A Canadian mining company announced last week that it’s pulling out of a mineral-exploration prospect near Tok due mainly to a lack of investors willing to risk money on such projects. A Fairbanks mining-industry consultant says that problem will hurt a lot of other Alaska mineral-exploration projects this year – and may slow the growth of the industry over the next few years.
Officials with Vancouver-based Heatherdale Resources were pretty optimistic a couple of years ago about the potential of the Delta Project. Initial exploration at the site about 36 miles west of Tok showed promising deposits of gold, silver, copper and zinc.
But Heatherdale President and C-E-O Patrick Smith says company officials decided a couple of weeks ago that given the falling price of gold – and, more importantly, the availability of investors – it’s time to get out of the Delta Project and focus instead on Heatherdale’s other, more promising prospect in Alaska – the Niblack Project, near Ketchikan.
“We came to the conclusion that money is tight, if you will, in our industry – in our sector of the industry – and that therefore Niblack is the project that deserves the funding.” he said.
Heatherdale has returned its 60 percent share of the project to Toronto-based Agnico Eagle Mines Ltd., according to a May 2 news release.
Smith says exploration at Niblack is farther along, and it’s showing potentially rich deposits of precious and base metals. And that will attract more investors than a prospect that’s in the early stages of exploration, like the Delta Project.
“Your advanced-stage exploration projects like Niblack have a much better opportunity to find money to keep those projects moving, as opposed to something that’s early stage exploration,” he said. “That really is more speculative.”
Smaller- and mid-sized mineral-exploration companies depend on such speculation by investors.
But Curt Freeman, who runs a mining-consulting firm in Fairbanks, says those investors aren’t putting their money into risky ventures such as mining exploration these days. He says the global risk-capital market has sharply declined over the past six months, due to investors growing concern over the health of the world’s economies.
“The U.S. economy, the European economy, other economies around the world that are suffering for any number of reasons” combine to worry risk-capital investors, Freeman said. “That risk capital comes from investors who, when they see that risk is becoming too high, they pull that highest-risk capital off the table.”
And that’s going to cause a steep drop in mineral-exploration expenditures in Alaska to around half of the 2010 peak of about $300 million says Freeman, president of Avalon Development Corp.
It may be too early for Freeman’s prediction of a slump in mineral exploration to be reflected in the number of mining permits issued by the state Department of Natural Resources. Jeff Rogers, a geologist with the department’s Mining Division office in Fairbanks, says that trend seems to be headed in the other direction.
“The number of permitted exploration projects is increasing,” Rogers said.
Rogers says the agency issued 108 permits last year, up from 92 in 2011. He says 53 have been issued so far this year.
But he says the number of permits issued doesn’t necessarily indicate the level of exploration that actually takes place out in the field.
“A lot of folks will put in for permits, and then never do anything,” Rogers said.
“There are lots of permits being submitted both last year and so far this year,” he said. “But some of those are simply permits put in so that if the financial markets change for the better, your permits will be in-hand and you can get to work.”
Freeman also thinks many permits issued this year are for smaller operations, for placer-mines and such.
He says big established mining operations like the Kinross Fort Knox and Sumitomo-Pogo gold mines aren’t dependent on risk capital are making big profits, despite a 15 percent drop in the price of gold over the past six months, to about $1,475 an ounce.
But, Freeman says the slump in exploration this year causes concern among the big operators, because it will set back discovery of new deposits, and slow down Alaska’s mining industry over the next few years.
“When you put on the brake and say ‘OK, I’m not spending,’ people disappear, expertise disappears. They go elsewhere. They go where the work happens to be.”
Editor’s note: The original version of this story has been updated to include a reference to Heatherdale Resources returning its 60 percent share of the Delta Project to Agnico Eagle Mines Ltd.