Juniors get creative as cash dwindles

Juniors mining companies have been struggling for months to raise capital, and with coffers running low, they are resorting to all sorts of methods to conserve what cash they have.

Exploration budgets are being slashed and secondary projects set aside, but most companies are making such moves quietly. More publicly, juniors are restructuring option deals to make them less cash intensive and deferring payments, or cancelling them altogether.

Revolution Resources (RV-T), for one, has secured new terms for an option deal on the Universo and Montana de Oro properties in Mexico that it is earning into from Lake Shore Gold (LSG-T). The original deal required Revolution to issue Lake Shore shares equal to 9.9% of its issued shares after signing, and spend $35 million by August 2016 to earn in 60% of the properties. To earn the remaining 40% Revolution had to complete resource estimates with at least 2 million oz. gold for the Universo property and 1 million oz. gold for the other Mexican properties, and then pay Lake Shore $20 per oz. gold established.

The new terms slash the required spending from $35 million to $15 million, though to compensate Revolution has agreed to issue 7.5 million more shares to Lake Shore over four years, and will have to pay $30 per oz. rather than $20 per oz. to earn the remaining 40%.

Revolution CEO Aaron Keay said in a phone interview that he had seen Lake Shore go through its own challenges with capital in the past few months, and figured the company would be receptive to a restructuring.

“I thought, given how the market conditions have been, this was as good a time as any to sit down and explain, for juniors like ourselves, what a tough position it is right now to raise capital,” Keay says. “Exploration dollars are at a premium and there’s a good opportunity to rework something.”  

Keay says Lake Shore was receptive, and would benefit if Revolution’s program is successful, thanks to the greater equity exposure and gold-ounce payments. For Revolution though, the deal means that, based on its current stock price of 13¢, the company is issuing $1-million in equity to slash $20 million off its required property spending.

“For Revolution, we think it’s a significant move for us to get ownership in that portfolio a lot quicker,” Keay says. The company has already spent $6 million on the property, with only $9 million to go.

Revolution announced the change the same day Columbus Gold (CGT-V) said that it had amended the terms surrounding its Paul Isnard property in French Guiana. The terms of the December 2011 agreement with Iamgold’s (IMG-T, IAG-N) majority-owned subsidiary Euro Ressources required Columbus to pay $4.2-million in cash after exercising its option agreement on the property in late 2012. The amendment gives the company another year to consider the option agreement and pushes the payment — and associated share payments — to mid or late 2013. Columbus has agreed to issue 650,000 extra shares to Euro for the extension.

Even companies with only a few hundred thousand dollars owing are finding they need to renegotiate terms. On the same day as the Revolution and Columbus news, Bluestone Resources (BSR-V) announced new terms on the Mohave copper-moly-silver project in northwestern Arizona. The new deal has the company issuing 300,000 shares by Sept. 1, and US$1 million in cash within six months of a feasibility study, whereas previously the company had been on the hook to pay US$360,000 in cash on Sept. 1.

In late June at the Coldstream property in Ontario, Foundation Resources (FDN-V) altered its agreement with Alto Ventures (ATV-V) that the two agreed to in November 2011. Foundation had already issued 10 million shares and paid $350,000 cash, but had $950,000 owing this year. This remaining amount will be paid though a minimum of 20% of net proceeds from future equity financings, with the full amount due by Nov. 21, 2013.

Other companies that have recently renegotiated terms include Granite Creek Gold (GCX-V) and Great Quest Metals (GQ-V) on the Taseko property in B.C.; Salmon River Resources (SAL-V) and a private Australian company on the Treppo Grande prospects in Australia; Meritus Minerals (MER-V) and privately held Asmos on the Gutain Davaa project in Mongolia; Brookemont Capital (BKT-V) on rare-earth properties in Quebec and gold prospects in Tanzania; and Ashburton Ventures (ABR-V) on the Deep Creek prospect in Nevada, to name a few.

As for abandoning option agreements entirely, Electric Metals (EMI-V) has pulled out of an option agreement with Zimtu Capital (ZC-V) on an Abitibi rare-earth project it agreed to in July 2011, consenting to issue 500,000 common shares to end the deal. Tajiri Resources (TAJ-V) has ended its option agreement on the Inca property in Yukon that it agreed to in August 2011, which committed it to paying $150,000 a year for three years, plus spending $2 million in exploration and issuing 1.8 million shares over that time. Choice Gold has abandoned an option agreement with Riverside Resources (RRI-V) on the Sugarloaf Peak project, with Mexigold (MAU-V) also dropping a Riverside option deal, and Pacific North West Capital (PFN-T) cancelling an option with Alto Ventures on gold properties in Quebec.

For Keay, these deal changes are just the start of what’s to come. He predicts that mid-tier companies will be shelving secondary projects in greater numbers, providing new opportunities for acquisitions and renegotiated terms.

He’s also not too concerned with the long-term commitment of paying US$30 per oz. on the Mexico properties. A lot of recent transactions have been giving well over $100 per oz., so there is still significant upside, but Keay says that “I always look at these joint-venture or earn-in agreements as always negotiable. I only closed this one eight months ago, and I’ve already renegotiated better terms . . . there’s nothing to say we won’t sit down at the table again.”