Beyond Discovery: Perspectives on Progressing …...2018/08/03 · • Money available, but...

Beyond Discovery: Junior and Major Company Perspectives on Progressing Projects

T J Livesey. CEO, Oriole Resources PLC

During the boom years of the early to mid 2000’s, investment into the junior, mid-tier and major mining sectors reached new heights. The rapid growth of emerging economies drove a surge in demand for commodities, noticeably those used in steel and energy generation, but with impacts across all commodities. With global supply unable to respond quickly, prices surged to historically high levels. In response, investment in the sector rose to record levels, the costs and size of exploration teams similarly rose to new highs.

As the global economic slowdown hit, mass layoffs occurred, many companies closing down their field teams. The major companies in the main refocused on near mine / mine extensional exploration, alongside cost controls at their production centres. The length of the downturn has been unprecedented, and the uncertainty and unpredictable nature of the market has made it very difficult for all exploration teams to obtain budgets & financing – both junior and major. The impact on the industry has been to shift the typical models of exploration funding.

We will look at how exploration has been financed in the past, the impacts of the global downturn on the structure of deals between juniors & majors and the new landscape for funding exploration at the early stages: and finally, how will this impact the next round of discoveries?

Boom times…

• Proliferation of new junior exploration companies• Proliferation of new (and new ‘old’) projects• Growth of exploration teams• Telescoping of experience• Rising staff & operating costs

The crash…

• Mass layoffs across the industry• Downscaling / closure of programmes• Operating companies refocus on reduction of costs• Companies focused on de-risked / advanced stage and acquisitions of

near production assets

Mergers &Acquisitions

Expansion / Brownfields Exploration

Greenfields Exploration

The large gold miners used to rely heavily on the smaller junior gold miners to explore and replenish the gold-production pipeline. But juniors have been devastated since 2013, starved of capital. Not only are investors completely uninterested with general stock markets levitating, but the rise of ETFs has funnelled most investment inflows into a handful of larger-market-cap juniors while the rest see little meaningful buying.

Adam Hamilton, Zeal Intelligence

“We know that the juniors have endured the worst of the downturn since 2012, accounting for most of the 40% drop in the number of active explorers over the past five years. However, the surviving juniors made strong comeback in 2017 and have increased their aggregate exploration budget by 23% year over year, including a 41% increase in gold only allocations”.

Mark Ferguson, Associate Research Director, Metals & Mining of S&P Global Market Intelligence.

OUTLOOK FOR COPPERINCREASINGLY FAVORABLE FUNDAMENTALS

* Committed production after disruption; Uncommitted before any adjustments

Almost all the uncommitted projects are needed by 2035Forecast committed copper mine production and potential from uncommitted projects*

Recent Funding…

• Is there a shift in funding style?• Majors no longer have their own field teams• Money available, but stricter lending / investment terms:

• Late stage / de-risked• New frontiers areas• World class / tier 1 assets• More direct investment at project level

Recent Funding…

• Is there a shift in funding style?• Juniors must meet compliance

• Preference of listed companies over private, in the absence of strong evidence of compliance culture

• Focus on ESG to meet / reflect Majors philosophy • Waking the walk of gaining and maintaining the social

licence to operate• Majors following people / teams

Barrick Gold Corp… (2015 to present)NuLegacy Nevada 11% equity Reunion Guiana Shield $7.2m for 15% equity Skeena BC, Canada JV on Eskay Creek $21.2mATAC Yukon $55m Premier Gold Nevada $22.5m Alicanto (Akaraka) Guyana $8m Midas Gold Nevada 20% Equity Royal Road Nicaragua / Columbia $5m for 12.5% equity

Newcrest, Antofagasta, Rio Tinto…

What is next…

• New funding model?• Decreased access to capital investment for equity• More ‘project specific’ funding

• Does this work for juniors?• It does IF they have:

• De-risked assets• Very early stage in new frontiers which match the prospectivity

models of the majors AND its clear that the team can deliver• If the majors have faith that any Intellectual Property will not

be wasted on the junior

Ideal projects?

