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 The results of the survey of more than 60 mining executives are one
of the first clear indications of a turning point in sentiment among
so-called junior miners. Although money has begun to trickle back,
the cost of drilling is down and the price of gold is up from last
year's painful lows, hopes for the sector have been muted at best.
More than three quarters of the Toronto Stock Exchange and TSX
Venture-listed miners and explorers that participated in the survey
said they expected to have a drilling program at some point in the
coming 12 months, while fewer than six in 10 said they had drilled
in the previous 12 months.
"This is the best time to drill, the drilling contractors are very
cheap," said George Topping, chief executive of Venture-listed
explorer Wolfden Resources Corp <WLF.V>.
Wolfden is one of the hundreds of small explorers that make Canada a
center of global mining finance. With no revenues, these companies
exist to drill, or typically hire specialized contractors to do the
job in Canada and around the world.
Explorers drill columns of earth and rock, called drill cores, and
the precise quantities of gold or other metals in those samples can
make or break fortunes.
Over the past two years investors have shunned these speculative
stocks, making it difficult for the explorers to sell the equity
they need to operate. At the same time, major miners have been hit
by a spike in costs and lower prices, and all but stopped looking
for promising explorers to invest in.
Running low on cash, junior miners scaled back drilling programs,
and many in the industry began to fear that hundreds of them could
be delisted, choking off the industry's development pipeline.
Wolfden did drill last year, but CEO Topping, a veteran sell-side
analyst who took over the company in December, said it will likely
do more this year: "These days, if you've got a success it will get
noticed," he said.
As the survey responses are from a relatively small group of
companies, the results are not an exact representation of the
industry. But they show statistically significant trends, and
broadly reflect the views of publicly listed mining companies in
Canada, most of which are small, early-stage explorers.
The survey was taken in late January and early February as the
industry prepared for the Prospectors and Developers Association of
Canada convention, which kicks off on March 2 in Toronto. The event
is the world's largest mining convention and a once-a-year
opportunity for juniors to woo investors.
GOLD RALLY RAISING HOPES
Sacre-Coeur Minerals Ltd <SCM.V>, a Venture-listed company working
in Guyana, is typical of the survey participants.
It is aiming to restart its drilling program this year after not
drilling last year, in part to conserve cash. While it will need to
raise funds to restart the program, Chief Executive Gregory Sparks
is optimistic.
"With the uptick in gold price and the advancement of our projects,
we think this is an opportune time to be adding to our resource," he
said.
Gold is by far the most popular target of small explorers, and last
year's 28 percent drop in the price of gold did the already ailing
exploration sector no favors. But with bullion rebounding about 10
percent so far this year, some in the industry are quietly
speculating about a recovery.
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DRILLERS CAUTIOUS
Still, companies that say they plan to drill might not actually do
so. Junior mining executives are a notoriously optimistic bunch, and
drilling contractors remain cautious.
Francis McGuire, chief executive of Major Drilling Group
International Inc <MDI.TO>, one of the industry's largest drilling
contractors, told Reuters earlier this month that many customers had
not firmed up their plans for the full year.
He said a recent cluster of equity financing by juniors could bode
well for the second half of 2014, but right now they are not
drilling: "That part of the market is gone."
But Dave Harper, chief executive of Geodrill Ltd <GEO.TO>, a small
contract driller that works with companies in West Africa, was more
upbeat.
There has been some consolidation in the region recently. For
example, Geodrill customer Ampella Mining Ltd <AMX.AX> agreed to a
friendly takeover bid from Centamin PLC <CEY.L> in January. And
Harper said exploration often accelerates after such deals, though
it is too early in the year to conclude too much.
"We're seeing a reasonable amount of bidding activity," he said,
making a contrast with the second half of 2013.
Harper added that the jobs available are reasonably large. "They're
not small, keep-the-concessions, keep-the-lights-on kind of
drilling."
Even so, the rates charged by drilling contractors are down, and
that will likely cut into their earnings even if activity does pick
up.
Topping, at Wolfden, said contract drilling costs are down more than
50 percent, all in. Harper said the average decline has to be
smaller than that, but noted that in some cases his rivals may be
willing to "buy work," accepting very low prices to hold on to
contracts through the tough market.
BY THE NUMBERS
The Reuters survey was conducted online and on the phone. A random
sample of Toronto Stock Exchange and TSX Venture-listed mining and
exploration companies were asked to participate.
Companies were asked whether they expected to drill in the following
12 months, and whether they had an active drilling program in the
previous 12 months, and 65 of them shared their drilling plans.
The difference between the number of companies that said they
planned to drill and the number that said they had actually drilled
in the previous period is accurate plus or minus 15 percent, 19
times out of 20.
(Additional reporting by Nicole Mordant
and Julie Gordon in Vancouver, Cameron French and John Tilak in
Toronto and Rod Nickel in Winnipeg; editing by Peter Henderson,
Jeffrey Hodgson and Peter Galloway)
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