Canadian Energy Materials CEO: Investing in Junior Mining Companies Used to be a Gamble

Canadian Energy Materials (TSXV:CHEM) CEO Michael Schuss explained the project generation process and how commodity cycles affect the types of projects brought forward.

In the interview below, Schuss provided insights into how investors have changed over time and how new technology and regulations in the industry played a part in that change.

Below is a transcript of our interview with Canadian Energy Materials CEO Michael Schuss. It has been edited for clarity and brevity.

Investing News Network: You’ve been kicking around the investment business for quite some time. When did you first get started?

Canadian Energy Materials CEO Michael Schuss: I sort of grew up in it. When I was about four years old, I went to Bralorne with my dad. Then in the 1960s and 1970s, my grandfather was investing in junior mining companies and I’d watch the stock prices with him. In August 1980, I started with Greenshield, which was my first job in the industry. That happened 38 years ago in Vancouver.

INN: At what point did you start to move into the junior mining industry?

MS: In 1984, I started my first mining company, which went on to produce and shipgold concentrate.

INN: What was it like back then versus now?

MS: The biggest difference, is the free information that you get versus what it cost to get back then. A lot of people look at it as investing, but back then it was more of a gamble.

INN: When we take a look at investors today versus then, what has changed?

MS: Today, there is such a thing as investing in junior resource companies. The quality of these companies is 1,000 percent better, and the management is better as well. We also have rules and regulations that didn’t exist back then. Before the BC Securities Commission was established, it was known as the Superintendent of Brokers, and it primarily monitored the real estate and insurance brokers, not specific businesses. It’s more sophisticated now.

INN: How has technology played a role in changing the way that people are investing?

MS: First of all, the price of trading has changed. When I started, there was a 3.5-percent commission when you bought a stock. It’s also easier and quicker to buy today. It used to be a 40-minute process.

In 1980, we had a Dow machine that would tell us everything that happened around the world. In 1983, what happened in the Falklands War could move the market. Everyone would stand around the Dow machine to see what was going on and if their ship got sunk. This was the ticker tape of that time. It had everything, and if you wanted to find something from two hours ago it would all be hanging on the wall on a long piece of paper.

INN: What about the quality of information that investors are getting now?

MS: Today, the reporting standards are higher and the NI 43-101 had a lot to do with that. Good technical companies, geologists and management are good at disclosing information, and SEDAR has helped. If I want to see financial statements for a company I can just go on SEDAR and look them up for free.

Back then, if your company was broke and somebody asked for your financial statements, you wouldn’t give them up. You could control who knew whether you had a million dollars in the bank or not. Of course, this was rare; at this time, only four or five junior mining companies on the whole exchange had a million dollars in the bank.

INN: How do you go about the process of determining what you’re going to explore and the process that you go through now?

MS: Timing is everything, and you’re going to want to get the commodity right. For comparison, let’s look atrare earth elements (REEs) andlithium andcobalt. Most of these projects you could have got for staking costs. Now, people are paying top dollar for the same thing.

My philosophy is to be the person who stakes it. We want to be there early, but not too early as these things aren’t assets, they’re depreciating and they will come open again if work isn’t put into them. I’ve spent the past 25 years looking at specialty metals because it’s so crowded in the gold andcopper space.

INN: Do you have an analytical approach that you take if you move forward? If so, what does that look like?

MS: Dale Walsh and I were looking intopalladium in the 1990s. We had difficulty getting information on palladium and many majornickel companies wouldn’t admit that it existed even though many of these companies were buying nickel concentrate with unknown quantities ofplatinum or palladium in them.

At this time, only three labs in Canada could assay for platinum-group metals (PGMs): Falconbridge, Inco and the Geological Survey of Canada. It wasn’t until the mid-1990s, when Actlabs was established, that they started completing PGM assays.

INN: What is the approach that you take when you are now starting to develop a potential property?

MS: You want 100-percent ownership, you don’t want net smelter returns and you want to get the right commodities in an uncrowded space. For example, everybody in Vancouver is a copper porphyry geologist and there are 100 copper projects in South America. It’s the same with gold projects.

Subsequently, we’ve been looking at specialty metals, like REEs and cobalt, instead. We’ll be looking at the quality of the metals that can be extracted at the property and we’re going to own that project.

INN: What’s the process that you go through from there? How do you go through that process in order to put together a prospect for a potential investor?

MS: We look for what I call big company geology, which means the geology that will be able to host a big deposit. We’re a small company and we don’t want to find a small deposit. We want to be able to say “this could be another Voisey’s Bay” or that we’ve found Carlin-style mineralization.

INN: In essence, your strategy is to find a property, own it, identify a major find and then move it up the development chain?

MS: When I hear junior companies say they’re going to put something in production and that they’re going to turn it into a big mine, I think it’s time to move on as an investor. There’s a food chain for a reason.

Part of our strategy is to capitalize on the research being conducted on geological interpretations. Many people think that mining is low tech, but it’s not. Canada is a world leader in academic research on geology as Canadian universities and the government are always coming up with new ideas and moving them forward.

INN: What’s a project generator?

MS: Project generators stake property and then find a joint-venture partner that will do the work and take the risk on for you. Finding a good project can be tough. There are some companies that are really good at this, but being able to say they have five to six good projects is rare.

INN: What makes you different from a project generator?

MS: Those who are successful at it, like Altius (TSX:ALS,OTCQF:ATUSF) have smart technical teams. For example, the Archer Cathro Group in the Yukon. Their technical team spends a lot of time crunching reports and research as they look for and come up with projects. There’s no simple way of doing this, you need to do the reading and keep up to date on the industry.

INN: What elements need to be in place for you to decide to move forward with or walk away from a project?

MS: A lot of that depends on the timing. For example, the Reliance gold project just came open and I’ve been waiting for this to happen since 1985. You need to be patient in order to be successful. There are others, like myself, who know what projects are out there, and we’re waiting for these claims to open so we can stake them. In Vancouver, there are easily 200 other people who do this, but only one person is going to get that one project everyone wants.

Plus, everyone is keeping an eye on the commodities cycle. For example, the prospector or company that got the property is probably broke because the market is bad. As the cycle starts turning, those who act first get the best projects at the cheapest price. As the cycle goes up, by the third year in the cycle, you could sell loose pasture for five times the amount that you sold your best property for three years before.

INN: When we look at the junior mining sector now versus when you started, would you say that it is a less risky proposition, that more work goes into it and that it’s a more regulated community?

MS: Absolutely. With SEDAR and the research that you can find on the internet, you’ve got a fighting chance. Everything started changing after the Hemlo discovery and people realized that we could deliver billion-dollar discoveries.

INN: Do you think that people can invest in junior mining companies now compared to when you started?

MS: I think you can absolutely be an investor in the junior mining space now.

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