Editorial: There are risks, but rewards are great

Popular misconceptions are persistent beliefs, displaying an uncann y ability to remain alive no matter how untrue they may really be. One reason such misconceptions are labelled `popular’ is that even purported authorities get taken in.

Take the case of a weekly stock market column which appears in a major Toronto daily paper. The writer, one of these so-called market experts, noted that Thompson Commission proposals to help regulate and improve the financing mechanisms for junior resource companies in Ontario, will prove unfortunate for many people. The article continues, saying high risk capital rarely leaves Toronto, being used to line the pockets of lawyers, brokers and promoters.

It even goes so far as to claim that only 20% of any money raised ever goes into the ground in the search of mineral deposits, thereby doing little to help northern employment. And so the popular misconception about junior mining companies persists.

Dead wrong. The writer of that article, as well as other poorly informed individuals, still cling to the stories of the boiler room days of the 1940s and 1950s, when shares were flogged over the telephone to unsuspecting small businessmen and housewives. When broker-dealers, who took up to 50% of any issue as commission, ruled supreme in Ontario. It might come as a surprise, but those days are over.

The proposals being made to the Ontario Government are designed to not only improve the capital raising mechanisms for junior exploration companies, but are also designed to protect investors. But more importantly, junior financings today clearly spell out in the prospectus how much will be allocated to direct exploration. A quick survey of recent issues shows that more than 75% goes into the ground. In cases, this figure exceeds 85%.

With respect to employment, one just has to peek across the border into northern Quebec which is experiencing an exploration boom — courtesy of flow-through share vehicles which promote junior financings. Hundreds of drillers would vehemently disagree that such schemes don’t bring wealth to the north. In fact, attractive tax structures are actually keeping the drilling business alive in Quebec.

Finally, only the woefully uninformed keep yelling that `No one makes any money in junior mining’. Granted such investments are speculative and represent a high degree of risk, they conversely are strongly leveraged, displaying a high risk/reward ratio.

Just ask shareholders of Golden Knight Resources. Underwritten at 30 cents , the issue soared to $15.50 this year before settling back to $9.50 today. Not bad for a penny stock sitting on a huge deposit operated by Inco Ltd.

Just ask the shareholders of Golden Sceptre Resources and Goliath Gold Mines, two unknown companies in 1981 which happened to latch on to the biggest gold discovery in North America at Hemlo. Ditto for International Corona.

And who can forget Agnico-Eagle Mines, which was born from a financially troubled company on the verge of collapse in 1963, eventually growing into one of Canada’s most respected gold mining companies today.

Yes junior mining is a rough and tumble business, fraught with risks most executives would deem unacceptable. But the rewards are real, and at times can be memorable, indeed. The benefits, in terms of northern employment for contractors, drillers and thousands of mine workers, speak for themselves.

The implementation of the Thompson Commission recommendations would be timely and rewarding not only for the mining industry, but for investors as well who look to the Vancouver Stock Exchange for speculative plays.

The Thompson Commission, hopefully, will put a quick end to popular misconceptions about mining.