As a general rule, the most successful man in life is the man who has the best information
Many of the world’s largest mining companies use to have a strong presence in British Columbia – they left in the 1970’s after the political landscape changed. Today’s provincial Liberal government has been trying to remake B.C. into an investable and attractive place for the mining industry to do business again.
“The mining industry is a cornerstone of our provincial economy. Right now there are hundreds of exploration projects underway across B.C. injecting millions of dollars into communities and creating jobs. “ BC Premier Gordon Campbell, Liberal
Vancouver BC is undoubtedly one of the greatest mining centers in the world and British Columbia should be a mining powerhouse, consider:
British Columbia – like much of the rest of Canada – faces three challenges regarding our natural resource extraction industry:
BC’s Liberal government has tried to balance the need for resource extraction and livelihoods against conservation by establishing 57 new parks, 143 conservancies, one ecological reserve and nine protected areas since 2001. Currently 14.26 per cent or 13.5 million hectares – the most of any Canadian Province – of B.C.’s land base is under some form of provincial, federal, local or conservation designation. The provincial goal was 12%. With the recent – and uncounted in my total – addition of the Flathead Valley in South Eastern BC these numbers will rise.
I’d like to take a moment to address two specific cases where the exploration for mineral resources and or the development of a mine has been stopped in BC. Besides the fact there’s definitely two sides to every story – with the truth falling somewhere in the middle – there’s a common theme that runs through both stories.
Tatshenshini – The Windy Craggy Experience Mary Page Webster
http://oldfraser.lexi.net/publications/forum/1998/january/cover_story.html
http://www.docstoc.com/docs/30053532/Windy-Craggy-A-Retrospective
Flathead Valley – Flathead Valley Controversy
http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=97890&sn=Detail
http://www.cim.org/bulletin/bulletinlive/articles.cfm?Issue_ID=977&row=6&Type=1&Segment_ID=33
The overriding commonality between the two situations is outside pressure on the BC provincial government of the day and that it might not be unreasonable to believe that there are places where resource extraction should not take place.
But we need to balance the needs of our communities for good jobs, hospitals and schools today, against the need to protect the areas we find special and would like to pass on to our children and their children for them to enjoy tomorrow and the day after.
Fortunately British Columbia is mineral rich and hugely underexplored. The province has a mining friendly government that recognizes the importance of a vibrant mining industry to individual communities, our First Nations and the province as a whole and is actively working to make BC a better place to do business.
BC is recognizing the need to accommodate First Nations who have a territorial interest in an area where a mine is proposed. Land claims of the First Nations remain a stumbling block in many areas – perhaps in part because so many claims overlap – but First Nations are now coming to understand and embrace resource development as a way to generate training, jobs and financial security for their people and their communities.
In 2006 the mining industry was the largest employer of Aboriginal peoples in the country, 7.5 % of the workforce was Aboriginal and in BC the mining industry is the largest private sector employer of First Nations workers in the province.
BC’s provincial government and mining companies are talking to First Nations about revenue-sharing (at no cost to the mining community), social issues, jobs and training within the aboriginal community. And while things aren’t always as smooth as we would like dialogue is taking place and things are getting done – projects are moving forward.
“Governments can stimulate an economy in three ways: through tax cuts, increased spending, or streamlining regulation to allow business to create growth. Of these, streamlining of processes and smart regulation have the least impact on the bottom line. Therefore, we encourage government, as part of its review of expenditures, to consider refocusing on reducing red tape for the natural resources sector.” Gavin C. Dirom, President & CEO, Association for Mineral Exploration British Columbia (AME BC)
The largest cut in red tape could come from dropping the duplication of process in regards to environmental assessments. B.C. has taken the position that the province’s own process already takes into account the responsibilities of the federal government and that doing a second duplicate federal review forces a company to spend more money and time on needless duplication of process.
There are roughly twenty-six mining projects in BC somewhere in the permitting or environmental assessment process that are being unreasonably delayed because proponents must often duplicate their work, first going the provincial route than waiting while the federal government does an almost identical review – with no time limit on the Federal review like BC has on theirs – that’s billions of dollars tied up because of an environmental permitting process that is needlessly redundant. The bottom line is BC can do its own review – unlike many other provinces and territories – and should be allowed to do so.
