By Neils Christensen of Kitco News
Thursday November 17, 2016 10:28
(Kitco News) - According to two junior gold explorers, now is the times for the sector to push forward with plans to develop properties and build value as major producers mine more gold than is being discovered.
Junior Gold Explorers Need To Focus On Developing ProjectsAfter almost six years of capital drought, funding is starting to slowly flow for exploration companies, as this sector has been underforming major and mid-tier producers.
Even after sharp drops in October and early November, the large-cap mining sector, represented by the Market Vectors Gold Miners Exchange-Traded Fund (NYSEARC: GDX), is up more than 50% since the start of the year. At the same time, the Market Vectors Junior Gold Miners ETF (NYSEARC: GDXJ) is up almost 80% year-to-date; however, the TSX Venture Index, a proxy for junior explorers, is up 42%.
During a recent investor presentation, Tom Meredith, executive chairman of West Red Lake Gold Mines, said that this is the perfect time for junior explorers and he sees capital flowing into the sector for the next three to five years.
In an interview with Kitco News, Kabir Ahmed, chief executive officer of Reliant Gold, agreed that in the current environment, explorers will be in a unique position to benefit. He added that as long as gold prices continue to move higher, the sector will attract more investment capital.
The lack of interest in exploration has not only hurt companies’ ability to attract capital, but it has lowered valuations. Both mining executives said that companies need to rebuild value to once again attract investor interest and money.
Meredith said that his company, for the next three year, is embarking on an aggressive exploration plan of its West Red Lake property, which is about 20 kilometers west of Goldcorp’s major Red Lake mine. He said that the company currently has 1.1 million ounces of inferred resources in underground project; the plan is to double that to 2 million and increase the company’s market cap to $200 million.
Eventually, if the company’s exploration pays off, Meredith said that the plan would be to sell it to a company that would be better suited to develop an underground mine. One potential suitor on the horizon could be Goldcorp, which is already a funding partner at 40% in the project.
Because of high production risks, Meredith said that his focus is to build value for shareholders.
“The best way to create value for shareholders is to put dollars into the ground and develop the resource,” he said.
Reliant Gold is currently developing its multi-mineral East Bay property in the McVicar Lake Area in northern Ontario. The company wrapped up its summer surface sampling program. Although exploration is still in the early stages, Ahmed said that early results show there is potential in the project.
Ahmed said that his company’s goal is to continue to explore the area and eventually develop a 43-101-compliant resource estimate. He added that streamlining costs and tight management controls have allowed the company to focus on exploration.
Ahmed added that the Reliant Gold is still in its early stages of developing its resource and it is too soon to determine if they would eventually sell to another company or actually develop a producing mine.
Not only does the sector have to create value for shareholders, but Ahmed added that companies need to be more proactive in attracting new investors. He said that he sees the potential for crowd-funding sites attracting a new segment of investment capital.
“We need to find more innovative ways to reach out to new investors,” he said.