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While things are looking up in some respects when it comes to the exploration space, it’s definitely still tough out there for juniors. However, according to John Kaiser of Kaiser Research, exploring in known areas isn’t likely to result in the next great discovery. Furthermore, he believes that a major discovery is what’s needed to help reignite faith in the junior sector.
In a SNL Metals and Mining report on exploration spending in 2014, the firm notes that while larger mining companies allocated exploration dollars to early stage and grassroots projects during that year, many juniors still struggled to secure financing. It’s thus easy to see why so many juniors are now focusing on known areas or districts — a lower-risk exploration play might garner more interest from investors.
However, according to John Kaiser of Kaiser Research, exploring in known areas isn’t likely to result in the next great discovery. Furthermore, he believes that a major discovery is what’s needed to help reignite faith in the junior sector.
Why the slump?
“Historically when the Canadian juniors have descended into a bear market slump following a boom period, it has never been metals prices that have raised the sector out of the doldrums,” Kaiser said. “It has always been a surprise discovery that takes some fairly low-priced stock up substantially.”
He noted that in the wake of the 2008 financial crisis, there wasn’t much of a recovery in discovery exploration, with positivity in the market being “more of a gold-price-linked recovery.”
“The capital flowed into companies with advanced gold deposits, and juniors that were trying to do grassroots creative exploration received very little capital,” he said. Since metals prices have fallen again, the situation for juniors has become even worse, which isn’t a good sign for finding new, major discoveries.
“There is so little drilling being done on high-risk, high-reward targets that the chances of a discovery play bailout are very, very low right now,” he said.
A need for higher-risk exploration
Still, Kaiser does see a few junior mining companies working on higher-risk projects, and he believes that’s valuable. Specifically, he suggested that when it comes to both greenfield and brownfield exploration, there’s a lot of value in looking for “blind systems that are not obvious.”
For example, he noted that Barrick Gold (TSX:ABX,NYSE:ABX) is “finding tens of millions of ounces” at its Cortez property in Nevada. That potential “sat there for many, many decades” even though Barrick’s Pipeline deposit sits right next to the much smaller Gold Acres deposit, which was discovered many years earlier.
“In those types of areas where no really big mine has been found, but something interesting has been found, that is the area where the juniors can do the greatest good,” Kaiser said. That’s because “this is where geologists, using their understanding, using digital data compilation of old information, can start to sort of rethink what is going on. What is the potential gold budget of this region? Are these small things that we have found simply outliers of something very substantial?”
Such discoveries can also happen near producing mines. To give another example, Kaiser noted that Imperial Metals (TSX:III) had its Mount Polley mine for quite some time before it made an unexpected discovery.
“I think they were doing condemnation drilling nearby, and they discovered a deposit that was double the grade of what all the historical focus and mine development had been focused on,” Kaiser said.
However, he added that looking into such matters is expensive, and that the junior sector needs much more capital to be able to pursue high-risk projects. And of course, financing for juniors remains a challenge.
That said, even though there hasn’t been a massive new discovery in the junior space for some time, Kaiser is still holding out hope. “I think that the public has forgotten what these things are like,” he said. “Even though there’s so little work being done that the odds of discovery exploding onto us are very poor, it could still happen.”
For more information and disclosures from Kaiser regarding the companies mentioned here, please contact him via his website — Kaiser Research Online
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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