The most recent Federal budget includes a promise to strike a “Red Tape Reduction Commission” to review federal regulations with a mandate to suggest reforms in various processes.
“When we reduce red tape we increase productivity, profitability, wages and living standards. B.C. has shown political leadership in addressing this problem and I know the small business consultations and form redesigns will go a long way to furthering this momentum.” Laura Jones, western vice-president of the Canadian Federation of Independent Business who ranked B.C. first in a cross-Canada survey of leaders in regulatory reform.
BC is taking the lead in regulatory reform, conservation and dialogue with First Nations and significant progress is being made. There are numerous large projects that have recently gone through the environmental process, the process as is, does work – it’s just the duplication that presently exists makes for a slower and more expensive timeline:
Mining Facts:
Government Support for mining
“The federal government has announced its intention to remain fiscally prudent while continuing to support the world-class Canadian mineral exploration and development sector.” said Gavin C. Dirom, President and CEO of AME BC.
Federal and Provincial Government support for the mining sector comes in the form of:
“This three-year tax credit extension will help bring more certainty to the minerals sector and ensure B.C.’s mining industry remains globally-competitive and attractive to investment.” Premier Gordon Campbell, Liberal
In 2001, the Province introduced the Mining Flow-Through Share Tax Credit to provide a 20 per cent tax credit for grass roots mineral exploration. Flow-through shares allow exploration companies to pass eligible Canadian exploration expenses to investors. When combined with a similar federal tax credit, the flow-through tax credit helps to reduce the cost of a $1,000 investment to approximately $380.
The Province has also eliminated the capital tax and the proposed introduction of the HST will increase the savings from the current sales tax exemption for mining machinery and equipment by eliminating all sales tax currently paid on mining inputs when fully implemented.
“British Columbia is a world centre for mining and mineral exploration. We host over 1200 mineral exploration companies in BC, and thousands more companies are involved in providing services to those companies. We must stay competitive with similar mining jurisdictions around the world such as Ontario and Western Australia, both of which now have an HST-style tax.” Gavin C. Dirom, President & CEO, Association for Mineral Exploration British Columbia (AME BC)
BC Mining Tax Credits
In BC a mineral exploration company can raise equity funding in one of two ways, each of which is tax advantaged. These types of share issues are normally referred to as hard dollars or soft dollars.
Hard dollars come from non-flow-through stock that is issued, usually at market price or at a slight discount. Hard dollars can be spent on all capital expenditures including exploration, office expenses or promotion. If the hard dollars are spent on exploration, a company will get 20% of that amount back from the provincial government through the Mining Exploration Tax Credit (METC), and if the exploration is in a pine beetle kill area that credit jumps to 30%. Most of BC is now classified as in the pine beetle kill area, so the majority of companies now get 30% of qualifying exploration expenditures back. This tax credit is usually paid three to six months after the claim is filed. The remaining after tax credit amount of 80% or 70% is added to the company’s Canadian Exploration Expense (CEE) pool to be used for future tax sheltering which has an advantage of never expiring and is 100% deductible against any capital gains in the future.
Soft dollars come from issuing flow-through shares to investors. The continuation of the BC Mining Flow-Through Shares Tax Credit (BCFTSTC) and the Federal Investment Tax Credit is intended to help companies raise capital for mining exploration by providing an incentive to individuals who invest in flow-through shares issued to finance exploration. The program only applies to preliminary mineral exploration activities conducted from ground level or above ground level. Expenses for underground exploration or for the purpose of bringing a mine into production are also excluded.
A company can issue flow-through shares at a premium to the market price, preserving their capital structure with less dilution, since buyers will end up getting tax savings and credit from the purchase. The company can only spend this money on exploration in Canada, nowhere else, and it must be spent within a limited period of time. For the privilege of issuing stock at above market prices, all the exploration expenses flow through to investors and the company does not get any tax credit money or CEE tax pools.
Geoscience BC
http://www.geosciencebc.com/s/Home.asp
The Province of British Columbia is very progressive when it comes to mineral exploration. In 2005, the province implemented online staking – saves exploration companies money and time by allowing ground to be staked on the internet instead of boots on the ground.
The budget also allocates $12 million over two years to Natural Resources Canada for renewal of the Targeted Geoscience Initiative, with a focus on developing new ways of exploring for deeper mineral deposits.
