A new drilling expedition and a deal with its sister company are positioning junior mining business Beaufield Resources Inc. to, literally, strike gold in the coming months.
The mining exploration company started drilling its Troilus-Tortigny property in northern Quebec at the beginning of November, where it hopes to find valuable deposits of silver, gold, zinc or copper. The drilling will finish by the end of December.
Beaufield also recently entered into a deal with Melkior Resources Inc., another junior mining exploration company with which Beaufield shares an Ottawa office. Jens Hansen is the president, CEO and director of both companies. His dual involvement complies with the TSX regulations on such a relationship.
The partnership will see Beaufield financially back exploration on the Melkior-owned property Launay, also in Quebec, where the company believes there to be gold. In return for the backing, Beaufield will be eligible to receive up to a 50 per cent interest in Launay.
Mining in Quebec
All seven of Beaufield’s properties are in Quebec, except one in Ontario.
These two developments have made it an unusual year for Beaufield. The company usually drills no more than two exploration sites in any given year, according to Beaufield’s senior geologist, Mathieu Stephens. By the end of 2013, with the addition of these projects, Beaufield will have drilled four sites.
To make sense of what this means for Beaufield’s financial future, it’s important to understand how the junior mining industry works.
Exploration companies like Beaufield, often called “juniors,” employ geologists. They, along with their teams, explore various regions thought to contain mineral deposits. When the geologist finds what he believes geological formation likely to contain mineral deposits, Beaufield decides whether or not to undertake a drilling program to explore further. When something is found through drilling,
Reporting and testing
Beaufield then begins a reporting and testing stage, where it further identifies and evaluates the deposit. Eventually, a major mining company may buy properties from companies like Beaufield to develop mining sites. Beaufield makes its money selling properties and collecting small royalties from products gleaned from the sold lands. This process can take up to 10 years, said Stephens. In the case of Troilus-Tortigny, the second phase of that process will likely begin in the new year.
This lengthy process means that operating losses are common for junior mining companies like Beaufield. In its most recent quarter, it reported a net loss of $642,388, compared to $377,659 in the same quarter in 2012, which ended on May 31. Clearly, the extra drilling costs have taken their toll.
But compared to the rest of the industry, Beaufield isn’t doing too poorly. It has about $5.5 million in cash, gold coins and marketable assets, and another $14 million in exploration assets, which are the properties it owns, as of May 31 of this year.
A tough year for miners
The mining industry is in flux, and Beaufield has been lucky to survive. The 2008 recession hit both the junior and senior mining companies hard. Many juniors had taken advantage of a boom in gold prices and, having been able to sell a lot of stock, invested too much money in new projects too quickly. They got themselves in too deep, and when the recession hit, suffered huge losses. Many were unable to attract new investors, a problem which all mining companies are currently facing, according to the Mining Association of Canada (MAC).
Junior companies “have historically accounted for 50 per cent to 65 per cent of exploration spending,” according to the MAC. In 2011, the year for which the most recent data is available, they only accounted for 49 per cent of spending and are still recovering today. That is due to the lack of funds for investment, a struggle Hansen says Beaufield continues to face.
Luckily, Beaufield received a major investment from a Chinese company in the fall of 2012, which has kept them afloat during these difficult times, says Hansen. John Buddon, who sits on Beaufield’s board of directors says that the Chinese have a focus on oil and gas, which could, in time, shift the company’s exploration focus, but that this is a maybe with a capital M.
Beaufield has some other challenges to deal with, too.
“The problem right now is nothing is in demand,” said Hansen. “It’s a cyclical business, but there will be a shortage and we’ll go back into demand.”
He also acknowledged that most of the industry is “a disaster.” This carries some weight coming from a man who has worked in the sector for over 40 years.
Current strategy
Beaufield’s current strategy is to stay the course, spend wisely and only invest in projects it can financially sustain. This comes after testing that strategy recently, when it replaced long-time president Hansen with Kevin Weston in October 2012. He wanted the company to explore a zinc mine in New York, but ultimately, the directors decided it was too environmentally irresponsible and financially risky. Hansen was immediately re-instated as president after the board terminated Weston’s contract.
The struggles in the industry affect more than just Beaufield’s stock price, too, which has slid from an all-time high of $1.22 per share to hovering around $0.06 per share. Buddon explained that Beaufield tends to hire Aboriginal and local workers near its sites. Lack of investment has, in the past, made it difficult for Beaufield to finance new projects, thus being unable to provide local jobs. It is not a matter of Beaufield finding workers that concerns the company, but rather an inability to hire locally.
Stephens says he understands investors’ hesitation in buying shares. He says investing in junior exploration companies is “a bit like a lottery,” albeit a lottery where there are many important variables, like where the company explores and who is the management.
Still, Canada remains the most successful country in the world for attracting foreign mining investment, according to the MAC.
For now, Beaufield will likely continue to report operating losses. That is, unless it strikes gold.