Mineral exploration and mining is back in a big way, culminating in a new collective of Canadian rock stars.
It’s mid-morning on a sunny Friday in July, and most of the offices on the south side of the 16th floor of the Guinness Tower in downtown Vancouver are empty. To Mark O’Dea, president and CEO of Fronteer Development Group, that’s good news. His employees haven’t phoned in sick to extend their Whistler weekends; they’re out in the field where they belong, combing the scrublands of Canada, Mexico and Turkey in search of the next big gold mine.
Mining is back in a big way. Fronteer is just one of hundreds of exploration companies occupying offices throughout downtown Vancouver, ranging from one-desk cubbyholes in aging Granville Street walk-ups to Fronteer’s splashy suite of recently renovated offices on the Coal Harbour waterfront. The global demand for metals has sparked a bull run in the mining sector and against all odds, Vancouver is once again a hub of exploration activity. Nine years after Bre-X and seven years after the death of the Vancouver Stock Exchange, Vancouver’s junior mining sector has not only survived, but is thriving like never before.
But even to the casual observer, this bull run in junior mining companies is different than any previous cycle. The streets aren’t abuzz with talk of a massive find of, say, diamonds in Inuvik or gold in Busang. Cab drivers aren’t offering hot tips on penny stocks. The number changes every day, but at last count about 400 mineral exploration companies called B.C. home, most of them in Vancouver. The upsurge isn’t limited to a hot sector, but runs the gamut from nickel and copper to gold, platinum, diamonds and uranium. All of these juniors have been quietly raising money – a couple million here, five million there – and with full treasuries they’re scouring the globe for properties they can turn into an income-producing mine.
At the heart of most of these companies you won't find a promoter shilling an opportunity to double your money overnight, but a dedicated geologist bent on meeting the world’s demand for metals and minerals. Some might even call it the maturing of the Vancouver junior mining sector.
“For many of us, including myself, we’ve never seen anything like this cycle in our career span,” says Jim Mustard, who has been covering the mining sector for Haywood Securities for the past 11 years. A sustained demand for a broad array of metals has attracted a stellar cast of new explorationists, he explains. “The companies, the assets, certainly the people managing them are much more professional, much more accountable,” he says. “We’ve gone through a lot of navel gazing as a result of Bre-X, and the companies are required to file a lot more technical information and have a lot more professional people layered into the various transactions. The quality of the projects, the quality of the people, certainly benefit from all that.”
So commodity markets have been on a tear for the past two years and securities regulations have upped the quality of new companies, but the question remains: Why Vancouver? Since the death of the VSE, what reason do hundreds of exploration companies have for congregating here?
One answer is financing. Yes, the VSE is gone, but local brokerages with expertise in financing mineral exploration remain. “The capital market is still here; it just resides in places like Canaccord, Haywood and Pacific International,” explains Mike Williams, president and CEO of two-year-old Full Metal Minerals, a Vancouver exploration company that raised $5 million in public financings in the fall of 2005.
“Peter Brown has raised billions of dollars for our industry,” Williams says of Canaccord Capital’s flamboyant chair and CEO. “They understand what we do. They understand the ability to go and find mines.”
Brown himself bristles at the suggestion that Vancouver is a hub of junior mining companies. His frustration is almost palpable at the prospect of yet another media remembrance of the infamous VSE of yore, in which he and promoter Murray Pezim figured so prominently. It’s a global industry, he insists, and other Canadian centres such as Toronto and Montreal play equally significant roles in fostering a vibrant Canadian mining industry.
Nevertheless, he acknowledges there has been a recent boom in local exploration companies. “In Vancouver, you can walk within 10 square blocks of my office and see 100 good exploration programs in every country in the world,” he comments.The Howe Street veteran echoes the sentiments heard in boardrooms throughout the city: the boom in junior exploration really is different this time around. “The last two years have set records for mining finance in Canada,” Brown notes, “and the current record exploration is being done by very experienced teams. It’s not a promoters’ market; it’s done by really serious guys with 20, 30 years’ experience, and dealing with world-class projects.”
Another reason Vancouver remains a global centre for mineral exploration is its pool of talented geologists. When the VSE left Vancouver and metals markets collapsed in the late ’90s, these world-class explorationists didn’t disappear. “We retained the expertise but we just exported it,” explains David Caulfield, president and CEO of Rimfire Minerals, a Vancouver junior. “The junior companies went to Peru or wherever, but this was still home base for all the exploration talent.”
Caulfield is typical of the new breed of explorationists, who spend more time poring over geological survey maps than hobnobbing at Howe Street watering holes. After completing his geology degree at UBC in 1982, he earned his credibility in the field, spending five years banging on rocks in the remote scrub of northern B.C., first for a consulting firm, then for Equity Engineering, a company he founded with partner Henry Awmack. He started Rimfire in 1998 and has leveraged his reputation for solid fieldwork into joint-venture agreements with major mining companies, including Newmont Mining Corp., Northgate Minerals Corp. and Barrick Gold Corp.
