As Everton Resources Inc. anticipates results from what is potentially the most valuable exploration projects in its history, the company may be alone in its celebration.
“The mechanical problems that beset our initial drilling — which are typical of a new drilling program — have been resolved and we’re moving forward now with confidence.”
After selling millions of shares in other exploration companies during its third quarter and hoping the concessions adjacent to one of the Dominican Republic’s largest gold reservoirs would yield big results, the future looked bright for the Ottawa-based junior mining company. But market volatility has made investors reluctant to get involved in the highly volatile junior mining sector.
During the third quarter ending July 31, Everton’s exploration expenses increased 146 per cent from the same quarter a year earlier. For investors, more digging would improve the odds of Everton revealing the gold, silver and copper resources it set out to find.
In a news release on Oct. 25, Chairman and CEO, Andre Audet, revealed the company had run into some snags along the way, but reassured shareholders that Everton’s exploration strategies in the Dominican Republic remained on schedule.
“We’ve only achieved a small portion of our APV (Ampliacion Pueblo Viejo) South drilling objectives as deep-drilling geology and mechanical obstacles slowed our progress,” Audet said in the release. “With only five holes reporting though, we’re still some way from unlocking APV’s potential.”
“The mechanical problems that beset our initial drilling — which are typical of a new drilling program — have been resolved and we’re moving forward now with confidence,” Audet added.
He also tried to quench shareholder thirst by reiterating Everton was in good shape to build shareholder value after acquiring 100 per cent ownership of the APV, Ponton and La Cueva concessions from Brigus Gold Inc.
Audet did not reply to an interview request.
SLIDING SHARE PRICE
Formed in May 2004, Everton is a junior mining company that explores for gold, silver and copper in the Dominican Republic, Ontario and Quebec.
Once an exploration-stage or junior mining company defines a resource, a bigger mining company will buy the company or its resources and bring discoveries from drilling into production. The resources it finds —which, in turn, increases its share price — is the raison d’être for junior mining companies.
“People just aren’t willing to invest in the junior mining sector, which is risky to start off with and initial public offerings are probably the riskiest because there’s no public track record.”
In the last three months, Everton’s share price has dipped dramatically. As of Nov. 17, the company’s shares were valued at $0.15, which was down 48 per cent from a year before and floating around its 52-week low of $0.11. Everton’s shares have decreased steadily since a 52-week high of $0.45 on Apr. 15 of this year.
Not only are the company’s shares plummeting, but mining investors may begin looking to new sectors altogether — ones that are more stable.
According to PricewaterhouseCoopers’ “Junior Mine 2011” report, market uncertainty caused junior mining companies to hold off financing in the third quarter. The report — which reviews the top 100 mining companies listed on the TSX Venture Exchange — suggests trends such as slumping capital generation and few IPOs resemble the commodity price collapse in 2008.
“People just aren’t willing to invest,” says John Gravelle, PwC’s Canadian mining leader, “in the junior mining sector, which is risky to start off with, and initial public offerings are probably the riskiest because there’s no public track record.”
The market volatility has occurred because of currency swings, the pace and lackd of reliability of earnings and caustic political environments. The sovereign debt and deficit issues around the globe also contributed to investors shying away from riskier ventures.
“When people start getting hesitant and don’t know what the future will bring, they tend to back away from IPOs first, and then back away from the junior sector,” added Gravelle.
HARD TO FIND INVESTORS
Everton is not the only junior mining company struggling to find and maintain investors.
On Nov. 17, the GDXJ index — a small-cap focused Market Vectors Junior Gold Miners exchange-traded fund that measures the performance of junior mining companies — saw its share price drop 20 per cent from a year ago. Everton’s share price has mirrored this plunge.
“The gold business five or six years ago was pretty tough because of the value at that point in time.”
But according to Gravelle, there is a silver lining for junior mining companies like Everton. He believes there will be more activity and optimism as junior markets begin to fluctuate because of mergers and acquisitions. His company’s report states, “larger mining companies are outsourcing their exploration activity, investing less of their money in exploration and more in acquiring companies who are currently engaged in exploration.”
Also working in Everton’s favour is the price of gold, which closed at $1768.93 (CAD) an ounce on Nov. 17, up 29 per cent from the same date a year earlier. The commodity is performing better than ever and is the type of secure investment that make companies like Everton a potentially safer investment.
“The gold business five or six years ago was pretty tough because of the value at that point in time,” says Ross Gallinger, executive director of the Property and Developers’ Association of Canada. He said the success of gold will drive exploration, and in a period of unpredictability when people don’t know where to make secure investments, gold is considered a good hedge against other currencies.
“Today is completely different, much like a lot of the other commodities that are in this super cycle.”
Fortunately for Everton, there are resources beneath the ground for the finding. It holds a large land position adjacent to Barrick’s (60%) and Goldcorp’s (40%) APV gold deposit which holds an estimated 22.4 million ounces of gold, 455 million pounds of copper, and 131.3 million ounces of silver.
GOVERNMENT PRESSURE
But while gold is thriving, there are other factors Everton must consider while exploring in the Dominican Republic. Governments are making it increasingly harder for foreign companies to search for minerals on their land.
Unless the industry improves or the company starts yielding results, it could be a long upcoming winter for Everton.
“More and more corporations and investors alike are shifting focus from under explored, high-risk high-reward countries towards areas of geopolitically stable and sound governments,” says Simon Quick via email, who manages South American mining projects for US Gold Corp.
Quick says some governments have expropriated, raised taxes and taken away permits for mining companies upon realizing there is potential for profit at a site.
“No longer are the benefits of reduced labour costs and marginal regulation outweighing risk premiums priced into these regions.”
As it continues its deep drilling in the APV reservoir, the company hopes it strikes gold soon. Unless the industry improves or the company starts yielding results, it could be a long upcoming winter for Everton.