Guest Column (September 23, 1991)

As we wait for improved stock market conditions in the mineral resource sector in Vancouver, there is much speculation as to why the current market remains depressed. Speculation in the junior mineral resource sector has been on the wane on a worldwide scale for at least five years.

The market as it now exists is a race to the wicket to see who can sell all their stock first resulting in low stock prices, few new financings, a low level of significant work being performed and a lot of blame being directed to the other guy including the Vancouver Stock Exchange.

Those who have previously provided risk capital to Canada’s mineral resource sector are moving to other areas for investment because the risk-reward ratio in the exploration business is now too high. In part this has come about because of tax law changes that do not consider the risks peculiar to mineral exploration and development.

We can only speculate on the viability of some of the solutions as proposed so far. The presumption is that the market will always be there but that a new form of market will emerge. The market of the future may include some of the following changes:

— The VSE list of industrial issuers will continue to grow. There will be a reduction by attrition, of the number of VSE listed mineral exploration companies. The VSE will have to realize that our market problems are not solely based on the “reputation” issue.

— exploration expenditures in Canada and the U.S. will decrease with the growth of foreign exploration activity.

— the aggressive brokers and promoters will forge links with the financial markets emerging in Mexico and Chile. Vancouver will accordingly become more international in scope.

— with the demand for new discoveries being on a more international basis, major companies will continue to shop for property options and joint ventures. There will be more major mining companies financing junior companies as their exploration subsidiaries.

— there will be about 20 groups of public company explorers based out of Vancouver but working on a global basis. These promoters and geologists are survivors. They have survived at least four down cycles and have a discovery track record.

— promoters will always be necessary but some will disappear because they will not be able to operate within the new “lean and mean” order. The promoters and entrepreneurs will be forced to personally invest more seed capital in their own deals before the public will take notice. — the small and mid-sized brokers realize the coming of a new order. They will become more aggressive in their search for the best quality, long-term prospects operated by management with a proven track record. — the brokers and their brokerage firms will start to co-operate with each other and the issuers for the good of the market and not just recognize the achievements of high commission generators.

— the British Columbia Securities Commission will continue to be the biggest thorn in the side of the public company but will advertise that they “cleaned up Howe Street.” Controlling regulatory costs will be an ongoing battle. VSE-listed issuers will have to resist considerations being given to the adoption of national securities regulations.

Optimism is a necessary part of an explorationist’s qualifications. We must view the immediate future as being a great test of that optimism.