Financing a start-up exploration company post Bre-X and at the height of the dot-com boom was certainly a challenge, but founding a company focusing on exploration in B.C., Alaska and the Yukon also had its advantages. “There was no competition in B.C.,” Caulfield explains. While popular perceptions of an anti-business climate and paralyzing government red tape drove most local explorationists to South America, Africa or Asia, Caulfield found a wealth of opportunities close to home.
“To generate new ideas about where to go exploring, one of the things we need is data, and lots of it,” Caulfield explains. “Canada, and B.C. specifically, has probably some of the best publicly available databases in the world. In other countries you’ll have to align yourself with someone locally to get access to that data and information, so it’s not a level playing field.”
Caulfield has translated that data into a handful of early-stage exploration projects that have caught the attention of the majors. Rimfire’s exploration budget for 2006 is $4.5 million, much of that funded by joint-venture agreements with majors, which fund the exploration in exchange for part ownership of any resulting discoveries.
Fronteer’s Mark O’Dea rode out the lull of the latter half of the ’90s by first going back to school to get a PhD in geology, then working for Placer Dome. There, he not only gained valuable experience working with one of the world’s biggest mining companies, but had the once-in-a-lifetime opportunity of working at a major gold discovery, the 20-million-ounce Donlan Creek property in Alaska.
When a couple of Toronto venture capitalists approached O’Dea in 2001 with an offer to transform a TSX shell into a mineral exploration company, he jumped at the chance to trade in his hiking boots for a suit. At the time, the former real-estate company was trading at $0.11 a share. Today, Fronteer is trading in the $5 range, after coming off a spring high of $8. The company has $56 million in the bank and it has entered a partnership with Teck Cominco to continue proving Fronteer’s most advanced property: a site in Turkey that, to date, has proven resources of 2.5 million ounces of gold. Fronteer has spun out a second exploration company, Aurora Energy Resources, also headed by O’Dea. The uranium exploration company raised approximately $29 million in its March 2006 IPO, and its 2006 exploration program calls for $15 million of drilling at the Michelin deposit in Labrador, which O’Dea describes as one of the largest undeveloped uranium deposits in Canada.
So at age 38, the president and CEO of two Vancouver exploration companies has a PhD in geology, several years’ field experience, and has raised millions for two upstart companies. And he’s more the norm than an exception.
Another charter member of the new breed of Vancouver explorationists is Eira Thomas, who at just 37 is already a legend in international mining circles. The president of Vancouver-based Stornoway Diamond Corp. fits a familiar profile for Vancouver explorationists: she has a degree in geology and spent several years in the field before founding her own company. Thomas earned her credibility by leading the Aber Resources exploration team that discovered a diamond deposit in the Northwest Territories in 1994. That deposit would become the Diavik mine.[pagebreak]In 2003, Thomas hooked up with another living legend in mining, Catherine McLeod-Seltzer, to form Stornoway. McLeod-Seltzer – renowned for her role as co-founder and president of Arequipa Resources, which Barrick bought in 1996 for $1.1 billion – continues to serve as co-chair of the board of Stornoway, while also serving on the boards of several more advanced mining companies.
Stornoway raised $8.5 million last October and now has $24.5 million in its treasury. Its most advanced project is the Aviat property on the Melville Peninsula near Baffin Island, where Stornoway has budgeted $3.6 million this year toward proving its potential as a future diamond mine. In July, Stornoway announced its plans to be a major consolidator in the diamond exploration sector, with a $140-million bid to acquire Ashton Mining of Canada and Contact Diamond Corp.
The McLeod connection runs deep in Vancouver mining circles: Rob McLeod, a cousin of Catherine McLeod-Seltzer, co-founded Full Metal Minerals with Mike Williams, and today directs the company’s exploration projects. Another UBC geology graduate, Rob got his first taste of mining in his teens when he worked in an underground mine near Stewart, B.C. He spent several years working for mining companies around the world and was working with Williams at Vancouver’s Atna Resources when the two set out to found Full Metal.
“I knew there was still an increasing demand for metals in the late 1990s, and there was no new exploration going on,” McLeod recounts. Conversations with his father and uncle, both life-long miners, bolstered his conviction that mining is cyclical and would come back.
Full Metal has raised $5 million since last fall, and is currently planning a $1.8-million drilling program at its Lucky Shot gold property near Anchorage, Alaska.
One of the most recent additions to Vancouver’s junior exploration roster is Kaminak Gold Corp., headed by another geologist with impressive credentials: 35-year-old Rob Carpenter has a PhD in economic geology and 10 years’ experience working for majors including BHP-Billiton, Placer Dome and WMC Resources. Carpenter rode out the slump of the late ’90s in Iqaluit, where he evaluated technical mineral reports for the federal Department of Indian and Northern Affairs.
