Junior mining is a risky business—one that demands huge capital expenditures that, in all likelihood, will not produce a mine discovery. It seems like the kind of business that would attract mavericks and thrill-seekers, but the companies that survive in this field are the ones with patience, determination, and a sense of balance steering them forward.
The demand for base minerals has spurred good times for the exploratory mining sector over the last five years.
Ottawa-based Beaufield Resources, Inc. seems to have found these qualities in its longstanding president, Jens Hansen. Hansen has been behind the company since its incorporation in 1986—first as an investor and consultant, and then, after Beaufield’s near brush with bankruptcy in the early 1990s, as a director and eventually as the president. He has been behind the helm ever since, building the company’s credentials after its stock value crashed to mere pennies.
Hansen admits the company is “not quite there yet,” as its stock hovers around $0.16, but the continued growth of China and India, and the resulting demand for base minerals has spurred good times for the exploratory mining sector over the last five years.
PICKING UP SPEED
For Beaufield, that has meant kicking key exploration programs into high gear after years of Hansen’s cautious approach to building a strong cash position. In the three-month period ended May 31st 2011, Beaufield invested $2.5 million in exploration projects, as compared to $545,160 in the same quarter last year. The president is confident that his strategy has helped set Beaufield up for success.
“I think of any of the small junior-mining companies in Ottawa…I think we’re in the top 1% or 10%. There’s no doubt in my mind that from an ability viewpoint and from a property viewpoint that we’re maybe not the best, but certainly right at the top in small companies, whether it’s in Ottawa or whether it’s anywhere,” he says.
Beaufield’s strategy is to acquire exploration properties adjacent to well-known active mines, in the hopes that discovered mineral plays stretch into Beaufield’s own claims.
There’s no question Beaufield has the ability. At the end of the third quarter, it held $3.3 million in cash. The company prizes flexibility and minimum overhead. With only seven people on staff, Beaufield hires contractors to help carry out much of its exploration work. its corporate headquarters is not in a downtown high-rise, but instead in a farmhouse Hansen owns in Ottawa’s suburban west end. Their accountant’s office is in the living room; maps are laid out on the dining room table.
While the office may seem small-time, its approach is to piggy-back on bigger players. Beaufield’s strategy is to acquire exploration properties adjacent to well-known active mines, in the hopes that discovered mineral plays stretch into Beaufield’s own claims. The company has diversified across a range of minerals, but primarily focuses its operations in Quebec, where its three of its most promising properties lie.
Its most fully-explored claim is the Troilus-Tortigny property, which has continued to produce promising results in copper, zinc, and silver throughout the last year. Beaufield has contracted n external firm to produce a resource calculation report, the final step in determining whether the property could be a viable mine. Other priority properties hinge on iron and gold.
The positive results coming from Troilus-Tortigny have also led to spikes of interest in Beaufield’s stock, driving the value as high as $0.68 last year and attracting an extra $3 million in financing from just one report. But attractive results are no guarantee for a feasible mine.
“One in a thousand, one in ten thousand [exploration properties] become a mine,” estimates Mathieu Stephens, a geologist at Beaufield. “If you’re a geologist and you find a mine then you’re pretty happy.”
Stein says fund managers often look for highly focused companies with an emphasis on a single mineral.
Hansen is similarly matter-of-fact about the long odds inherent in the business, comparing junior mining to the high-tech industry.
“If you discover some really high-tech thing, like the iPhone, your stock will skyrocket. And it’s the same in the mineral business, if you make a discovery…it’s sort of like treasure hunting. And if you find the treasure, well then you’ve got it made,” he says.
David Stein, CEO of Toronto-based investment firm Aberdeen International, says that over the last decade investing in junior resource companies has become a “universally accepted investing strategy.” His own company concentrates “almost exclusively” on the sector. Over the last six months however, global economic worries have created a risk-averse investing climate, driving down stock values across the board. Beaufield’s stock currently sits at about half the value it was six months ago.
Aberdeen does not own stock in Beaufield, preferring to minimize risk by investing in companies that have already made a discovery. As well, Stein says fund managers often look for highly focused companies with an emphasis on a single mineral.
“If an investor wants exposure to copper, they’re going to want to buy a company that’s got a copper project or a copper mine, they don’t necessarily want a company that’s spread all over with a bunch of different commodities,” he says.
STICKING CLOSE TO HOME
For Beaufield, diversification is a way to hedge its bets—the range of minerals it has invested in protects it somewhat from market drops in individual minerals. But it also means it can expand or contract certain operations depending on which minerals seem most promising. For example, the company recently entered a purchase agreement for a zinc property in Nova Scotia.
“We think that as time progresses,” explains Hansen, “zinc is a metal that could be quite relevant. There could be short supply of zinc one day. So we’re sort of keeping our eyes open for zinc.”
The foray into Nova Scotia, a first for Beaufield, is part of a larger strategy to look for opportunities across Canada.
Of course, junior mining pivots on risk management as much as it does on expanding exploration. When asked how to create security as well as success,
Stephens starts ticking requirements off on his fingers: good geology, strategic locations, experienced people, luck…
Hansen cuts him off: “But who was it that said, ‘the harder I work, the luckier I get?’”
The veteran president is patient; but not patient enough to leave success up to fortune.