Quebec juniors find financing is scarce

While the outlook for mining in Quebec this year is bleak, the long-term future of mining exploration in Quebec remains promising, says Michel Bouchard, president of the Association des Prospecteurs du Quebec.

Only about $100 million was spent in off-site exploration in Quebec last year, far below the $150-200 million the province needs annually to replenish its ore reserves of precious and base metals, Bouchard says. The continued exploration downturn can be linked mainly to the inability of junior companies to raise capital to finance their work, he says. Less than $5 million was raised last year, despite the continued availability from the Quebec government of a 166.7% tax deduction for surface work and a 133.3% deduction for underground work.

The problem is that most investors see investment in Quebec mining as highly speculative, particularly during a recession, he says. Weak metal prices, major companies’ cutbacks in exploration budgets, increased controversy about land use, an increase in exploration budgets to less developed countries, and an increase in environmental regulations are among other factors causing reduced exploration

activity,

“It’s very, very quiet. I thought last year was quiet but I think this year is going to be even worse,” says Mac Watson, president of Freewest Resources (TSE). However, “things will turn around. They always have in the past,” he adds.

According to Bouchard, who is based with Audrey Resources (TSE) in Rouyn-Noranda, Que., a low rate of mine discovery is the most serious impact of the exploration slowdown.

In a report prepared for the recent Prospectors and Developers Association of Canada annual meeting in Toronto, Bouchard noted an estimated 5-8 mines are expected to run out of reserves in five years and any mines that could replace them will take 5-7 years to come into production.

However, there are bright spots. Last year, the Quebec government instituted a $5-million program, managed by Soquem, the Quebec Crown mining exploration company, to help juniors obtain funding from $100,000 to $300,000. In return, Soquem acquires shares in the junior company or an interest in the property on which the exploration funds are to be spent.

“It’s a positive step. Without that there’d be almost no work,” says Watson, applauding the Quebec government. “Quebec has always been pro-mining. They’re a lot smarter than a lot of the other provinces.”

That program generated some exploration among the juniors, agrees Rejean Gosselin, president of Ressources Orient (ME). On the other hand, many major companies are moving their head offices outside Canada, which greatly reduces exploration activity, Gosselin says. “It’s pretty much the same with the rest of Canada.”

Watson, who has been in the mining industry for 30 years, says this is the worst he has seen. “We’ve always been able to raise money pretty easily and it’s tougher this year,” he says.

There’s little stock market interest in the resources industry right now, specifically among the junior stocks, he says. “I think people have been burned with their junior stocks, so that makes it tough to raise money.” Something like a $40-50-per-oz. increase in the price of gold during the next few months would almost certainly put a lot more interest into the juniors again, he says.

Whether or not that happens, “I think things will be much better next year,” Watson says, noting that the industry is reaching the end of a 5-year cycle and is due for an upturn. Much depends on sparking the stock market. “When people make money in the big stocks, they start looking at the smaller stocks. Then you get speculation back into the junior stocks. It’s a cycle,” he says.

Gosselin detects a bit more interest on the part of investors and believes a slightly improved year for the Quebec mining industry is in the offing. “It can’t get worse,” he says.