As a former Inco Ltd. geologist who learned his trade by exploring for minerals across Canada, Greg Beischer has experienced much of what the cyclical mining business has to offer.
As bad as things are for large sections of the junior resource sector, the
Millrock Resources Inc. (
TSX: V.MRO,
Stock Forum) Chief Executive Officer said life has rarely been better for companies like Millrock, which have money in the bank and a large portfolio of exploration properties to choose from.
“My only wish is that we had more money because I would invest more of it,’’ he said during a recent interview with Stockhouse.
Due to financial challenges facing the exploration sector, analysts say over 60% of the companies on the TSX Venture Index have less than $200,000 in the treasury and many juniors are having to abandon their claims or sell them off for pennies on the dollar.
“That presents a tremendous opportunity for companies that want to build out their property portfolios,” said Beischer. “So that is what we are doing now because it’s the right time to invest for companies that follow our business model,’’ he said.
Millrock finds itself in this somewhat fortunate position because Beischer and Millrock co-founder Philip St. George opted to use a strategy known as the project generator model when they launched the company back in 2007.
It is a business model that has enabled Millrock to assemble a large portfolio of properties in the United States and Mexico and attract exploration financing from some of the world’s leading mining companies including First Quantum and Teck.
Having recently raised $4 million from a private placement financing, the company is engaged in a strategic alliance with an unnamed major gold mining company in Alaska. The aim is to deliver viable exploration programs on key properties in that U.S. state.
And, at a time when other companies are struggling just to keep the lights on, Millrock is looking forward to launching a $2 million drilling program on one of its flagship Alaska properties.
First Quantum Minerals Ltd. (
TSX: T.FM,
Stock Forum) will not only fund the program in order to earn an interest in the Alaska Peninsula property, it will also allow Millrock to run the drill program and receive a management fee, paid by First Quantum, for doing so.
During a telephone interview with Stockhouse on July 3
rd, 2015, Beischer said he expected drilling to begin in the next two weeks.
THE PROJECT GENERATOR MODEL
Project generators like Millrock attempt to increase their chances of making a big discovery by advancing a number of projects using funding from joint venture partners, who agree to pay for the exploration.
The model enables the project generator to de-risk exploration by accessing capital from partner companies to fund the high risk and expensive phases of exploration.
For Millrock, it means only spending shareholders’ money at the earliest stages of exploration and mineral acquisition, which are relatively inexpensive in comparison to drilling, the company has said.
Typically, a project generator has multiple projects partnered with multiple partners at any given time.
The operator can be either the project generator or the partner, but Millrock says it prefers to act as the operator, because by doing so, it earns a management fee on all work completed.
This fee, as well as option agreement payments, help offset the company’s overhead and results in a lower cash burn rate.
The project generator can also earn revenue if the partner makes cash payments in the form of option agreement payments and management fees, or in the case of a junior company, share issuances to complete the earn in.
Project generators create value through share price appreciation, by spinning the project out to a new company or through a buyout or takeover.
WHY INVEST IN PROJECT GENERATORS?
Investors tend to do so because they understand that searching for a deposit and actually building a mine is a long, difficult, risky and extremely costly exercise and the journey can take many years, and many millions of dollars, sometimes tens of millions, of dollars.
As noted recently by newsletter writer Rick Mills, people who invest in project generators are taking a shrewd, business-like approach to maximizing their exposure to many different quality projects that offer the opportunity for a high return on invested capital, while at the same time preserving the original ownership interest.
The model has been used successfully by
Altius Minerals Corp. (
TSX: T.ALS,
Stock Forum), a company that was founded in 1997 and currently has royalty interests in 12 producing assets, including five coal mines and six potash mines in Western Canada. It also has a royalty stake in the Voisey’s Bay nickel-copper-cobalt mine in Labrador.
Collectively, these royalties generated approximately $31 million in the 2013 calendar year, and are expected to generate a similar amount of revenue every year for the foreseeable future.
The key to success in the exploration business is gaining access to as many exploration projects as possible, and Millrock provides that opportunity. The junior currently has eight active projects in Alaska, one uranium project in New Mexico and 11 in Mexico.
NORTH TO ALASKA
Beischer moved to Alaska in 1995 when he was working for Inco as the exploration manager of western North America and has stayed ever since.
As a seasoned geologist, he likes what Alaska has to offer as both a place to live and a place to explore for minerals.
