Northern Shield Resources struggles for cash amid low investor confidence in junior mining

Northern Shield Resources Inc. is trying to survive at a time when it couldn’t be harder to be a junior mining company in Ontario.

Foreign demand for metals has shrunk and investor confidence in the industry is the lowest in years, making it hard for the small platinum exploration firm to raise money for operations and exploration.

“The stock markets these days are very unfriendly toward junior mining,” says Ian Bliss, Northern Shield president and CEO, in an interview at the company’s office on Metcalfe Street in downtown Ottawa.

Platinum prices have dropped to $1,200 US from a 2011 high of $1,700 US. The precious metal traded at around $1,300 US at the start of 2014.

Garry Clark, executive director of the Ontario Prospector’s Association, attributes the industry’s slump to a slowdown in the Chinese economy.

Mining exploration is inherently risky and brokerage firms tend to warn their clients to stay away from junior mining companies, Bliss says.

To raise money, Northern Shield sold off its interest in two properties in June—once among its most promising assets—for $1.4 million in cash and royalties.

That money is being used to keep the company afloat and fund future exploration. The company reported a $1.8-million loss for the third quarter that ended on Sept. 30, widening from a $1.1-million loss in the same quarter a year earlier. Exploration expenses increased from $139,000 for the third quarter in 2013 to almost $337,000 in the same period this year.

Northern Shield has never had any operating revenue from a mine. This is by design. Bliss says the company’s focus is on discovering valuable deposits in its claims and drumming up investment on that optimism before selling off the land and moving on to the next project.

“You may get a lot of good news along the way, which moves your share price, maybe even get another company coming in and buying another portion of your project,” Bliss says.

Bliss founded Northern Shield in 1999 as a part-time venture while he was working as a mining consultant. The company engineered a reverse takeover of a Calgary-based holding company and listed on the Toronto Stock Exchange in June 2003 at 20 cents per share.

The stock has traded at two to five cents per share over the past 52 weeks, and was at 2.5 cents on Dec. 4.

Over more than 10 years of doing business, the company has primarily focused on northern Ontario, forming a few different exploration partnerships, most notably with South African platinum mining giant Impala Platinum Holdings Ltd.

Until recently, Impala was a partner in Northern Shield’s Idefix platinum-group property in the Labrador Trough in northern Quebec. “Budgetary reasons” caused Impala not to pursue an option on the property, according to financial disclosures. Bliss says South African mines have been hit by labour strikes, affecting output and revenue.

It’s not financially possible for Northern Shield to explore any of its five property groups without a partnership. At the end of its third quarter on Sept. 30, the company had $541,000 in cash, no debt and $589,000 in liabilities, primarily deferred exploration funding on its interest in the Ikertoq nickel property owned by Greenland Gold Resources in Greenland. Bliss says it’s unusual that the company does not have any current project partners.

Northern Shield is actively looking for a new partner to help develop its Idefix property after limited exploration in its third quarter revealed a promising platinum group target for further exploration in 2015, according to its third-quarter financial statement.
Bliss says Northern Shield has shifted its exploration toward Quebec because of a more favourable political climate and better relationships with First Nations, many of which have land claims in northern Ontario and Quebec, in areas where mining companies want to explore.

“We’ve lost complete confidence in the Ontario government to develop projects in the north,” Bliss says.

He says the Ontario government has shifted responsibility to the mining companies to negotiate with First Nations. He says the government hasn’t been proactive in bringing the two groups together and managing negotiations over land claims. Bliss says aboriginal groups often ask for deals to explore on land that they have claimed and that the government hasn’t done enough to step in.

Garry Clark, and John Gravelle, lead mining analyst for PricewaterhouseCoopers, agree that First Nations land claims have historically been a challenge for mining companies in northern Ontario.

“Ontario has never been top of class in handling that,” Gravelle says.

He says Quebec also has issues with First Nations that can pose a challenge for mining companies.

Bliss says First Nations in Quebec are more used to dealing with private companies because of earlier hydro projects in the province.

He says Northern Shield currently has five projects on its Idefix property in Quebec and it is looking at developing two to three more, a process he described as a mix of “science and imagination.” He says he is most optimistic about Idefix compared to the rest of the company’s properties.

Northern Shield’s industry reputation as a company that picks good projects has helped it weather difficult times, Clark says.

“Northern Shield’s strengths are the people who work there,” he says, naming Bliss and chief geologist Christine Vaillancourt in particular.

Bliss says until brokerages stop wishing that junior mining companies would “shrivel up and go home,” it will be hard to get investors to part with their money in an industry that Clark describes as being in “dire straits.”

Bliss says the current platinum price is “not that bad” and his firm will stay in the game simply because there aren’t many people looking for platinum in Canada. There are maybe about five companies listed on the Toronto Stock Exchange that explore for platinum, he says.

Gravelle says India’s growth is a “bright spot” that could drive up platinum demand, and prices, in the future. Clark says he feels 2016 will be a better year for mining.

Gravelle says the fate of junior mining companies is inextricably tied to how well larger companies perform.

“The bigger companies need to demonstrate that they can generate a profit, and once they do that, they will bring some excitement back to the sector,” Gravelle says.