As a general
rule, the most successful man in life is the man who has the best information
Vancouver BC is
undoubtedly one of the greatest mining centers in the world and British
Columbia should be a mining powerhouse, consider:
- Excellent geology - British
Columbia is mineral rich and hugely underexplored
- Good transportation system
- Reasonable mining regulations
- Competitive tax rates
- Strategic location with respect to
Asian markets. Two modern ports, Vancouver - Canada’s largest and
the Port of Prince Rupert which is the closest of any of North
America’s West Coast ports to Asia - up to 58 hours of sailing
time shorter
- High quality and easily accessible
geological data
- Mining friendly provincial
government
- Communities receptive to resource
extraction as a livelihood
- Attractive exploration incentives
- BC is the third largest generator
of hydro electricity in Canada - one of the lowest power costs in North
America. Natural gas is plentiful, cheap and resources are growing
- Some of the most modern education
and telecommunications infrastructure in the world
Land claims of
the First Nations remain a stumbling block in many areas - perhaps in part
because so many claims overlap - but First Nations are now coming to
understand and embrace resource development as a way to generate training,
jobs and financial security for their people and their communities.
While things
aren’t always as smooth as we would like dialogue is taking place and
things are getting done - projects are moving forward.
“BC-based
mineral explorers and developers appreciate the key measures that were
announced in today’s federal budget. Maintaining the Mineral Exploration
Tax Credit and reducing red tape will help sustain Canada’s mineral
exploration and mining sector, encourage capital investment and ultimately
benefit all Canadians well into the future.” Gavin C. Dirom,
President and CEO of AME BC, June 6th 2011
BC is taking the
lead in regulatory reform - the largest cut in red tape could come from
dropping the duplication of process in regards to environmental assessments.
B.C. has taken the position that the province’s own process already
takes into account the responsibilities of the federal government and that
doing a second duplicate federal review forces a company to spend more money
and time on needless duplication of process.
The process does
work - three major mines are being constructed, six major mines are in
advanced development, and over eighteen mining projects are in earlier stages
of environmental assessment
Mining
Facts:
- The BC mining industry contributed
over $7 billion annually to BC’s GDP
- Mining in BC is responsible for
14,000 direct mining jobs, an additional 35,000 indirect jobs in
supporting activities, with total inferred employment in excess of
85,000
- There are currently 20 major
mines, over 30 industrial mineral producers and 2 smelters operating in
BC
- Companies spent $322 million on
380 exploration projects in BC in 2010, up 109% from $154 million in
2009 – this number is grossly understated as not included are many
junior companies and individuals activities as well as the exploration
activities of many companies domiciled outside the province
- A total of $1 billion was spent on
mine development in 2010
- BC developed a mineral exploration
code adapted for use in 35 countries around the world
- Sixty per cent of Canadian
exploration companies are based in BC, and 69 per cent of TSX and TSX-V
stock exchange listed companies based in BC are involved in the mineral
exploration and mining sector
Government
Support for mining
Federal and
Provincial Government support for BC’s mining sector comes in the form
of:
- Extending the 15-per-cent Mineral
Exploration Tax Credit to March 31st 2012
- Renewed funding for the Targeted
Geoscience Initiative
- Continued reduction in corporate
income tax rates
- Continued investment in
modernizing the regulatory review process for major projects
- Continued investment in the
Aboriginal Skills and Employment Partnership Initiative and the BC
Aboriginal Mine Training Association (BCAMTA). Two major revenue sharing
arrangements with First Nations are now in place - these are the first
in Canada - and provide a future roadmap for
how the mining industry and First Nations can work together
- Harmonized the provincial sales
tax with the federal goods and services tax – HST
- Construction of the Northwest
Power Line along Highway 37. This will make possible some very significant
projects as well as providing power to other industrial and residential
users
- Continued funding from the federal
government for the Red Tape Reduction Commission
- Ottawa created regulations
exempting most economic stimulus projects from the need for an
environmental assessment
- Extending the BC Mining
Flow-Through Share Tax Credit for another three years to 2013
- Provincial Government created
Straightforward BC to track and monitor its regulations
- The Ministry of Transportation and
Infrastructure is building the $200 million five year first phase of the
Cariboo Connector. The project widens Hwy 97 from Cache Creek to Prince
George. This will improve the Province’s interior road link to the
Port of Vancouver
In 2001, the
Province introduced the Mining Flow-Through Share Tax Credit to provide a 20
per cent tax credit for grass roots mineral exploration. Flow-through shares
allow exploration companies to pass eligible Canadian exploration expenses to
investors. When combined with a similar federal tax credit, the flow-through
tax credit helps to reduce the cost of a $1,000 investment to approximately
$380.
