#Exploration Geologists: “[Properties] Are Available That You Don’t See For 10 Years—And There’s No Competition” - Sprott Global Resource Investments Ltd.

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Exploration Geologists: “[Properties] Are Available That You Don’t See For 10 Years—And There’s No Competition”

Sprott's Thoughts

Wednesday, August 12, 2015

Tekoa Da Silva

   >>Group Discussion: Exploration Geologists (MP3)

Exploration activity in the resource sector is down dramatically.

Some of the world’s top exploration geologists are calling this an ideal time to shop for new prospects.

With fewer junior resource companies around, it’s easier to get your hands on some of the most coveted exploration targets, they believe.

Tekoa Da Silva took our recent Sprott Symposium as an opportunity to speak with a handful of highly-respected exploration geologists and junior mining CEOs.

Tekoa Da Silva: Hi. I’m Tekoa Da Silva with Sprott Global Resource Investments and I’m sitting down here today with four gentlemen who have dedicated their adult careers to natural resource exploration and prospect generation businesses.

The theme that we’re going to discuss here today is: Where are we in the resource exploration and prospect generation business markets? Where are we going? What is the path of lowest risk and highest reward?

With me here to discuss the topic is Mr. Alain Charest, VP of Exploration with Evrim Resources, Mr. Stephen Nano, CEO of Mirasol Resources, Mr. Brent Cook, Publisher of Exploration Insights and Dr. Simon Ingram, CEO of Reservoir Minerals. Gentlemen, thank you for joining me here.

So to start out, please mention a few bullet points about yourself, your background and why your perspective is significant for the person watching in the resource and exploration businesses. Mr. Charest, if you could start please.

Alain Charest: Well, I’m a geological engineer and have been working in Mexico for the last 22.5 years, basically specializing in grassroots exploration, and finding new prospects. My knowledge is based on everything that goes from finding new properties and bringing them up to a level where it’s a feasible mine, and my experience is exclusive to Mexico. I have a lot of experience in Mexico and I believe Mexico is a great country to explore.

Stephen Nano: I’m the CEO and one of the founders of Mirasol Resources, and a geologist by training. I have over 25 years of experience in exploration and the majority of it in the Americas, where Mirasol focuses its exploration. I think this is an interesting and opportune time for project generators, and so by extension I think this will be an interesting interview.

Brent Cook: I’m an economic geologist, and have been doing this for over 30 years now. Mostly I worked as a consultant to many major mining companies up until 1997 when I joined Rick Rule as his mining analyst. I was there until 2002. Subsequent to that, I started an investment letter called Exploration Insights which covers what I’m doing with my money in the exploration sector -- what I’m buying, what I’m selling, and what I am avoiding. I don’t get paid by anyone to say anything, but rather I earn money based on my investments and paying subscribers of the service.

Dr. Simon Ingram: I’m the CEO and founder of Reservoir Minerals. We’re a project generator that has been working in the Tethyan Belt for nearly a decade now. We have probably one of the best discoveries made in the last decade in that region, and I think we can clearly demonstrate the value of the prospect generator model at this time.

Tekoa Da Silva: Simon you recently made a comment to me that, “[Exploration] ground is coming up that you don’t see for 10 years and there’s no competition.” For the person reading that may be new to the resource exploration market—why is that the case? What’s the current climate?

Dr. Simon Ingram: The climate is we’re going through another downturn. We have an industry that is a cyclical industry. We’ve been through quite a long boom and we’re going through quite a long bust right now. So commodity prices are falling to all-time lows and the appetite for commodity exploration is low. The appetite to build new mines is low right now. And with that, there’s less money coming into the sector. In some cases, there is no money coming into the early stage exploration sector.

So is a company able to continue to explore in this sector and at this time? We, as an example, have the opportunity to go out and pick up ground because there’s just no competition. There are few people exploring for that ground and companies are giving up ground because they can’t afford to hold it. So this is a time of opportunity. People get very negative in downturns and can’t see the light at the end of the tunnel, but the reality is this is a time of superb opportunity if you have the courage and the financial backing to take advantage of it.

Brent Cook: Certainly Simon makes a good point, and what I’ve realized is the mining industry is cyclical. It has always been cyclical and the commodities are cyclical as well. It’s the supply and demand fundamentals, but what’s really interesting this time (as compared to the past) is that we are now consuming so much metal— 90 million ounces a year of gold and 19 million pounds of copper -- and we’re not replacing it.

A supply demand pinch is coming, and where it’s going to get interesting is that we’re not finding enough new deposits to replace what we’re mining. There’s not enough exploration, and with this downturn going on now, the pinch point will be much more severe. When we consider it takes 10 to 20 years to go from discovery to production, it’s going to get really interesting.

So I’m very positive on the space despite it being ‘bad’ out there now. I think it’s going to stay ‘bad’ for a while in terms of share prices, but this is when you make your money—by buying during times like these. As an example, during the 1997 to 2002 bust was when I made most of my money, by buying resource stocks when it was the hardest thing in the world to do. So I’m positive here.



Stephen Nano: I think an important part of how you protect yourself in the current market, is how you take advantage of two things. One is by investing in companies that are well funded and protect their share structure, and recognizing that to be a resource. Secondly, by investing in companies that are not exploring for things that may be economic at higher metal prices and in better markets, but companies that are focused on high value ounces and high value pounds of copper that are economic in current market conditions.

So if that type of company is successful, if it’s focused in the right way and you discover a high value deposit that’s financially viable in the current market, you win twice because the best discoveries are often made in the deepest downturns, and the companies that make those discoveries will still perform substantially even in a poor market. They will perform even better coming out of this market as well.

