Grassroots mineral exploration is undergoing a massive decline

With both the senior and junior mining/exploration companies facing a plethora of problems, grassroots exploration is undergoing a dramatic decline as the industry comes off its recent highs.

Most of the senior companies have had massive cost overruns on their projects due to a combination of inflation, permitting, environmental and social costs and delays and difficult engineering supervision in their attempts to develop large projects in remote areas of the world.

Virtually no major mining project performed to specification and the financial markets have downgraded these companies. Lower metal prices, especially for gold, and many governments raising taxes, have exacerbated the situation.

This negative publicity has not been lost on the investor who understandably says “If the majors can’t perform, why should I risk my money on juniors?”

While the majors’ curtailing of grassroots exploration is simply a budget item, the juniors are dealing with a different set of problems due in part to the structural demands of their financings.

A typical junior raises enough money to carry out exploration and cover overhead costs for a year, often on one key project. Because of climate constraints, the company generally has a narrow time window to conduct its exploration and get results. These results are then used to raise money for the following year’s program.

If the work is delayed for any reason, for example, permitting issues, aboriginal consultations, etc., the season is lost, at which point potential investors are often lost too.

The company’s share price declines and further financings are at much lower prices. This has been the situation in the last few years, which combined with other problems,  endanger a thousand junior companies’ survival.

Grassroots exploration is essential to the mining industry’s food chain and almost every major town/city across northern Canada is the result of grassroots exploration and the discovery of mineable deposits.

Almost every major hospital and university in Canada has benefited from the charitable donations from people in the mineral sector.  As we all know, most items our civilization uses comes from mining.

In Canada, the various provinces have provided mixed levels of support for mining.

In Ontario, industry people tell me that we have gone from one of the best jurisdictions to one of the worst with the new Mining Act, permitting delays and aboriginal consultation.

Major new projects have been delayed and sometimes indefinitely postponed. In the Ring of Fire area, Metallex’s $50-million bulk sampling program has been held up for several years and Cliff Resources’ multi-billion dollar chromite project has been delayed and now postponed due to lower chromite prices.

Small deposits in the area that could have been developed if infrastructure were in place, will sit undeveloped and their companies’ shares will be essentially worthless.

The Liberal government’s industrial policy seemed to be based on building expensive subsidized green power projects costing 70 cents per kilowatt hour rather than building connecting lines to tie in cheaper hydro power from Quebec or Manitoba at a few cents per kwh,or even low cost gas plants.

The end result is more expensive power for the consumer and business and ultimately the closing of factories due to higher power costs.

The logic escapes me when Ontario Hydro sells excess power to the U.S. at 3 cents per kwh and subsidizes green power costing 70 cents per kwh.

There will likely be some improvements for exploration companies in a few years’ time. The industry is working on more efficient fund raising ie. cloud funding and rights issues without a prospectus. Australia has shown an ability to deal with native issues and to bring them into the mainstream. We need to do the same and instead of spending $11-12 billion a year on them, make them equal citizens of Canada, looking after themselves, working and paying taxes.

This cycle will ultimately end with higher metal prices and new companies being formed. However we still need to lower the mandated regulatory and overhead costs so that a higher percentage of a company’s funds go into the ground. In my opinion, it is not necessary to saddle junior companies with  many of the regulations and costs borne by the large companies.

The Canadian exploration and mining industry has been the showcase for the world. Our stock exchanges have mobilized money for exploration projects world-wide and created thousands of high- paying jobs in dozens of associated businesses. The Canadian governments flow-through tax system has helped Canadian companies maintain their Canadian base and explore world-wide. Let us do our best to maintain this stature.