• Late stage / de-risked project• In a new frontier area – giving the benefit of first mover

advantage and the opportunity to tie up large tracts of land.• The assets would be Tier 1 / world class – or have the potential

to become so• The investors want the opportunity to make direct investments

at the asset level, with only limited funding available at the Top Co level

How will this impact future discoveries…

• There is a large gap in early stage opportunities in ‘the project pipeline’

• Are the early stage projects getting the funding they need?


• Still a leap to open new frontiers – very challenging for the junior sector to deliver alone

• Demand for commodities will continue• Decreasing growth rates (e.g. China) does NOT mean negative

growth rates…• New green technology is actually driving an increasing demand in

mining… wonderfully ironic!• Timelines on delivery of additional capacity are not properly

understood


• Struggles with staff availability• Look around…

• Lack of experience• Critical mass of geologists with 5 to 15 year experience?• Few available with recent experience of running projects / early

stage exploration

So what is next…

• Consolidation• Proliferation of juniors with small number of projects (1 or 2)• TopCo overheads disproportionate• Obvious need for consolidation, to maximise value to shareholders

& investors

But remember…

• Increased scrutiny on compliance drives the requirement for listing of companies (AIM / TSX-V)

• A counterpoint to the flexibility which private companies have had in the past.

• If the main funding is now coming from Majors and larger investment funds, is there space for the private companies, or just listed Juniors with associated expectation & evidence of compliance?


• Shift in funding source• Retail looking for ever higher returns with ever shorter timelines• Not a match for early stage exploration• Rapid in, rapid out is not conducive to a stable platform for exploration• Especially bad for new frontiers projects• Cannabis (and other) investment opportunities taking £/$ out of the

market

And what else is out there to worry about…

• Resource nationalism• Availability of land (e.g. Turkey licensing issues)• General economic instability• The green revolution (and the lack of fundamental understanding of

the role of natural resources…)

So, in closing, is it all bad?• Majors and Mining Funds are moving back into equity and direct

project financing of juniors• But funding requirements are much stricter than ever before• And funds are not being appropriately allocated to early stage projects • The bottom of the pipeline is a tough place to fill• To attract funds, Juniors have to get focused on delivering even more

value • Majors and larger Funds have to focus on the real base level,

grassroots, “new frontiers” projects

Thank you!

EXPERIENCED MANAGEMENT TEAM

TIM LIVESEY CEO Geologist with 29 years’ experience in gold and base metals, with a focus on Africa, Europe and Asia Broad range of experience in management, exploration, advanced project development, stakeholder engagement, and government relations Strong track record of delivery, both at the technical and commercial level within senior roles including exploration manager (Eurasia) for

Barrick Gold Corp., Project Director (and later CEO) of Tethyan Copper Company Pty Ltd, Pakistan, COO of TSX.V-listed Reservoir Minerals Inc. and Managing Director of Rakita Exploration d.o.o., Serbia

JOHN MCGLOIN Non-Executive Chairman Geologist and graduate of Cambourne School of Mines Worked for many years in the mining industry before moving into consultancy John served as the Chairman and CEO of Amara Mining plc until 2016 when it was sold for US$85m He is currently a non-executive director to Caledonia Mining Corporation plc and to Perseus Mining Limited

BOB SMEETON CFO Trained as a chartered accountant with Price Waterhouse, qualifying in 1992, and has a BSc in Geography from Durham University Extensive experience of working for AIM-quoted companies, where he has been heavily involved in turnaround situations, fund raisings and

acquisitions Previously Group Finance Director of AIM-quoted Universe Group plc and its main trading subsidiary, HTEC Limited

DAVID PELHAM Independent Non-Executive Director Mineral geologist with over 35 years global exploration experience. He has overseen the discovery and early evaluation of multiple deposits, including +6Moz Chirano Gold Mine in Ghana and Hummingbird’s

4.2Moz Dugbe gold deposit in Liberia Non-executive director to AIM-quoted Cora Gold Ltd since May 2017.

Beyond Discovery: Perspectives on Progressing …...2018/08/03 · • Money available, but...

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