aggregates with Natural Resource Partners NYE:NRP, explained how master limited partnerships can benefit industrial minerals companies and related services.

The tantalizing topic of private equity was addressed by John Pfahl, a senior associate with Resource Capital Funds. He said that with both general funds and those that specialize in mining, “private equity does have a lot of money available right now.”

Disclaimer: Zimtu Capital Corp, Commerce Resources Corp and Prima Fluorspar Corp are clients of OnPage Media Corp, the publisher of The principals of OnPage Media may hold shares in those companies.

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