It was a cup of coffee with Vancouver geologist John Robins that jarred Carpenter loose from his cushy government job. Robins knew of Carpenter’s reputation as a world-class explorationist and sought him out with a proposal to get Kaminak off the ground. “I saw the commodity market moving – this would be in 2003 – and I thought this would be a great opportunity to get back into it,” Carpenter recalls.
Kaminak listed on the TSX Venture Exchange in November 2005 and raised $4 million in its first six months. This summer’s exploration plans call for drilling at Kaminak’s 100-per-cent owned Voigtberg gold property near Galore Creek in northwest B.C., and at Matrix, a joint-venture property in Nunavut, where Newmont can earn a 60-per-cent stake by investing $4 million in exploratory drilling.
These are just a handful of Vancouver exploration companies, but their stories are not uncommon. If you look into any one of the 400 or so juniors that call Vancouver home, chances are you’ll find a credible geologist at the heart of the business and a number of serious projects aimed at bringing a mineral-producing mine to life.
That’s not to say the scam factor has been eliminated completely. A new exploration company typically goes public with a share price well below a dollar, and anywhere you find stocks whose value can jump 40 or 50 per cent with a swing in price of a dime or a quarter, you’ll find unsophisticated investors dreaming of instant riches. Close on their heels will be unscrupulous promoters eager to relieve them of their money.
Vancouver Sun columnist David Baines has made a career of exposing fraud in Vancouver’s junior public companies and he’s convinced that swindles didn’t disappear with the death of the VSE.
“If anyone thinks this market has changed its character to one where the process has changed from speculation to investment, they’re crazy, they’re delusional,” Baines says. He points to the example of De Beira Goldfields, a company founded by a Vancouver longshoreman and headed by two Australians with a history of online pornography and gambling. De Beira was grounded by the B.C. Securities Exchange in June after its market capitalization had soared from zero to more then US$600 million in 35 trading days, following extensive promotion in newsletters and online chat forums.
However, Baines concedes that there is a key difference between De Beira and the hundreds of legitimate Vancouver exploration companies: its shares traded only on the largely unregulated Over The Counter Bulletin Board in the U.S. and the equally fast and loose Frankfurt Exchange.
When asked if a TSX or TSX-Venture listing reduces the likelihood of similar scams, Baines replies, “Yes, I think so,” adding that if an OTCBB company is co-listed on the TSX -Venture Exchange, “that’s fine, because they always have to adhere to the highest standards. The bulletin board may have virtually no standards, but the TSX does.” Several dozen of B.C.’s approximately 400 exploration companies trade exclusively on the OTCBB.
Will it all come crashing down again? Maybe. Certainly no one will argue that metal prices will remain at their current peak indefinitely. And whenever people start saying it’s different this time around, the smart money heads for the hills. But for now, the new crop of Vancouver juniors has no time to look in the rearview mirror. As Fronteer’s Mark O’Dea puts it, “We’re cashed up and we’re going to do what we’re supposed to do: go out and find big deposits.”
Death and resurrection of Vancouver’s junior sceneVancouver saw its last mining boom in the mid 1990s, when promoters went into overdrive as news of a massive gold find in Indonesia fanned the flames of speculation on the VSE. But following the NDP government’s expropriation of the Windy Craggy mine in 1993, a string of disasters converged in what seemed certain to spell the end of Vancouver’s reign as an international hub of mineral exploration
1988- The VSE at its best Local geologist Ron Netolitzky and partners team up with Murray Pezim to raise exploration capital on the VSE. Gold discoveries at the Snip and Eskay Creek properties in northwest B.C. spark a frenzy of trading, pushing share prices into the stratosphere. By the early ’90s, investors, geologists and promoters have cashed in their chips as discoveries move from exploration to production.
1993- Omen of doom In an unprecedented move, the NDP government expropriates the site of the planned Windy Craggy mine from Royal Oak Mines and turns it into the Tatshenshini-Alsek Provincial Park. Royal Oak kick-starts the mining industry’s exodus from B.C. by picking up stakes and moving its head office from Vancouver to Kirkland, Washington.
1997 The Bre-X debacle The biggest gold discovery in decades – 200 million ounces in Busang, Indonesia – turns out to be a fraud. When the Calgary company, trading on the ASE, began hyping its find in 1991, the VSE erupted in a frenzy of speculation and penny investors propelled junior mining stocks to the stratosphere. It comes crashing down in 1997 when independent analyses confirm a massive fraud.
1999 Death of the VSE Some blame it on Bre-X. Some attribute it to the death of Murray Pezim in 1998. But on the eve of the 21st century, it is clear that the VSE is an anachronism. The VSE hooks up with the Alberta Stock Exchange to become the Canadian Venture Exchange, housed in Calgary. Within two years, it is swallowed by the Toronto Stock Exchange to become the TSX-Venture Exchange.
2006 The return of the juniors More than 400 junior exploration companies call B.C. home, and they’re raising money like never before. The previous year, 41 B.C.-based juniors went public on the TSX and TSX-Venture Exchanges. In June 2006 one company, Fronteer Development Group, raises $38.4 million.
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