The province also created – in 2005 with a $25 mm grant – an organization to put money into grassroots exploration in BC. Geoscience BC is an industry-focused organization with a mandate to encourage mineral, oil and gas exploration investment in British Columbia through the collection, interpretation and marketing of publically available, applied geoscience. Subsequently, almost $12 million has been given to Geoscience BC to spend on grassroots mineral and oil & gas projects.
Geoscience BC puts money in the ground by funding regional airborne surveys and soil sampling projects. Geoscience BC’s QUEST Project in south central BC, covered the Cariboo Region and included an airborne electromagnetic (EM) survey, an airborne gravity survey and the collection of 2,200 new geochemical samples. Projects such as this help exploration companies identify targets and do grassroots exploration that would have been too expensive and high risk to undertake previously.
Gold, Copper and Gold
“What really bothers me is that in the 1980s or 1990s, we saw three to five discoveries of 5 to 20 million ounces each, and upwards of 30 to 50 million ounces a year. That is what makes or breaks the industry. There are no discoveries of that magnitude now.” Pierre Lassonde a veteran gold analyst, co-founder/chairman of Franco Nevada Mining Corp., acting chairman of the World Gold Council, and former president of Newmont Mining Corp. For The Gold Report www.aureport.com
Each year the mining industry must come up with a major new gold discovery of five million ounces just to replace what one of the world’s top gold miner’s digs up.
“In the case of gold, the world is currently mining it faster than it is finding it. Furthermore the average size and grade of gold discoveries continues to decline.” Richard Schodde, Managing Director of MinEx Consulting
Mining is the story of depleting assets, that asset must be constantly replenished; miners that want to stay in business must replace every oz taken out of the ground and there isn’t a lot of the larger size gold deposits left to find or buy that would really affect most of these larger company’s bottom lines. Replacing what they’ve mined let alone finding more productivity/resources is getting harder and harder.
In BC Porphyry Copper/Gold Deposits are becoming increasingly important in the global quest to replace declining gold production.
Porphyry Copper/Gold Deposits
Porphyry copper deposits are copper orebodies which are associated with porphyritic intrusive rocks and the fluids that accompany them. Porphyry orebodies typically contain between 0.4 and 1 % copper with smaller amounts of other metals such as molybdenum, silver and gold.
In Canada, British Columbia enjoys the lion’s share of this type of deposit, and they contain the largest resources of copper, significant molybdenum and 50% of the gold in the province.
There’s a very real trend by the major mining companies towards making deals with the junior resource companies that presently own copper/gold porphyry projects in BC.
Because large pure gold deposits are so hard to find – the low hanging fruit has already been picked – gold miners are turning to deposits that contain other metals like copper.
There are two factors that make these kinds of deposits so attractive – firstly by focusing on profitability and mine life instead of solely on grade your other inputs of scale/cost can offset the lower grade and this results in almost identical gross margins between high and low grade deposits. Low grade can mean big profits for mining companies.
The second factor affecting profitability of these often immense deposits is the presence of more than one payable metal. For gold miners using co-product (copper) accounting the cost of gold production is usually way below the industry average.
Copper-gold porphyries can offer both size and profitability. These kinds of deposits are one of the few deposit types containing gold that have both the scale and the potential for decent economics that a major mining company can feel comfortable going after to replace and add to their gold reserves.
Conclusion
Mining Deals 2009 Annual Review
Tim Goldsmith
PricewaterhouseCoopers
As the mining industry returns to British Columbia, they will find that many of the best prospects are held by small exploration companies. Consider this – these juniors are the present owners of the world’s future gold and copper supply. They are the companies who explore for, find and develop deposits to the point where they hopefully attract a major’s attention. And the majors need them more than ever, they need them to explore for and find gold, and they need them so they can purchase them or their projects to grow their reserves and production.
“There’s a lot of money around looking for a home, and some of these exploration vehicles with successes are great candidates.” John Ing, President, Maison Placements
The resurgence of mining and the possibility of further M&A activity within the Province of British Columbia should be on every investors radar screen.
Is it on yours?
Richard (Rick) Mills
[email protected]
www.aheadoftheherd.com
If you’re interested in the junior resource market and would like to learn more please come and visit us at aheadoftheherd.com
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Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald and Financial Sense.
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard (Rick) Mills does not own shares of any company mentioned in this report.
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