The junior resource business is a bit odd. You begin with a piece of “prospective” ground and end up, after spending what is usually boatloads of money, with a mine. You hope.
So the first question is what the devil is prospective ground and how does a junior resource company find it? (I am going to confine this piece to Canada but the process is similar in most jurisdictions.) In many cases, the ground is initially prospected and staked by either a solo prospector or a project generating company. Bernie Kreft’s private Kreftco is a good example of a company which specialises in looking for potential mineral deposits, staking them and then passing them along to junior resource companies for exploration. (For which Bernie gets lots and lots of shares and a bit of cash…Looking at where he explores, he earns it. The X feed linked is a huge guide and also a hoot.)
A lot of “prospecting” takes place in the library. There are Provincial and Federal Geological studies which cover virtually all of Canada and often identity not only general geological features but also areas in which mineralization has been found. Historical accounts of mines and placer operations are a fruitful source of prospecting ideas.
My friend Philippe Cloutier (Cartier Resources, ECR.V) began his exploration of the Cadillac project knowing that there was a past producing mine named Chimo on the project with a deep, flooded, shaft and workings. Peter Bell (Kermode Resources, KLM.V) and his prospecting partner Justin Devaulux knew that Mt. Sicker, just outside Duncan, had been the location of at least four operating mines which chased veins of high grade copper into the mountain.
Fun presentation from Peter, very early stage exploration:
Two “old geo” maxims come to mind: “The best place to find a mine is in the shadow of another mine’s headframe” and “placer mining is a strong indicator for hardrock gold”.
Of course, Bayhorse Silver (BHS.V), skipped the prospecting/exploration/development process altogether. Graeme O’Neill bought an existing, but abandoned, mine with the intention of rehabilitating it and getting down to mining. (It turned out that the mine was a huge indicator of significant exploration potential in the surrounding area.) Down the Snake River, Chris Price at Hercules Silver (BIG.V) staked land where there had been silver mines extracting silver from what is known as the Bayhorse rhyolite structure. It was more than a little flukey that BIG drilled into what looks like a full blown copper porphyry.
Securing prospective ground is the very earliest stage of the exploration process. Exploration covers a range of activities from mapping, soil sampling, rock sampling, trenching and drilling. But the process has a specific end goal: determining if there is an economically viable deposit. The proverbial old timers would find a surface outcrop of a valuable mineral and, more or less blind, mine their way into the side of mountains chasing what they hoped was the vein.
The modern exploration process is about delineating a “resource”, which is a defined term under National Instrument 43-101. The toy model of this would be doing the work necessary for a professional geologist to certify that there were “x” tons at “y” grade of mineralization in a specific location. “Exploration” uses a combination of tools to see if there is enough mineralized rock at a high enough grade to, potentially, justify a mine. How much is enough? Mineral Resource Estimates speak of Indicated and Inferred Resources, Indicated being more certain and more valuable. But they also use a concept known as cutoff grade, which bring the actual value of the mineral into the equation as well as an estimate of the mining costs. A cut off grade of say 2 grams per ton gold means that only rock with 2gpt AU is included as a resource. Cutoff grade is deeply dependent on the value assigned to the mineral. For example, Cartier, in its 2022 MRE, used cutoff grades of 2 gpt and 1.5 gpt and assumed a gold price of USD $1612. Those figures might change a lot in a $3300 per ounce gold environment.
We typically think of exploration in terms of drilling but most companies will use various technologies, IP, VTEM and others, to try to identify anomalies to target. Where are the “blobs”? Drilling is expensive, $100+ a foot and up, so you are wise to identify the best targets. Of course, in some cases, the targets oblige by outcropping at surface, giving a company a solid place to start. But an outcrop is just that. Whatever is outcropping will have direction and dimensionality underground. Having at least a hint of the shape of the potential deposit can save a lot of drilling dollars later.
The transition from exploration to development is sometimes seen as the filing of a 43-101 Preliminary Economic Assessment (PEA). In grossly simplistic terms, a PEA takes the MRE and outlines the economics of a potential mine. Including the Net Present Value of the resource based on reasonable economic and engineering assumptions. A PEA is far from the final word. Rather, it is an indicator of what, given the present understanding of a deposit, it would take to put a mine into production.
On the way to a PEA there is usually a good deal of discussion about “de-risking” the project. How widely spaced are the drill holes upon which the MRE is based? 100 meter spacing leaves a lot of undrilled rock to be guessed at. Dropping a hole between holes 100 meters apart reduces the uncertainty and therefore the risk. As well as drilling to determine grade and define the dimensions of a deposit, companies often do preliminary metallurgical work to assess recovery potential.
The PEA gives a “first cut” at the economic viability of a project. It may also outline the work necessary to improve the MRE both in total ounces/tons and in indicated versus inferred resources.
The distinction between exploration and development is fluid but when a company has 43-101 compliant MRE and is on the way to a PEA it’s fair to say it is developing its resource. Development “officially” begins when a company begins the feasibility work on its project - permitting, engineering, and environmental studies. Exploration is about potential, while development is about realization.
(Disclaimer: I hold shares in Bayhorse, Hercules, Cartier and Kermode. I may buy or sell at any time. This is not investment advice. Do your own due diligence. Call the CEO.)
Appreciate the brief primer, Jay.