Sunday 23rd October 2016

Resource Clips

Financing the ‘weird stuff’

Industrial minerals explorers gain profile as security of supply becomes increasingly crucial

by Greg Klein

Precious and base metals need little if any introduction. But, according to Secutor Capital Management Corp’s Arie Papernick, investors are often “at a loss for the unconventional weird stuff”—the subject of the Industrial Minerals International Congress and Exhibition held in Vancouver from April 1 to 3. Addressing the April 2 Finance Session, Papernick called the commodities “a play on the end product,” often of new technologies like electric cars and renewable energy. But the end users are usually private. “So where do you go for exposure?” he asked. “You have to go to the explorers.”

The two-hour session brought five of those explorers together with potential investors, and not only of the retail and institutional categories. As some of the companies have found, manufacturers are showing increasing interest in the people who can help attain reliable, secure sources of the stuff they need to make an amazingly diverse range of products that we take for granted.

Industrial minerals explorers gain profile as security of supply becomes increasingly crucial

Commerce Resources TSXV:CCE director Chris Grove explained that a somewhat traditional scenario has Asian interests backing a project around the pre-feasibility stage with a joint venture or loan guarantee. “What we’re seeing with this conflict minerals legislation is interest coming from manufacturers who have a listing on a U.S. exchange, and I’m talking about companies that are household names.”

The Dodd–Frank Act “holds 6,000 companies accountable as to where they procure their three Ts [tantalum, tungsten and tin], and whether they buy these from people who have committed the worst and longest-running record of human rights abuses on the planet in the last 20 years.”

That gives Commerce a strong jurisdictional advantage over countries like the Democratic Republic of Congo. In British Columbia the company has taken its Upper Fir tantalum-niobium deposit to a preliminary economic assessment. In Quebec Commerce advances its Ashram rare earth deposit towards pre-feasibility.

Attending a panel discussion were representatives from the five explorers, each with “its own unique strength or niche,” said moderator Derek Hamill, head of research for Zimtu Capital TSXV:ZC. Each company offered a different perspective on financing.

Alan Young, an engineer and director of frac sand explorer Rainmaker Mining TSXV:RMG, portrayed tough environmental regulations as an investment advantage. The U.S. has “a lot of one- or two-man companies that aren’t regulated as clearly as we might be here in Alberta and British Columbia,” he said. Canada’s professionalism achieves “a quality well with very, very low risk to the environment.”

Explorers’ challenges can differ with each type of mineral. Big North Graphite TSXV:NRT president/CEO Spiro Kletas said his commodity requires “a race to the finish line. It’s not like gold, where there’s always a buyer waiting. If you don’t have a buyer, you’re stuck with mountains of graphite.”

Consequently the company aims to “pick up past producers with low capital needed to re-start and get product to market in near future.” Big North is already test-mining and selling amorphous graphite from a small JV in Mexico. The revenue means “we’re not quite at the mercy of markets that a pure exploration play would be.”

When asked to account for his commodity, Prima Fluorspar TSXV:PF president/CEO Robert Bick points to end products as diverse as aluminum, Gore-Tex, refrigerants and pharmaceuticals. “We wouldn’t have the quality of life that we have without fluorspar—it’s simply not possible.”

Another atypical story, Prima began as an early-stage explorer focused on the Liard project in northern B.C. Then the company attracted the attention of multi-billion-dollar fund manager Firebird. As owner of the Delgerkhan past-producing fluorspar mine in Mongolia, “Firebird came to us with several objectives,” Bick said. “They wanted to join a company with a fluorspar asset and a listing on a recognized exchange.”

We wouldn’t have the quality of life that we have without fluorspar—it’s simply not possible.—Robert Bick, president/CEO of Prima Fluorspar

The two signed a letter of intent which would result in a reverse takeover while Prima acquires Delgerkhan. But along with its exchange listing, Prima brings heavy-hitting technical expertise. That includes Michel Robert, “probably one of the best mining engineers in the world, who has a close relationship with us, a lot of experience with industrial minerals on the metallurgical side and the engineering side, and has rehabilitated 10 mines in his life,” said Bick. “We actually took [Firebird’s] plan, ripped it inside out and told them what they really had.”

What they found was the former Soviet-era mine and its records “are first rate,” he added. In a country with something like 129 fluorspar deposits, Delgerkhan is “probably the foremost fluorspar mine in Mongolia.”

With 15 uranium properties in Saskatchewan’s Athabasca Basin, Lakeland Resources TSXV:LK might have a portfolio that exceeds its budget. But “most of the properties have an awful lot of historic data,” said corporate communications officer Roger Leschuk. Money spent by previous companies helps focus priorities. Lakeland also likes the JV model, having so far brought in Star Minerals Group CSE:SUV and Declan Resources TSXV:LAN as partners on different projects.

Declan’s $1.25-million first-year spending commitment has already accelerated work on their drill-ready Gibbon’s Creek project. Exercising a four-year option to earn 70% would entail Declan spending $13 million. Lakeland, meanwhile, keeps its eyes open for other potential partners for other projects.

The Industrial Minerals Finance Session drew “quite an interesting audience,” said Zimtu president Dave Hodge. “We have people from all over the world that are involved in what people consider unusual commodities—that’s about half the room. The other half of the room are people who are involved in financing exploration on a global basis.” But the end users, Hodge emphasized, “are much more dependent than they realize” on explorers for consistency and security of supply.

Disclaimer: Zimtu Capital Corp, Lakeland Resources Inc, Prima Fluorspar Corp and Commerce Resources 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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