The following has been included herefor your information and as reference material.
Many people think the mining business requires enormous chunks of capital. That's true enough of the industry as a whole, but there are obviously some parts of it that fit the humblest budget. One need only imagine the classic sourdough prospector with his burro, a miner's pick and a side of bacon.
The early stages of exploration don't require a vast affay of capital. The trouble is that each later stage of the business ups the ante by a multiple of 10. You can wander about for a year on $10,000. If you find a piece of dirt that looks interesting, you can stake the claim and nail down an option for another $10,000. or so.
Then, in order to get some rough idea of the quality and extent of the ore you think you've stumbled upon, you may have to spend as much as $100,000. At that point you should know if you have made a mistake, or if you have come up with enough evidence to entice some big time operator to come in and take over the property.
Here is where the game begins to warm up. You will have noticed that it takes about
$100,000 to bring a property to the point where it justifies a thorough
geological analysis. What is a large mining company willing to pay to take a
crack at such a property? The average experience in the gold exploration business is this: You have to acquire 20 properties in order to find one that's worth taking beyond the preliminary drilling stage. If the industry average is an expenditure of $100,000 per property in the initial investigation, the industry is paying an average of $2 million for a piece of property that justifies a closer look. What it spends thereafter will depend on many factors, but that's where the high rollers play: for example, Homestake Mining invested $200 million in the pre-production development of the great McLaughlin property in Northern California.
But I'm concentrating on the exploration phase right now. The trouble with many young exploration companies is that they get delusions of grandeur when they find a nice hole in the ground. They begin to dream of producing gold, so they commit themselves to spend far more money than they should reasonably devote to one project. Far too often, their reward is bankruptcy. One of the major operators takes over, leaving the founders and finders pretty much out in the cold.
Clearly, if you could set up an exploration program that would bring in a nice prospect for every IO properties you acquire, yotfd be "producing" good property for one-half the industry's average cost: for $1 million instead of the $2 million the industry is willing to pay. You could set up a production line of properties, selling the winners for $2 million each, and moving on to new fields.
How can you find these potential properties? They will probably be in the gold belt or base metal camp if your interest is in metals. You should get together with some of the most talented and illustrious geological consulting people and arrange to have them snoop around on their own time, when they're in the field after they've completed their missions for major mining operators. Their expenses are paid for, they are in known gold-bearing areas and they may be able to turn up something without much expense.
As you may expect, I'm not just whistling Dixie. There actually was I a company that has set up a system of this kind, and since 1976 or so it has been turing up properties at the rate of one in IO. As I write, * * * Resources, listed in Vancouver, is raising 51 million for ajoint venture which will fimction exactly as I have just described: acquiring properties, doing enough preliminary investigation to make them worthwhile to some major operator, and then letting the major take over. ***'s reward is negotiable, because the mining industry has more substitutes for cash than Brazil. There are producing interests, percentages of gross revenues, percentages of net smelter rectums, percentages of net income, and on and on. That's not the point. The point is that $1 million was put up by the capital partner, *** managed the program, 10 properties were developed, and one was sold for $2 million.
The entire business program entails three visits to the fountain of capital. After the first project has panned out nicely, a second $1 million should be forthcoming on pretty much the same terms. Then, after the second project has proven successful, a third million will complete the cycle. By then * * * should have enough capital to take a 50 percent interest in all further ventures and developments...
Long term View
It is worth noting that this kind of speculation is largely immune to changes in the price of gold. Granted, if gold dropped to zero, there would be little point in looking for gold properties. But * * *'s business plan will work whether the price of gold is $325 or $225; at the lower price there are simply fewer properties that can be worked at a profit.
They can still be found, though, and brought to the point of further development. Major mining operators typically take a very long-term view in such matters. A gold producer knows that gold will always be in demand and will not be deterred from acquiring new properties that can simply be inventoried until the market factors are more favorable...
By William F. Rickenbacker, February 1985; Reproduced from Private Practice Magazine
Note:
The company above was Brican Resources Ltd. Name was changed May 1991 to International Brican Resources Ltd. Name was changed again to C & E Furniture Industries Inc. in February 1992. The company held passive interests in mining properties and was not involved in exploration at that time.
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