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MINING

Design your junior resource company for potential M&A MAJORS NEED TO GROW WITH SMART ACQUISITIONS

by Robert Ferguson, President, Freeform Communications Inc.

Changes in the mining sector typically start to show in the major producers with falling commodity prices and the

trickledown effect to the juniors tends to be rapid and devastating. When negative inves-tor sentiment kicks in, their share prices decline, and financings are hard to arrange. However, despite the current hardship in the junior mining sector, they still play an important role, probably more important now than during the mining boom.

The aftermath of the price of gold fall-ing from a high of US $1,900 per ounce to a price that is now fluctuating between US $1,150 and US $1,250 per ounce, has forced major producers to re-assess their gold reserves and write-down millions of ounces that are now not minable under current gold prices.

The enormity of these write-downs demonstrates the intense appetite these companies have for growth and more so, the risks they are willing to endure to facilitate this growth. The average industry cost of approximately $1,200 an ounce to produce an ounce of gold further demon-strates this desire for growth and increased tolerance for risk to pursue bulk tonnage, capital intensive, low-grade deposits.

While the need for growth has not diminished, the appetite for risk may have, at least for now. During the build-up to the peak of the gold price and even more so today, the majors clearly show a lack of interest and ability to effectively conduct earlier-stage exploration and prefer to fuel their growth engine through mergers and acquisitions. At present, it is cheaper and faster for the majors to acquire projects from junior explorers rather than to set out to develop and test new exploration con-cepts themselves; therefore growth must be through M&A activity.

Today’s successful junior companies must position themselves for this oppor-tunity by controlling key projects that inherently have strong M&A possibili-ties. These projects must be generative in nature; countless recycling of old marginal projects has grown tiresome for investors and for the most part these projects have

proven to be fruitless. The sector needs the junior explorers to deliver new, high-grade deposits in stable jurisdictions with short permitting time-lines, low capital investment, and high profit margins. If this isn’t enough, the successful junior must achieve this at low cost and quickly as possible. An obvious solution to this tall order is a proven mining district; that is, a brownfield-type scenario.

A good example of this is Adamera Minerals Corp. [ADZ-TSXV; DDNFF-OTC] which is exploring for gold in

Washington State. Less than three years ago, Adamera. recognized that Kinross Gold Corp. [K-TSX; KGC-TSXZ], owner of the Buckhorn gold mine and Kettle River mill was due to run out of ore by the end of 2015. Adamera focused 100% of its efforts on acquiring prospective land in local mining camps known for high-grade gold mineralization near the Kettle River mill. Working in established mining camps with well-developed infrastructure and a mill, Adamera is essentially conducting brownfields exploration. Any significant discovery within hauling distance of an under-utilized mill would expect to garner considerable interest.

Typically, merger and acquisition activ-ity is triggered by a proven resource; however, considering the high care and maintenance costs and impending site rec-lamation associated with the mill, Adamera anticipates high interest early upon discov-ery. Also, Adamera is confident that any ore found on its exploration properties is vital to the future sale or operation of the mill.

We are in a time when there are truly very few near-term, economic deposits available, especially high profit-margin/high-grade deposits. With the majors clearly less apt to explore, the opportunity for junior explorers is increas-ing significantly. As time passes and deposits are depleted the only realistic growth option available to the majors is through mergers and acquisition.

The juniors have to recognize this opportunity, reduce costs and learn how to operate on a low budget to find and advance projects that have a serious chance of penetrating the M&A space in the short-term. The companies that are not interested or are not able to do this will find corporate life more difficult. For those that do, they will have a better chance to prosper as we enter a discovery-driven market. n

Left to right, Matthias Lindhuber Geologist, Jim Ebisch, Geologist, and Mark Kolebaba, President/CEO of Adamera Minerals, on the Oversight property in northeast Washington State. The Kinross Gold Kettle River mill and tailings pond are in the background. Photo courtesy Adamera Minerals Corp.