November 2008

Exploring options

Comaplex Minerals employs innovative finan­cing route to fund its Meliadine West project

By D. Zlotnikov

A summer day at Meliadine camp

It isn’t easy being a junior exploration company in today’s high-cost world. Many turn to the stock markets, but that choice turns exploration into a delicate balancing act. A single unsuccessful drilling season may shake investor confidence and jeopardize future exploration funding.

Another option is to partner with a larger, established firm, which bears much of the financial burden. In exchange, the junior company offers a stake in the prospective project — frequently, a controlling share.

Still, 30 per cent of a few hundred  million dollars is better than 100 per cent of nothing.

But, as Comaplex Minerals shows, there are other routes to funding. Based in Calgary, the company opted to invest in a number of oil and gas projects. Comaplex’s president, George Fink, was previously president of the Small Explorers and Producers Association of Canada (SEPAC), a body that represents the interests of emerging and junior oil and gas companies. It was Fink’s experience with the oil industry that prompted the choice, which has proven worthwhile.

According to Comaplex COO Mark Balog, conventional oil properties tend to go from discovery to production very quickly. Once initial investments were in place and projects began producing, Comaplex did not have to put any more money into them, beyond the occasional upgrade or maintenance expense. “This investment was very useful when the markets were in a downturn,” Balog said. “We were able to avoid diluting our shareholder base as a result.”

The oil revenue covered all overhead costs and a significant portion of the early exploration activities, said Balog. Comaplex has recently had to go to the markets for further funding, but this is actually a measure of the company’s success. Exploration results have been promising enough to step up the work significantly, and the oil and gas revenue could no longer cover the costs.

The promising property in question is the Meliadine deposit; an 80 kilometre-long ore belt about 24 kilometres from Rankin Inlet, in the southern Kivalliq region of Nunavut. Comaplex shares ownership of the property with Meliadine Resources, which is privately held by an investment group, Resource Capital Fund (RCF). The belt is split roughly down the middle, with Comaplex owning 78 per cent of the Meliadine West property, where it is engaged in active, advanced-stage exploration. Comaplex also owns half of the Meliadine East property. Through RCF, Meliadine Resources owns the remaining share of both properties and is also the operator at Meliadine East, exploring that half of the belt. While Meliadine Resources has had some promising results from exploration, Comaplex is more excited about the West belt, more specifically, the Tiriganiaq deposit at the northern edge.

First discovered by Comaplex in the 1993-1994 drilling season, Tiriganiaq is estimated to contain over three million ounces of gold resource. If the feasibility study indicates the deposit is economic, it will likely be mined on an open pit and underground basis. Not surprisingly, Comaplex is concentrating its efforts on the bountiful Tiriganiaq gold and is holding back further exploration at its other properties, which range from gold in northern Ontario and soapstone in Newfoundland to nickel and possibly even diamonds in Nunavut.

The goal right now is to continue delineating the resource and to evaluate the feasibility of a mine. “We’re hoping to complete the scoping study by the end of October and then commence with feasibility,” said Balog. “If all goes well, we want to see production by late 2011.” The program for the past exploration season cost about $23 million. “We’ve just completed an underground decline into the Tiriganiaq gold deposit — which was a pricy venture — and also continued with surface drilling,” he said.

Despite weather-related challenges, Comaplex is well-located for further development. “We’re only about 25 kilometres from Rankin Inlet,” Balog explained. “If we go to production, we’ll definitely be looking at building a road there.” The town of 2,500 has a paved runway, which would further ease logistics.

Equally significant is the company’s long-standing relationship with the Inuit. Comaplex was the consulting company for the Inuit when the land claim agreement was developed. This history, as well as Comaplex’s ongoing working relationship with the local community, will facilitate dialogue when the time comes for public hearings. “Many Rankin Inlet elders were miners and so are not afraid of it,” explained Balog. “They want their young people to have jobs and are very strong advocates of this project.”

The combination of creative financing, sound logistics, goodwill and 30-plus years of exploration experience bodes well for the project. If the numbers bear out, Kivalliq might find itself host to a major gold mine, and Rankin Inlet — an ex-mining town — will enjoy a mining boom once more.

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