Funding Gimmicks or Real Innovation?

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Funding Gimmicks or Real Innovation?

How Mining Companies Are Using New Tech to Fund New Deals

A raft of junior mining companies are turning to novel and increasingly inventive tech solutions to meet the industry’s funding needs, as conventional sources of capital remain barren for a sector in its fourth consecutive year of a bear market.

Dubbed The Gold Rush, Vancouver-based Integra Gold recently launched an eye-catching initiative aimed at harnessing the internet to hunt for gold. Six terabytes of archived exploration data from its Lamaque gold property in Ontario, once a prolific gold mine that was abandoned in the 1980s, is currently being uploaded to an open-access website for the public to trawl through.

Egged on by C$1m in prizes for the best submissions, geologists and mine enthusiasts will pour over data including 30,000 drill holes and half a million assays in their own time, the company hopes, picking out what could be high impact drill targets. “Crunch Data and Strike it Rich,” the initiative blares.

Integra’s crowd-sourcing scheme, aimed at dodging the cost of using a consultant to process the huge volume of data, is however only the latest in a string of similar announcements. Quebec-based Abitibi Royalties has launched The Royalty Search, a website aimed at generating deal flow, whilst Lake Victoria Mining launched an online shop last year called Buy Gold Direct, selling gold bars from a mine that is neither funded nor in construction.

The question for investors is whether the headline-grabbing initiatives will deliver tangible results, if they could gain traction and become more widespread in the industry, or if they are simply short-lived gimmicks, reflecting the dire state of funding for the junior mining markets.

Grey Hair

“The industry as a whole, it’s not a secret that it is getting greyer,” says one insider at Integra Gold, which is led by chief executive Stephen de Jong, one of the youngest bosses in the industry.

“Especially now with the commodity cycle in a pretty decent bear market, I think there’s a lot less younger people coming into mining at the moment. We try to think differently about how we approach the industry and this is just one other way of doing that.”

There are clear merits to the so-called Gold Rush being launched by Integra, which goes live in September. “There’s definitely a cost saving,” a spokesman for the company tells Master Investor, “but the sheer amount of time it would take us to go through the six terabytes of data, I think it’s the quickest way to get some new and creative ideas for a drill programme on that side of the property.”

“We really want to focus on our project just south and if we were to take our resources off that, it would slow down our timeline.”

The Best Minds

There is also a cyclical element, allowing Integra to tap into the widest possible pool of geologists and consultants, currently out of work due to the industry’s bear market. Tellingly, The Gold Rush closely resembles The Goldcorp Challenge launched in 2000, which generated 1,400 submissions from 51 different countries and over 100 drill targets, at a time when gold was also in the doldrums.

“Integra want the best available minds working on their project,” one rival chief executive says, “but it’s a model that only works in difficult markets when people have spare time and capacity on their hands. In a raging bull market, people can’t work on an extra project. If you look at 2010 or 2011 when everybody was fully employed, all the consultants were fully stretched already.”

Integra carefully avoids the suggestion that is directly targeting geologists who are currently under or unemployed. “In a bull market, where it’s tough to even find people to work on projects, something like this may be a little more difficult,” a company spokesman says, “so it definitely is a sign of the markets, because there’s a lot of people who maybe don’t have a tonne of work this summer.”

“But we also really want to make sure this gets out in front of some non-mining industries, to see what software developers and non-traditional mining groups can do with the data, because they may interpret things differently to how a geologist or an engineer would. That’s what we’re looking to harness.”

Good Publicity

The biggest unspoken benefit however may be publicity, generating headlines and drawing fresh eyes to go-ahead companies with ambitious chief executives. “We’re very happy with the splash it’s made,” Integra says.

Critics of The Goldcorp Challenge say it was a foregone conclusion, that the company had decided where to drill before throwing open the data to its Red Lake district, but that it served to heighten the market’s awareness of the district’s exploration potential. “He’s a personality,” one buy-side analyst says of Rob McEwen, Goldcorp’s then chief executive, who announced the challenge during a conference speech in Toronto.

A flamboyant character in the industry, McEwen has repeatedly called for gold to top $5,000 per ounce. He is also one of the largest investors in Abitibi Royalties, whose new platform The Royalty Search allows prospectors and juniors companies to submit their properties for 48-hour review. If Abitibi approves the properties, it will pay their license fees of around $5,000 per annum in exchange for a royalty on any future production.

“We’re certainly the smallest royalty company on the block,” says chief executive Ian Ball, who describes Rob McEwen as his mentor, “so in terms of getting your name out there for exposure, I think it’s great, because in the royalty space you want to become a name of recognition that people will come to with opportunities, whether it’s big or small.”

Like Integra’s Stephen de Jong, Ball is in his early thirties. When the platform first launched, Abitibi received 4 to 5 submissions per day, he says. That is now running at 1 to 2, though the quality of submissions has risen and Ball has so far signed three deals totalling around $40,000.

By definition, the properties under review are early-stage and held by operators in a straightened financial position, but Ball, who previously headed Mexico-focused McEwen Mining, describes the royalty deals he is signing as “low cost options on exploration.”

“If we can build 20 or 30 of these, perhaps one or two of them will pay off.”

Bad Publicity

One similar initiative that does not appear to have paid off is an online gold shop, www.buygolddirect.biz, launched by Lake Victoria Mining.

McEwen Mining has also operated an online shop, which was ultimately suspended citing technical issues, but Lake Victoria’s shop had the added twist of selling gold not yet mined. Tantamount to a forward sale, the company planned to sell future ounces at a discount to spot, funding its Kinyambwiga gold project in Tanzania.

Checking-out, buyers can choose the date of delivery, with shipping done by FedEx, but the earliest delivery dates have already passed and Kinyambwiga looks no closer to production. The company recently received an open-pit mining license, but has not published a certified resource statement, nor a feasibility study, and is yet to secure any external funding for the mine.

Master Investor has repeatedly tried to contact Lake Victoria’s management to find out how many gold bars it has sold forward to date, but the company has not responded. Its phone line appears to have been disconnected and no contact details are listed on its online shop.

“We knew we had to either fold up the tent, or do something creative,” chief executive David Kalenuik said when the website launched last year. “Frankly, we were pushed in this direction.”

Crowd-Sourcing

Uncertainty surrounding Lake Victoria’s scheme need not distract from the merits of those launched by its larger peers.

Cash flow from The Royalty Search may be a long way off, but by using off-the-shelf internet technology, Abitibi’s Ian Ball appears to have opened a new channel of funding for junior mining companies at a crunch point in the cycle. In doing so, he has also created a more liquid market for early-stage royalty assets.

“Prospectors always assumed that there was no market for royalties on such early stage prospects,” Ball explains, “so it certainly has focused-up a part of the market that was never contacting us before. The key for us now will be to continue to develop the programme. We see this as a first step and we hope we can continue to evolve the model.”

Integra’s crowd-sourcing initiative meanwhile promises an exciting future for the industry, even if that future remains largely undefined. “It’s novel for the mining industry for sure,” one insider at the company says, “but it’s not a new idea by any means.”

“Mining has always been slow to come around to new ideas and innovation, but it’s an industry that is really based on data, compilation and how you interpret data, so I think this is just one of what will be many future crowd-sourced campaigns.”

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