MANY of the current generation of junior gold explorers are not delivering the goods compared with their 1990’s counterparts and a big reason is the attitude of investors backing those juniors listed on London’s Alternative Investment Market (AIM).
That’s the view of Randgold Resources (RRL) CEO Mark Bristow who points out this situation has developed just as business conditions move increasingly in favour of Africa as an exploration destination.
He says one important reason for the move into Africa is growing investor unease about the changing political and regulatory environments in a number of South American countries like Venezuela.
Another is the fact that mining majors such as Newmont, BHP Billiton and Barrick are now operating successfully in African countries like Ghana, the Democratic Republic of Congo (DRC) and Tanzania.
"Newmont is now Randgold’s greatest competitor when it comes to exploration in West Africa. That helps me because some 65% of Randgold’s shareholders are long-term value investors. That kind of investor likes it that heavyweights such as Newmont are operating in the same areas as us," Bristow said.
RRL is stepping up its exploration spending on the belief that the best way for any mining company to add value for its shareholders is either to find a viable new project or to buy projects for cash instead of issuing new equity, he said.
Bristow maintains the Toronto Stock Exchange (TSE) is the best place for an exploration company to list and raise money. He comments; "Toronto has the best mining analysts in the business and Canadian investors understand the exploration and mining game.
"When you report a bad quarter’s results the investors and analysts in Canada understand why. In London, they go into a flat panic."
Bristow says many AIM-listed junior explorers are being forced into proving prematurely that they will develop a viable mine. "The AIM market is forcing exploration companies to tell investors that they will produce a mine otherwise they will not get the funds they need. The UK investors may understand mining but they do not understand resources."
Bristow picks out Moto Gold Mines (listed on the TSX, ASX and AIM) along with Banro Corporation (listed on Amex and TSX) as two companies which are operating the way junior explorers should. Both these companies are exploring for gold in the DRC.
"I am not making any judgement on what they have but both these companies are raising money from investors and spending it on building up their resource positions. They are producing a steady stream of drilling results," he says.
Bristow points out that one of key ways in which a junior explorer can create value for its shareholders is through being taken over by a mining major.
He says that an exploration company with a large resource position is a far more attractive target than one which has effectively stopped exploring in favour of proving up reserves to build what would be a small mine.
"You have to spend part of your exploration budget in high risk areas. That’s where the juniors can really deliver value, " Bristow says noting this is one of the reasons why RRL is expanding its operations in Cote d’Ivoire where it already has found a 3,1m oz resource at Tongon.
Bristow says he expects the merger and acquisition activity in the gold sector to continue over the next year. He quips that; "there’s a real chance that RRL itself could become a target. I don’t mind being an expensive target for the big boys and the last thing I want to be is a cheap target. But what I would really like to do is find another big gold deposit because then RRL will become one of the big players."
But Bristow maintains that merger and acquisition activity usually offers only "temporary relief" to shareholders and it is exploration that creates real value.
"The big guys running around playing Pac Man have not really added value in terms of resources per share. When you put two exploration programmes together, you often get a situation where one plus one equals less than two. After Barrick took over Placer Dome most of the Placer Dome geologists left."
http://www.miningmx.com/gold_silver/682025.htm
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