The Province has
also eliminated the capital tax and the introduction of the HST will increase
the savings from the current sales tax exemption for mining machinery and
equipment by eliminating all sales tax currently paid on mining inputs when
fully implemented.
The “new
mine allowance” encourages the development of new mines by allowing for
a deduction of 133% of capital costs incurred to bring a new mine into
production. This program runs till January 1st 2016.
BC
Mining Tax Credits
In BC a mineral
exploration company can raise equity funding in one of two ways, each of
which is tax advantaged. These types of share issues are normally referred to
as hard dollars or soft dollars.
Hard dollars
come from non-flow-through stock that is issued, usually at market price or
at a slight discount. Hard dollars can be spent on all capital expenditures
including exploration, office expenses or promotion. If the hard dollars are
spent on exploration, a company will get 20% of that amount back from the
provincial government through the Mining Exploration Tax Credit (METC), and
if the exploration is in a pine beetle kill area that credit jumps to 30%.
Most of BC is
now classified as in the pine beetle kill area, so the majority of companies
now get 30% of qualifying exploration expenditures back. This tax credit is
usually paid three to six months after the claim is filed. The remaining after
tax credit amount of 80% or 70% is added to the company’s Canadian
Exploration Expense (CEE) pool to be used for future tax sheltering which has
an advantage of never expiring and is 100% deductible against any capital
gains in the future.
Soft dollars
come from issuing flow-through shares to investors. The continuation of the
BC Mining Flow-Through Shares Tax Credit (BCFTSTC) and the Federal Investment
Tax Credit is intended to help companies raise capital for mining exploration
by providing an incentive to individuals who invest in flow-through shares
issued to finance exploration. The program only applies to preliminary
mineral exploration activities conducted from surface. Expenses for
underground exploration or for the purpose of bringing a mine into production
are excluded.
A company can
issue flow-through shares at a premium to the market price, preserving their
capital structure with less dilution, since buyers will end up getting tax
savings and credit from the purchase. The company can only spend this money
on exploration in Canada, nowhere else, and it must be spent within a limited
period of time. For the privilege of issuing stock at above market prices,
all the exploration expenses flow through to investors and the company does
not get any tax credit money or CEE tax pools.
Geoscience
BC
http://www.geosciencebc.com/s/Home.asp
The Province of
British Columbia is very progressive when it comes to mineral exploration. In
2005, the province implemented online staking - saves exploration companies
money and time by allowing ground to be staked on the internet instead of
boots on the ground.
The province
also created - in 2005 with a $25 mm grant - an organization to put money
into grassroots exploration in BC. Geoscience BC is an industry-focused
organization with a mandate to encourage mineral, oil and gas exploration
investment in British Columbia through the collection, interpretation and
marketing of publically available, applied geoscience.
Subsequently,
almost $12 million has been given to Geoscience BC to spend on grassroots
mineral and oil & gas projects.
Geoscience BC
puts money in the ground by funding regional airborne surveys and soil
sampling projects. As an example Geoscience BC's QUEST Project in south central
BC, covered the Cariboo Region and included an airborne electromagnetic (EM)
survey, an airborne gravity survey and the collection of 2,200 new
geochemical samples. Projects such as this help exploration companies
identify targets and do grassroots exploration that would have been too
expensive and high risk to undertake previously.
Gold,
Copper and Gold
“What really bothers me is that in the
1980s or 1990s, we saw three to five discoveries of 5 to 20 million ounces
each, and upwards of 30 to 50 million ounces a year. That is what makes or
breaks the industry. There are no discoveries of that magnitude now.”
Pierre Lassonde a veteran gold analyst, co-founder/chairman of Franco Nevada
Mining Corp., acting chairman of the World Gold Council, and former president
of Newmont Mining Corp. For The Gold Report www.aureport.com
Each year the
mining industry must come up with a major new gold
discovery of five million ounces just to replace what one of the
world’s top gold miner’s digs up.
"In the case of gold, the world is
currently mining it faster than it is finding it. Furthermore the average
size and grade of gold discoveries continues to decline.”
Richard Schodde, Managing Director of MinEx Consulting
Mining is the
story of depleting assets, that asset must be constantly replenished; miners
that want to stay in business must replace every oz taken out of the ground
and there isn’t a lot of the larger size gold deposits left to find or
buy that would really affect most of these larger company’s bottom
lines. Replacing what they’ve mined let alone finding more
productivity/resources is getting harder and harder.
In BC, there are
two styles of mineralization that are becoming increasingly important in the
global quest to replace declining gold production. These two styles are
porphyry copper/gold mineralization and sediment hosted mineralization.