“It’s a fantastic frontier and I was attracted by the mineral potential,’’ he said. “I remember the first summer when I got to Alaska, the first crew that I was going to be in charge of were already out in the field and finding nickel showings that no-one had ever seen before.’’
Indeed Philip St. George, the company’s chief exploration officer, led the Cominco team that drilled out the initial 500 million tonnes of the gold-copper-molybdenum mineralization that is now better known as the massive Pebble deposit.
“It is truly one of the largest metal accumulations anywhere in the world,’’ Beischer said.
St. George also played a leading roll in the discovery of the Dolin Creek project (also located in Alaska) when he was vice-president, exploration at
Novagold Resources Inc. (
TSX: T.NG,
Stock Forum) from 1998 to 2003.
It now ranks as one of the largest gold deposits in North America, with 39 million ounces in measured and indicated resources.
The deposit type that Millrock is seeking at its Alaska Peninsula project is the same as the one that gave rise to Pebble, although the company wouldn’t necessarily need to find something that large for it to be economically viable.
“The aim is to find a moderate sized, high grade porphyry gold-copper deposit,’’ said Beischer. “That is the objective.’’
The Alaska Peninsula project covers 203,000 hectares. It is located in a region that is prospective for copper-gold-molybdenum systems and other intrusive-related deposits such as polymetallic skarn, and replacement deposits, base metal veins and epithermal gold deposits.
“Although all these styles of mineralization have been documented in this region, little modern exploration has been done and the region remains open for exciting new discoveries,’’ the company has said.
This is due in part to the harsh climate and challenging topography.
When drilling begins at Alaska Peninsula this summer, exploration crews will follow up on last year’s $600,000 program, one that included sampling, geochemical mapping, prospecting and airborne magnetic surveys. It was executed by Millrock with the participation of First Quantum geologists in July and August of 2014.
In return for funding the exploration program, Millrock granted to First Quantum an exclusive right to enter an option to joint venture agreement, whereby it could earn up to an 80% interest. First Quantum has advised Millrock that it will exercise its right to enter the option agreement.
“The results of the initial exploration program are quite encouraging and we look forward to testing the drill targets that emerged from the program in 2014,’’ said St. George.
The program this summer will be comprised of 2,000 metres of drilling and Millrock expects to receive 10% of the cost of the program, or $200,000, for its efforts.
It will target areas known as Dry Creek and Mallard Duck Bay.
Beischer estimated that it costs about $1.2 million to cover the annual cost of running Millrock, and that management fee will help to offset those costs. “If you have four or five projects like that, you can really extend out the time when you might need to go back to the market to raise money” he said.
Millrock has another Alaska project, which is ready to drill as soon as it can find a partner to fund the work. It is located in the Valdez Creek Mining District in the Central Alaska Range (300 kilometres north of Anchorage) and is considered prospective for bulk-mineable copper/gold deposits, including porphyry copper/gold, skarn and intrusive-related gold.
Meanwhile, in Mexico, Millrock recently said exploration work on its Los Chinos project in Sonora, Mexico has provided indications of a large gold mineralized system.
The company says it plans to advance the project through additional prospecting, mapping, soil and rock sampling.
In keeping with its project generator model, the company said it is seeking earn-in partners to share the risk of advancing this early stage gold project.
The company has two projects that are ready to drill in Mexico; the Rio Sonora and Guadalcazar. Millrock is targeting an oxidized precious metal-bearing polymetallic skarn deposit at Guadalcazar, which is located in central Mexico about 85 kilometres northeast of the city of San Luis Potosi.
The target at Rio Sonora is a “world class” porphyry copper/molybdenum deposit. Rio Sonora is located in Northern Sonora, and covers 35,535 hectares. Millrock has said it remains unaware of any modern exploration efforts on the property prior to 2009.
Meanwhile, back in Alaska, the strategic alliance with the unnamed gold company will take a step forward as the partner’s geology team joins Philip St. George to look at projects that Millrock has generated. The hope is that one of those projects will prove sufficiently attract to convince the gold company to sign an option agreement
Millrock is on the verge of buying a large database that used to belong to AngloGold Ashanti. The purchase will be funded by Millrock’s strategic partner.
“It will give us the best possible database for the Pogo area of central Alaska” Beischer said. The region has already given rise to one large gold mine, now owned by Sumitomo Metals of Japan. “There should be lots more.”
FULL DISCLOSURE: Millrock Resources is a Stockhouse Publishing client.