Resource World Magazine

22 www.resourceworld.com o c t o b e r / n o v e m b e r 2 0 1 6 E very year, the risks associated with mining companies seem to shift in priority. For producers this year, the costs for access to both energy and water have probably climbed to the top of their list. Energy prices are up over 260% since 2000 and water costs are up 250% since 2009. Last year mining companies spent US $11.9 billion on water infrastructure glob- ally while the demand for energy is expected to increase 36% by 2025. Concurrently, ore grades are generally falling which increases operational costs and adds to the challenges with each passing year for the major indus- try players. Productivity is the main catalyst for any mining company, large or small. Junior exploration companies largely depend on public markets to raise the capital needed to fund their continued operations and therefore the efficient, productive use of that capital is of vital importance. The resource markets are improving, although most juniors have still only been able to raise relatively small amounts of capital, increasing risk to allocation and prioriti- zation decisions. Juniors today also face greater risks of delays brought on by envi- ronmental activists than ever before. In comparison, senior mining compa- nies, given their stable of producing assets, permit the formulation of a wider set of economic metrics in order to determine their investment merits. They have decades of history with properties throughout the globe, a steady cash flow, a balance sheet, strong capitalization and liquidity. Junior mining companies have little operational history, few properties and typ- ically just enough cash to see them through a finite period of time. You can invest with the seniors for years and perhaps even col- lect a dividend along the way. Without a cash flow producing asset, juniors will eventually run out of money and some will have to roll their shares back to a reasonable number in order to once again access the public market for new funds. Investing in a senior can give slow and steady growth to your portfolio. By invest- ing in a junior, you have a pretty good chance of losing everything. However, by a thorough evaluation of the risks, and if the company's business strategy is executed as planned, you can potentially stand to make as much investment return in a brief period of time with a junior as you would by holding on to the senior for a number of years. However, understand- ing, accepting and being able to absorb the investment risk associated with any junior company is the primary element in any investment decision. Juniors are critical players in the early stages of advancing a mineral property, bridging the long lag time between when a new deposit is found and when it may be brought into production. Juniors employ some of the best geologists, geophysicists and engineers in the business. These tal- ented and dedicated people sometimes prefer to work for a junior in which they have a vested interest through options and shares rather than being a paid staffer for a senior company. Seniors, of course, are far better pre- pared to put a property into production than a junior. Most people would rather see a junior stick to identifying ounces in the ground than developing the infrastruc- ture to take them out. The more ounces a junior can add to their measured, indicated and inferred resources, the more likelihood of a senior getting involved through a joint venture or possibly a takeover. In the event of a takeover, it might be years before the property actually goes into production but until that happens, the senior is happy to add these newly acquired ounces to their balance sheet to replace other ounces that have recently been depleted or removed from their tangible assets. There's far more risk in buying shares of a company that simply has a large land mass than one that is actively growing a resource. Properties within unchartered territory where minerals are not already known to exist may have been staked because they are in close proximity to a recent discovery or a past/present operat- ing mine. Sometimes data from years past is re- interpreted by a different set of eyes or re-evaluated, indicating minerals that previously had little significance but have since become relevant. These early stage properties can be bought cheap and can give investors tremendous leverage but it requires a very savvy management team to guide a company through the many complexities of an exploration property. Typically, the greater the risk, the greater the return. Here is an example of re-interpreted data. Voltaic Minerals [VLT-TSXV] has begun the first phase of its 2016 work program on their recently acquired Green Energy lithium property in Utah. The property was acquired after engineering reports from the 1960s were re-evaluated. They discovered from several oil and gas wells drilled throughout the region that an extensive brine reservoir exists approxi- mately 6,000 feet below the property surface. The work program is designed to form a better understanding of the Assessing risk in a risky business Insights & Investments by Barry Muir

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