Porphyry
Copper/Gold Deposits
Porphyry copper
deposits are copper orebodies which are associated with porphyritic intrusive
rocks and the fluids that accompany them. Porphyry orebodies typically
contain between 0.4 and 1 % copper with smaller amounts of other metals such
as gold, molybdenum and silver.
In Canada,
British Columbia enjoys the lion’s share of this type of deposit, and
they contain the largest resources of copper, significant molybdenum and 50%
of the gold in the province.
There’s a
very real trend by the major mining companies towards making deals with the
junior resource companies that presently own copper/gold porphyry projects in
BC:
- Novagold/Teck Resources
- Cariboo Rose/Gold Fields
- Terrane Metals/Goldcorp
- Kiska Metals (formerly Rimfire
Metals)/Xstrata
- Serengeti/Freeport
- Strongbow/Xstrata
- Copper Mountain/Mitsubishi
Because large
pure gold deposits are so hard to find - the low hanging fruit has already
been picked - gold miners are turning to deposits that contain other metals
like copper.
There are two
factors that make these kinds of deposits so attractive – firstly by
focusing on profitability and mine life instead of solely on grade your other
inputs of scale/cost can offset the lower grade and this results in almost
identical gross margins between high and low grade deposits. Low grade can
mean big profits for mining companies.
The second
factor affecting profitability of these often immense deposits is the
presence of more than one payable metal. For gold miners using
co-product (copper) accounting the cost of gold production is usually way
below the industry average.
Copper-gold
porphyries can offer both size and profitability. These kinds of deposits are
one of the few deposit types containing gold that have both the scale and the
potential for decent economics that a major mining company can feel
comfortable going after to replace and add to their gold reserves.
Sediment
Hosted Vein (SHV) deposit’s
The term
Sediment Hosted Vein (SHV) deposit is used for a family of gold deposits that
consist of gold in quartz and quartz-carbonate veins hosted by shale and
siltstone sedimentary rocks. These deposits occur throughout the world, but
are most prolific in size and number in Asia. Most are poorly known to
westerners because of their location in the former
Soviet Union.
SHV gold
deposits are some of the largest in the world:
- Muruntau >80M oz. “Hilly
place” opened in the Kyzyl-Kum desert of Uzbekistan in 1969.The
mine is still worked as an open pit now nearly 4km (2.5 miles) long,
over 2.5km (1.55 miles) wide, and nearly 400 metres (1,300 feet) deep.
The Muruntau Mine produces enough gold to make the Republic of
Uzbekistan the world's ninth largest gold producing country - the mine
produces around 70% of Uzbekistan’s total gold output
- Sukhoy Log >20M oz. Detailed
exploration of the Sukhoi Log deposit started in the autumn of 1971. The
work included 209.6 km of diamond core drilling in 846 drill holes, 11.7
km of underground drives, 61 raises, 110.3 km of trenches, 13,000
channel samples, three bulk samples of 150 t, 800 t, and 980 t and tens
of thousands of assays for gold, In addition to the Sukhoi Log deposit,
several lesser gold deposits of the same type were discovered in the
region
- Amantaytau, Daugiztau, Kumtor,
Bakirchik, Olympiada, Nezhdaninskoe, Natalka, and Maysky are all over 5M
oz
All SHV deposits
have characteristics in common with each other:
- Tectonic setting
- Host rocks
- Alteration style
- Metal content
- Hydrothermal fluid chemistry
- Absolute and relative timing of
formation
- Attractive characteristic of SHV
deposits are:
- They can be gold-only systems and
therefore are metallurgically simple
- SHV deposits are associated with
prolific placer gold fields if conditions are
right for the formation of placer deposits
- Sulfide content is low for this
type of deposit
- Type of setting is specific and
identifiable among sedimentary belts of the world
- SHV deposits occur in groups,
usually with one large deposit associated with numerous satellite
deposits
Conclusion
One of the most
serious and unpredictable risks facing mining operations and investor
interests is "country risk" - where the political and economic
stability of the host country is questionable and abrupt changes in the
business environment could adversely affect profits or the value of the
company’s assets.
Large capital
investments made by mining companies are immobile - if the management side of
the companies we invest in is so important then maybe we should start
regarding the management of the country they operate in as at least as
important?
The Province of
British Columbia, Canada is experiencing a mining renaissance. What’s
happening in the Province, in regards to mining, should be on every investors
radar screen. Is it on yours?
If not, maybe it
should be.
Richard Mills
Aheadoftheherd.com
If you're
interested in learning more about the junior resource market please come and
visit Richard at www.aheadoftheherd.com. Membership is free, no credit card or personal information
is asked for.
|