By Allison Martell and Euan Rocha
TORONTO, Feb 24 (Reuters) – A large majority of the small
Canadian-listed mining companies that help drive global mineral
exploration expect to drill this year after a grim period of
hibernation for many cash-strapped explorers, according to a
Reuters survey.
The results of the survey of more than 60 mining executives
are one of the first clear indications of a turning point in
sentiment among so-called junior miners. Although money has
begun to trickle back, the cost of drilling is down and the
price of gold is up from last year’s painful lows, hopes for the
sector have been muted at best.
More than three quarters of the Toronto Stock Exchange and
TSX Venture-listed miners and explorers that participated in the
survey said they expected to have a drilling program at some
point in the coming 12 months, while fewer than six in 10 said
they had drilled in the previous 12 months.
“This is the best time to drill, the drilling contractors
are very cheap,” said George Topping, chief executive of
Venture-listed explorer Wolfden Resources Corp.
Wolfden is one of the hundreds of small explorers that make
Canada a center of global mining finance. With no revenues,
these companies exist to drill, or typically hire specialized
contractors to do the job in Canada and around the world.
Explorers drill columns of earth and rock, called drill
cores, and the precise quantities of gold or other metals in
those samples can make or break fortunes.
Over the past two years investors have shunned these
speculative stocks, making it difficult for the explorers to
sell the equity they need to operate. At the same time, major
miners have been hit by a spike in costs and lower prices, and
all but stopped looking for promising explorers to invest in.
Running low on cash, junior miners scaled back drilling
programs, and many in the industry began to fear that hundreds
of them could be delisted, choking off the industry’s
development pipeline.
Wolfden did drill last year, but CEO Topping, a veteran
sell-side analyst who took over the company in December, said it
will likely do more this year: “These days, if you’ve got a
success it will get noticed,” he said.
As the survey responses are from a relatively small group of
companies, the results are not an exact representation of the
industry. But they show statistically significant trends, and
broadly reflect the views of publicly listed mining companies in
Canada, most of which are small, early-stage explorers.
The survey was taken in late January and early February as
the industry prepared for the Prospectors and Developers
Association of Canada convention, which kicks off on March 2 in
Toronto. The event is the world’s largest mining convention and
a once-a-year opportunity for juniors to woo investors.
GOLD RALLY RAISING HOPES
Sacre-Coeur Minerals Ltd, a Venture-listed company
working in Guyana, is typical of the survey participants.
It is aiming to restart its drilling program this year after
not drilling last year, in part to conserve cash. While it will
need to raise funds to restart the program, Chief Executive
Gregory Sparks is optimistic.
“With the uptick in gold price and the advancement of our
projects, we think this is an opportune time to be adding to our
resource,” he said.
Gold is by far the most popular target of small explorers,
and last year’s 28 percent drop in the price of gold did the
already ailing exploration sector no favors. But with bullion
rebounding about 10 percent so far this year, some in the
industry are quietly speculating about a recovery.
DRILLERS CAUTIOUS
Still, companies that say they plan to drill might not
actually do so. Junior mining executives are a notoriously
optimistic bunch, and drilling contractors remain cautious.
Francis McGuire, chief executive of Major Drilling Group
International Inc, one of the industry’s largest
drilling contractors, told Reuters earlier this month that many
customers had not firmed up their plans for the full year.
He said a recent cluster of equity financing by juniors
could bode well for the second half of 2014, but right now they
are not drilling: “That part of the market is gone.”
But Dave Harper, chief executive of Geodrill Ltd, a
small contract driller that works with companies in West Africa,
was more upbeat.
There has been some consolidation in the region recently.
For example, Geodrill customer Ampella Mining Ltd
agreed to a friendly takeover bid from Centamin PLC in
January. And Harper said exploration often accelerates after
such deals, though it is too early in the year to conclude too
much.
“We’re seeing a reasonable amount of bidding activity,” he
said, making a contrast with the second half of 2013.
Harper added that the jobs available are reasonably large.
“They’re not small, keep-the-concessions, keep-the-lights-on
kind of drilling.”
Even so, the rates charged by drilling contractors are down,
and that will likely cut into their earnings even if activity
does pick up.
Topping, at Wolfden, said contract drilling costs are down
more than 50 percent, all in. Harper said the average decline
has to be smaller than that, but noted that in some cases his
rivals may be willing to “buy work,” accepting very low prices
to hold on to contracts through the tough market.
BY THE NUMBERS
The Reuters survey was conducted online and on the phone. A
random sample of Toronto Stock Exchange and TSX Venture-listed
mining and exploration companies were asked to participate.
Companies were asked whether they expected to drill in the
following 12 months, and whether they had an active drilling
program in the previous 12 months, and 65 of them shared their
drilling plans.
The difference between the number of companies that said
they planned to drill and the number that said they had actually
drilled in the previous period is accurate plus or minus 15
percent, 19 times out of 20.
(Additional reporting by Nicole Mordant and Julie Gordon in
Vancouver, Cameron French and John Tilak in Toronto and Rod
Nickel in Winnipeg; Editing by Peter Henderson, Jeffrey Hodgson
and Peter Galloway)
