May 2007

Dancing closer

Junior miners and the financial world take a closer look at each other

By M. Wunder

The slow, cautious, don’t-get-too-close dance between junior exploration-mining companies and the financial world seems to be getting faster and hotter, and it’s not just due to high commodities prices. Recent trends mean that resource-based companies seeking financial backers are receiving a warmer welcome on Bay Street, Wall Street, and other places where deals are done.

These factors point to ways that individual exploration-mining companies and the industry as a whole can make sure that their request for a dance receives a nod and a smile rather than a shake of the head.

Investment risks are well-managed by the banks, pension funds, mutual funds, and other financial institutions; however, the Bre-X assay fraud of a decade ago negatively impacted the mining sector, particularly juniors, for many years after.

The Bre-X aftermath helped spark some far-reaching changes to the industry, particularly in Canada, impacting the reliability of information and reports released to the public by mineral exploration and mining companies.

QA, QC… and the QP

Some of these changes have been legislated by provincial governments and implemented by the Ontario Securities Commission and Toronto Stock Exchange. Others have been industry-driven, such as the need for companies to manage in-house databases to produce high-quality presentations that utilize the latest technology.

Legislated changes include the requirement for exploration-mining companies and consulting firms (such as Golder Associates) to carry out quality assurance (QA). This has resulted in more early-stage oversight and due diligence to ensure adherence to proper control procedures for taking, transporting, and analyzing samples, to weed out opportunities for fraudulent behaviour. Quality control (QC) procedures are required for all aspects of mineral exploration projects to minimize the possibility of errors. Data validation protocols must be adhered to, onsite visits must be made by a qualified person (QP), and use of accredited facilities for analysis is required – all of which are creating more reliable information than ever before.

For added control, most provinces and territories across Canada have legislated minimum high standards of education and experience for individuals practising geology. The “Professional Geoscientist” designation (P.Geo., in Ontario) allows professional geologists to act as QPs and oversee geological work performed. Additionally, the QP must have sufficient knowledge and experience beyond their professional registration to be “qualified” to author a technical report and company press releases. The QP is also required to provide certificates on the sections of technical reports they have authored, putting the QP in a position of risk that was not normally required before.


Technology improvements help. This starts right at the beginning of the exploration-mining cycle, in locating and delineating mineralization, right through to mine closure.

There is increased availability and affordability of remote-sensing imagery from satellites and aircraft with higher resolution than ever before; geoscientific compilations from multiple sources, which can be readily assembled; global positioning satellite (GPS) technology, which now supports extremely accurate surveying and has become standard throughout the industry; and reduction of data transcription errors through the collection of field data, using hand-held electronic devices.

In-hole surveying and drill orientation technologies have improved and can provide more accurate information during drilling, and assay equipment has improved, partly through the electronics revolution, so that more high-quality, cost-effective analysis can be performed, with more dependable results.

Management of large volumes of geological data is easily handled by GIS software, which allows three-dimensional integration and visualization of multiple geo-referenced data sets for a more complete understanding of mineralizing systems. Processed satellite imagery, surface geological data, drill hole data, geophysics, geochemical data, etc., can be incorporated with, and draped over a 3D digital elevation model (DEM) allowing mineralizing systems to be evaluated in three dimensions, providing new targets and vectors towards better mineralization. Resource block models and resource calculations can be generated with multiple cut-off grades and directly incorporated into mine modelling software, and mine designs can be applied. The result is that resource evaluation consultants can create iterative models and perform analysis with changes to input parameters, in real time.

And let’s not forget the Internet with its World Wide Web. Now, we can do early research on all sorts of remote projects. We can find out the who, the what, and the where - quicker than ever before. We can research companies, properties, countries, commodities, people, environments, and legislation.


Early-stage mineral exploration projects are considered high risk as the chance of discovering an ore body is low; however, if a discovery is made, the rewards can be quite significant. As a project proceeds from an early-stage discovery through to a production decision, there is a significant amount of work required to support a positive decision. This includes garnering support from the local community, stakeholders, and governing bodies, completing environmental studies, applying for and receiving government approvals and permits, metallurgical studies, mine and tailings design, geotechnical studies, and infrastructure requirements, not to mention confirmation of the resource itself. At any point along this path, the deposit may be deemed uneconomic and work can be put on hold indefinitely or until the socio-economic outlook is more positive.

If, however, a sufficient measured and indicated resource is defined in an area with manageable social-political-environmental-permitting concerns, and the project’s economic model provides sufficient return on investment to meet the corporate risk requirements, the threshold will be crossed and a production decision will be pending. Other success factors such market timing, access to financing, core business focus and strategy, etc. will impact the ultimate production decision taken. Investors should understand that proper exploration can result in finding a deposit; however, mines are made by a multitude of steps and proper decisions along the way.

Additional considerations

The experience, qualifications, and track record of the management team and board members is one of the factors to be considered when reviewing a potential investment opportunity. This is particularly important with the current sharp increase in the metals sector, where individual investors may be jumping into the momentum of the sector without properly screening the opportunities.

In addition, investors should review key company documents and project details. All mining companies are required to report information material to the company and related projects that can help individuals make informed investment choices.

Project-specific information released by companies can be accessed on the System for Electronic Document Analysis and Retrieval (SEDAR). SEDAR is an electronic filing system and repository developed for the Canadian Securities Administrators, and hosts the electronic filing of securities information, as required by the securities regulatory agencies in Canada.

Some members of the investment community, who may have had a negative experience with junior mining companies in the past, may not be aware of these improvements.

Matt Wunder is a senior geologist with over 20 years of experience in exploration and resource evaluation, and currently works in the Mississauga, Canada, office of Golder Associates Ltd.

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