Brownfield Projects: Less Risk, Faster Returns

In today’s challenging financial environment, attracting investment dollars means giving investors something to get excited about, and risky greenfield projects don’t always fit the bill.
Bringing a greenfield project through exploration to production can take several years, or even a decade, which doesn’t allow resource companies to meet developing market opportunities.
Resource companies at both the top tier and junior level have become more cautious with their dollars, shifting their focus to lower-risk opportunities such as brownfield projects — those with previous capital invested in development and an established resource base.

Greenfield vs. brownfield

Greenfield projects are those with minimal to no previous exploration, while a brownfield project can range from the advanced development stage with a known resource to a proven producer.
Greenfield exploration carries the risk of operating in literal unchartered territory. With greenfield-stage projects, the available information is typically limited to the structural setting, the local geology and in some cases limited geophysical data and drilling. Exploration teams must rely on the predictions of geological models to locate potential deposits.
Acquiring a brownfield project, however, means acquiring assets such as an extensive database, technical reports, economic and feasibility studies, permits and even development work such as adits and drifts — representing millions of dollars of invested capital.

Increased resource confidence translates to reduced risk and cost

Brownfield projects carry less risk and offer a huge discount on capital costs.
One defining advantage of a brownfield property is the amount of available exploration data, which de-risks many aspects of the project and offers immense economic benefits to both the company and its shareholders. When a company acquires a brownfield project, an extensive exploration database and often detailed geological models are also a part of the package. This can prove extremely valuable.
Reduced risk and capital savings are also immensely attractive to majors looking to grow their overall resources and reserves or extend mine life at a particular operation. Kinross Gold’s (TSX:K,NYSE:KGC) recent acquisition of the Gilmore gold project in Alaska is a great example. Located immediately west of the company’s Fort Knox mine, Gilmore instantly adds another 2.1 million ounces of gold to the measured and indicated resources at Fort Knox.
“Gilmore is a promising organic development opportunity that can potentially extend mine life at our Fort Knox mine in Alaska, one of our top producing and high performing operations,” said J. Paul Rollinson, Kinross Gold president and CEO. “With the Gilmore project, we continue to deliver on our strategy of pursuing low-risk, high-potential brownfield projects that can contribute to the long-term future growth of our company.”
Junior resource companies are also attracted to the upside of brownfield projects. Historical databases containing geologic data, drill results, drill core and samples from earlier exploration and past production are a huge economic benefit when initiating a new exploration or development program, and can save companies upwards of $10 million in exploration costs alone.
With a brownfield project, “the millions of dollars it typically takes to discover and delineate a metal deposit are not required,” Dr. Bill Williams, an economic geologist and chief operating officer for Zinc One Resources (TSXV:Z), told Investing News Network. Williams is overseeing the company’s revitalization of the Bongará zinc mine in Peru. The company acquired the project, including an extensive database dating back as far as the 1990s, through its takeover of Forrester Metals in early 2017.
“The previous operator has defined an area of mineralization, and we are working to bring this information up to NI 43-101 standards; for example, with drill holes that twin historic drill holes. While we properly delineate this mineralization, we are also exploring for additional proximal mineralization that we can include in a future mine plan,” said Williams. The company is preparing to release a NI 43-101 compliant resource estimate for Bongará in Q2 2018.
Prize Mining (TSXV:PRZ) is another junior with a recent brownfield acquisition. The Manto Negro copper project in the state of Coahuilla, Mexico has been the subject of past exploration programs consisting of drilling, sampling and trenching as well as metallurgical work. As with many brownfield projects, exploration access agreements are already in place with local communities.
“In our search for a great quality exploration and development copper asset, Prize looked for three key things: good grade and favorable metallurgy, size and exploration upside potential and the ability to bring the project into near term production to take advantage of a rising copper market,” said Feisal Somji, president and CEO of Prize Mining.

Leveraging past development-stage investments

The typical cost savings on an advanced exploration or brownfield project can also include the millions of dollars required to complete preliminary economic assessment- (PEA) and feasibility-level studies as well as development work. Picking up projects at this level of development saves both time and money for companies looking to reward their investors with revenue.
Centerra Gold’s (TSX:CG) acquisition of AuRico Metals included the Kemess gold-copper property, which hosts the feasibility-stage Kemess underground project and the PEA-level Kemess East project. The Kemess property — located in BC, where Centerra also holds the Mount Milligan mine — has more than C$1 billion in surface infrastructure already in place. In addition, environmental approvals and an impact benefits agreement with First Nations are complete, and permitting is well advanced.
“With the acquisition of the AuRico Metals assets, Centerra expands its existing development pipeline to include another low-cost de-risked brownfield development asset, the Kemess property, located in Canada — one of the lowest risk mining jurisdictions in the world,” said Stephen A. Lang, chairman and director of Centerra. “In the future, as the company delivers on building out this development pipeline its production base will be sustained and continue to grow with sector-leading operating margins positioning the company to generate robust free cash flows for many years to come.”
Zinc One is also leveraging past investment in metallurgical, environmental and engineering studies to save capital costs and quickly move toward production. “By using the past work done on the project, we just need to confirm the rationale for the mine design and adapt accordingly — this will save a lot of time and money,” said Williams. “One example is having confidence in the metallurgical process. The previous operator used a Waelz kiln successfully with over 90-percent zinc recoveries.” Zinc One plans to use the Waelz kiln processing method as well. The company intends to complete a feasibility study in 2019 and is looking to 2020 to commence production.

The takeaway

The projects that investors find most attractive are those with clearly defined mineral resources and strong potential for becoming an economically viable mine — the hallmarks of a quality brownfield project. In addition to providing cost savings, developing a brownfield property with existing resources or proven production potential is a much quicker path to returns.
This article was written according to INN editorial standards to educate investors.