Financing gold projects topic of seminar

Financing precious metals projects was the theme of a 2-day seminar at the Metro Toronto Convention Centre last week.

The seminar, organized by the Institute for International Research, included 11 speakers from mining companies, banks and financial service industries, and the federal government. It highlighted some of the hurdles faced by junior mining companies as they try to raise money for gold projects in today’s dramatically changed capital markets.

Bob Gayton of Vancouver’s Prime Capital Corp. cited several factors which are making it difficult for juniors to raise money these days. “The equity market should be improving, but it’s not,” he said.

“The Vancouver Stock Exchange index has dropped 50% since May of ’87, and speculators have moved to the sidelines. The current high interest rates on no-risk government bonds are competing with higher risk equity investments, and in the final analysis, the high interest rates are pounding the equity markets.”

There is also a certain lack of trust in the market right now, resulting from recent scandals and cases such as the LAC-Corona dispute. “Juniors are entering a market clouded by scandals,” he said.

Recent mine closures have not done much to increase investor confidence either. Potential investors in junior companies may be assuming that technical and geological risks can’t be adequately controlled.

James Gill, president of Aur Resources (TSE), stressed in his presentation that juniors must pay careful attention to establishing their truly mineable reserves before production decisions are made. He spoke of the capital requirements for the different stages of exploration, and showed that precious metal projects may require expenditures well in excess of $20 million prior to determining the economic viability of a deposit.

“Everyone seems to be enamored by size and tons, without taking into consideration the economic viability of a deposit,” he said. “Small can be beautiful. There is nothing wrong with a company mining a small high grade deposit and generating cash flow for more exploration to locate another, perhaps larger, deposit.” On the topic of where gold prices are going, John I ng of Maison Placements said he predicts gold will stay in the $385-$430 range for the next six to nine months. “It is technically significant, however, that gold broke the $400-level recently. This may signal we’re heading into a period of lower prices ahead,” he said.