So focus on those companies that are sustainable, given their spend rate, and that are focused on discovering high value deposits that are bulletproof to downturns (which are normal for our industry) as we’ve been saying.

Alain Charest: Well, I have to agree with Simon, Stephen and Brent and I want to add something to what Simon mentioned about eliminating competition. It’s like cleaning up your backyard, getting rid of the bad weeds, so it will let us grow there. The same thing is occurring in Mexico. It’s amazing the amount of opportunities you have now because you’re not dealing with 25 companies looking at the same good prospects. There are a lot of available prospects now and like Brent said, the majors are not exploring. They’re not conducting grassroots exploration like they used to, and one day they’re going to wake up and say, “Well, we need some backup projects.”

So that’s why companies that are surviving -- the ones that are left -- are probably the better ones. They have a chance to pick up these prospects right now and build them up to a stage where they’re attractive. I guarantee you that a line-up of major companies will be wanting these projects 10-12 years from now.

Dr. Simon Ingram: I would add to that. What we’re seeing as a generator is that the majors traditionally would bring their own teams in to explore even if you have good ground. Now the situation is the majors are coming and saying, “We’ve fired most of our teams. We need a competent team to actually do this exploration as well.” So we are seeing a great opportunity for companies with good land holdings, good areas in prospective places, but also have competent and capable teams.

Stephen Nano: Absolutely. I think more than ever, the value of your human resource is a key part of the story. Quality management is key but also the technical quality of people that are going to make the decision to work for you in the field, if you have that combination. Human resources are a very valuable asset in this market and will become more valuable going forward.

Brent Cook: Yes, shortage of quality people is a real problem that we’ve got and there really isn’t much new blood coming in. There is not a lot of mentoring going on. It used to be that you would come into the sector and you worked with a major mining company. You got the courses and some older person would teach you things. That’s not happening so much anymore. So not only is there a deficit of new projects and new discoveries, but there’s going to be a real deficit of new people coming in that know how to make discoveries. On top of that, so much of the new exploration work that’s being done is being done on a desktop with computer-generated models and geophysics and that sort of thing.

I was with Alain in 1995-1996, and he found the El Sauzal gold deposit while hiking down a creek, up a canyon wall, and finding the gold at that point. Same as Stephen in Argentina. It’s boots on the ground that work and that’s not something you get coming straight out of school and sitting at a computer. So it’s going to get interesting. It’s getting harder and harder to make discoveries and people like these three gentlemen here that have the experience to do it are disappearing.

Dr. Simon Ingram: It really is the case that as a geologist, the more rocks you see and the more deposits you see, the more you understand. It takes a long time to get that expertise and knowledge. So even if you can take the best people out of college straight away, it’s going to take years before they get up to speed and actually are very useful. So finding geologists you can send out, understand what they’re seeing, and understand how it relates to projects and deposit models is a challenge. It’s not a skill that you can just learn overnight and so we’ve got a lot of people with gray hair in the industry coming to the end of their careers and we’re just not replacing them.

Brent Cook: Yeah, and I’ve got the gray beard here. But seriously, thinking back to my early exploration days working in Australia and New Guinea and such—how many times have I come on to a project and just thought, “Oh wow, this is it, this is going to be the biggest discovery.”

What I’m saying is that you’ve got to have a whole bunch of failures in your past to know what a real deposit looks like and I bet these guys sitting next to me have all got a long list of projects that they thought were going to make it and didn’t.

Tekoa Da Silva: As we wrap up here—any final words of guidance to the person reading who might be a newer resource investor?

Dr. Simon Ingram: It’s all about investment horizon. If you can put your money in and put it to work for three years, then you’re going to catch the next upswing. If you can only invest for one quarter, then we can’t predict what’s going to happen.

Brent Cook: I would agree with that. I think for investors coming into this, on my website, ExplorationInsights.com, there are two articles that talk about the last cyclical bust and how we came out of it and I think it’s a really good lesson as to what this one is going to look like as well. So that’s on my website for free.

Stephen Nano: I think Simon and Brent made a very good point about time horizon. I think the important thing here is that no one can really predict whether we’re in a downturn that’s going to last 6 months, 12 months, or many years, but it’s important to recognize this as an opportunity. It’s important to identify companies that see this is an opportunity to position for the future, and that also understand that a good discovery in this market will still substantially improve your share price. So focus on companies that understand those issues, as it’s a true path to wealth creation and can create real wealth even in a difficult market like this.

Alain Charest: I agree with what my comrades just said, but also, the way I look at it now, you won’t have to look at a hundred different companies to see which ones have a good project. The ones that are left, that are still surviving mostly have good projects and so I would say to the reader—stay tuned because there’s going to be an upswing coming. Not in the first quarter of 2016, but it’s going to come.

Tekoa Da Silva: Mr. Alain Charest, VP of Exploration with Evrim Resources, Mr. Stephen Nano, CEO of Mirasol Resources, Mr. Brent Cook, Publisher of Exploration Insights and Dr. Simon Ingram, CEO of Reservoir Minerals—gentlemen—thank you for sharing your comments.

For questions or comments regarding this article, or on investing in the precious metals & resource space, you can reach the author, Tekoa Da Silva, by phone 760-444-5262 or email tdasilva@sprottglobal.com.

P.S.: Didn’t make it to the Symposium? All keynote speeches, except Robert Friedland’s Q&A, are available for replay online, along with select workshops. Click here to order.

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