Juniors are the backbone of the mining industry

Mighty oaks from little acorns grow.

Very broadly, that well-known phrase sums up the importance to the Canadian mining industry of its junior mining sector — that large group of small companies that forms the backbone of mining in Canada. Today’s major companies, giants such as Noranda Inc. and Falconbridge Ltd., were once junior comamongst the several thousand identifiable junior companies on the Canadian scene, a few which will also grow into the major ranks — even if not on the scale of the Norandas, Falconbridges, Incos, Tecks and such others as the upcoming new giant gold producer, Placer Dome Inc.

There’s not total agreement within the mining industry itself on just what constitutes a junior company.

For all practical purposes, though, a junior is generally defined as a company which does not have any significant production, which has little or no cash flow from operations, and which is engaged mainly in exploration.

There are about 2,000 or more such companies operating in Canada, and they are found working in almost every corner of the land. Most of these are looking for the precious metals, particularly gold, which is enjoying an almost unprecedented boom in Canada.

On the following pages of this issue, specific examples are noted in such exciting new discovery areas as the Toodoggone in British Columbia, the La Ronge of northern Saskatchewan, northern Ontario large parts of northern Quebec, and in the Atlantic provinces.

The climate for the juniors has improved considerably in recent years compared with the 1960s and 1970s when, in the shadow of the Windfall scandal, stock exchanges and securities commissions began tightening up.

Juniors were being squeezed out of the scene, as they found it harder and harder to raise funds for exploration projects.

And even though the exchanges have recently begun to take a more sympathetic approach to junior mining (again, as attested to in articles in this issue from the exchanges themselves), it really took the advent of flow-through shares to breath new life into the junior sector, and into mining in general.

Because the availability of flow- through financing did and does make the raising of risk money that much easier, the pace of junior company exploration has assumed almost unprecedented proportions — and in not a few cases has already led to significant discoveries and mine development.

Now the juniors, and the rest of the mining industry, are waiting to see if that flow-through lifeline is about to be severed or in any way modified. As noted in an article on the subject in this issue, federal Finance Minister Michael Wilson is scheduled to bring down his new tax reform package in just a few days. Despite assurances, from many in the industry, that the government is unlikely to tamper with so successful a mechanism, there remain n some fears that changes will be made.

Along with the impetus that flow-through financing has given to exploration in general (major companies, too, are raising enormous amounts from the flow- (through pipeline), there appears to be a trend in the junior sector to more professional management for the companies that make it up.

That at least is the opinion of Terence Flanagan, president of Muscocho Explorations, itself an example of a company that was a junior just a few short years ago but which is growing rapidly into a gold producer with a second-tier rank.

In an interview, Mr Flanagan said he sees a movement away from the flamboyant, colorful promoters of yesteryear to leadership by professionals — geologists, engineers, etc.,– and that this is having a considerable effect on how the junior sector is being seen by investors, financing institutions, and the rest of the industry.

The major investment funds, he said, are looking hard not only at the property but also at the management behind it. And this, in turn, is reinforcing the trend to professional management.

Speaking of an exploration property, Mr Flanagan said the junior company will take an entirely different approach to it than does the major.

A junior, he says, has got to be a lot more aggressive. It has to look at a property and say: “What can we do with this? What can it do for me?” A junior has to have good results. It can’t rest on its cash flow, because it doesn’t have any.

The major, on the other hand, is far less likely to take chances, to stick out its neck.

There has been an important change, too, in the way in which deals are made between majors and juniors. Earlier, it was more common for the juniors to make deals on a property with the majors.

Now, that has turned around and, in what has been a very recent development, majors are making deals with juniors themselves to do the exploration and development work on a property, backed by readily-accessible flow-through money.

How successful juniors can be is illustrated by Mr Flanagan`s own company, Muscocho. Incorporated in 1962, it is now a small producer (from its Montauban, Que., gold mine). By late next year, though, the company should be producing about 60,000 oz gold per year as a result of initial production from the company’s Magino and Magnacon projects, in northwestern Ontario, he says. It could be into the bigger leagues with annual production of around 100,000 oz by 1990.