Who Will Be The Partner Of Choice For Gold Explorers With Great Discoveries

Exploration is the foundation for long-term supply chains in metals. Without exploration success in gold, silver and copper, the supply chains will stay broken. 

The result is not enough; development projects, small high-growth miners and mid-tier miners. This will cause major miners to struggle with increasing their production. They are already challenged to replace their old mines with new mines.

The exploration segment of the mining sector is the most underloved and highest maligned segment. Yet, they are the most crucial key to the long-term supply chains. 

Exploration is hard, the well known mining jurisdictions have been picked over with fine tooth combs for decades, some as long as a couple hundred years. This requires the explorers to look for deeper deposits and go into less well known mining jurisdictions.

To have exploration success has never cost as much or taken as long as it does now, that will continue. 

The explorers need visionary investors that give the explorers the funding and time needed for exploration success.

Significant long-term swings in the price of gold, silver and copper causes funding to ebb and flow, which makes funding exploration incredibly challenging. Investors tend to invest in explorers with very short-term timeframes (often measured in days) that need serious investors that are forward-looking.

This dichotomy is a key reason why the long-term supply chains for the key metals we focus on are broken. They have been broken for decades and it will take decades to fix them.

The major miners need exploration success. They have slashed their exploration budgets for many years and dismantled their exploration teams a long time ago.

When the majors open up their checkbooks for takeovers, it does nothing to improve the long-term supply chains, it merely moves mines and development projects from a smaller company to the majors.

In the past, there used to be more mid-tiers and small high-growth miners. During the 2001 to 2011 gold and metals bull market, the majors took over many of the mid-tiers and small miners. 

They decimated this segment of the industry. But, they were an important player because they were focused on projects that don’t move the needle for the behemoth mining companies. Putting further pressure on the exploration side of the mining industry as they would help the explorers with funding.

Without enough investment in the smaller players, it has caused long-term pressure on the entire supply chains from the miners down to the explorers.

These factors are going to result in a trend that I see in the early stage of evolving. As larger miners and wealthy investors with bullish long-term outlooks make strategic investments into the explorers with high-quality discoveries.

The big league teams will have issues if there aren’t strong farm teams, especially if there are injuries during the season. I see a tremendous opportunity for the majors to become the partner of choice for the smaller players. 

Challenges always create opportunities for significant investment gains. The exploration side of the mining business is definitely challenged. At a time when due to powerful demand and weak supply will drive the prices of gold, silver and copper much higher. Then the shareholders of majors will be asking about where the production growth will come from.

This reminds me of back in the 1990s when Diamond Fields found the incredible Voisey’s Bay nickel deposit. In the early days of the discovery, Teck made a strategic investment into Diamond Fields. 

The Voisey’s Bay project kept on getting better and better as Diamond Fields continued drilling. It caught investor’s imagination driving the stock price from under C$5.00 per share to over C$100.00 per share.

Ultimately, Diamond Fields CEO, Robert Friedland, did a masterful job of selling the company to Inco for over C$4 billion with the stock price in the takeover of C$174.00 pre-split.

Teck didn’t get to buy the Voisey’s Bay mine, but they did make hundreds of millions from their strategic investment. 

This goes to show how lucrative strategic investments can be, when investing into explorers early, when they have an impressive discovery. Back then it was a brilliant move by Teck to invest in Diamond Fields.

Now we have a fantastic setup for majors and high-net-worth investors to take advantage of the lack of love for explorers. It’s a no-brainer.

All the best,

Allan Barry Laboucan

Disclosure

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