EDITORIAL PAGE Juniors adapting to new rules

Could things be any worse for junior mining companies? These have to be some of the darkest days anyone in the industry has witnessed. Seldom has there been so little interest in the mineral exploration sector. There is a multitude of reasons to explain why, but the fact is, many companies will not survive this time around.

There’s no sense in holding out false hope, but there are signs that the future for junior companies may be on the upswing. The nature of the business has changed dramatically since the late 1980s when there were tax incentives for investing in mineral exploration and gold prices were high, but there are still opportunities for juniors. Although many juniors will fall by the wayside, the industry itself requires that the ones that can succeed at mineral exploration will continue on.

Recent comments by Craig Nelson, LAC Minerals’ exploration vice-president, give an idea of how juniors may be able to adapt in the 1990s as the feeders for major mining companies’ growth plans. The majors just can’t do the job as well as the juniors.

“Our extensive property holdings are being reduced to manageable sizes and . . . local managers are being directed to think like small businessmen or junior companies,” said Nelson. “An interesting but obvious conclusion in the exploration game is that big isn’t necessarily better.”

That is the route the industry is taking. The larger companies are letting the juniors take on the risk, but for their own sake, they are giving the juniors some incentive to do so.

An example is the recent deal between Teck Corp. and a number of companies under Murray Pezim’s control. Teck put some cash into Pezim’s umbrella junior company, Prime Equities, and has the right to put up more for a larger stake. Teck can also earn a 50% interest in any of Prime’s property interests by paying the cost of putting it into production. Teck has the right to do the same deal with a whole host of Prime-controlled juniors.

A few years ago the juniors could have gone to the market and raised the money themselves, but those days are past and not likely to return in the near future. That doesn’t mean dealing with the big companies has to be all one-sided. The majors have learned over the past two decades that they simply can’t match the entrepreneurial spirit of the small company. They’ve tried that and, with few exceptions, failed. It’s the little guy that goes out with an aggressive spirit and finds something worth pursuing. If that junior then gets swallowed up, it doesn’t have to be a sad tale of corporate concentration. Those involved with the junior are well rewarded and can move on to repeat the whole process.

Major companies today find themselves with lots of cash but short of growth potential. They find themselves competing to be considered the partner of choice for the quality junior companies that know how to go about the business of finding ore deposits.

As a result, majors can afford to pay a premium to buy out the successful junior, and shareholders of the junior find that mineral exploration can still be an exciting place to invest.

The juniors will not all be winners, but they are making adjustments to play by the new rules of the mineral exploration game and a fair share of them will likely score big.