Why Explorers Fail Over 90% of the Time23 min read


The world used to be a simpler place; at least when it came to mining and exploration. Back in the late 1800s, when prospectors discovered high-grade gold or silver, they staked and, if proved further mineral continuity, mined the claims.

Today, explorers utilize a variety of high-tech equipment to search for potentially economic deposits with large scalability in places as far north as the Arctic Circle and in politically unstable regions such as Eastern Asia and conflict regions of Africa… all of which come with tremendous risk and uncertainty especially if a world class discovery is made.

Financial, Political, Environmental Risks Top Reasons for Explorers Failing

Besides the environmental risks, which are always present, political risk from government, which includes the threat of nationalizing prolific mineral assets, lurks in many countries. Case in point is Indonesia’s Batu Hijau Mine. Newmont left Indonesia after the country’s government pushed “miners to build smelters rather than export raw materials,” according to Danielle Bochove and Fitri Wulandari of Bloomberg. Since then, Newmont has refocused some of its efforts in safe havens of the Western United States, Nevada and Colorado. More specifically, the company’s Nevada Long Canyon Mine and Colorado’s Cripple Creek & Victor Gold Mine.

From Bolivia to Indonesia and Papa New Guinea, the examples of large, high-grade projects being destroyed or delayed by geopolitical conflicts or the outright threat of nationalization are many. For this reason, the need is great for certain explorers to leverage exploration upside by optioning off a stake in said deposit(s). Hence as a project develops, said junior can option or form a JV with a major – ideally a multinational mining corporation with experience in various regions of the world. This model of exploration is an efficient one from our perspective, and it is formally known in the industry as prospect generation…

Prospect Generation Allows for Hands in Many Pies

The odds that a junior explorer acquires a project, makes a significant discovery and successfully advances it through the permitting and environmental stages to production all by itself (which can easily take 10 years) are low; throw in the fact it has to raise the capital to complete a pre-feasibility study, feasibility study and ultimately additional capital to move the deposit into production and the odds are near zero. Furthermore, attempting to do this in a relatively short time period, such as a 4-5 year bull market, makes it virtually impossible.

Project/prospect generation allows smaller exploration companies the potential to get their hands in more pies; and allows them to avoid getting bogged down in developing ONE asset – an extremely costly endeavour which can limit upside potential while in the asset development stage (feasibility testing, infrastructure build-outs, production permitting and mine construction). What’s more, the generator model doesn’t force a junior to concentrate its risk to a specific commodity, region, etc. We all understand that from the time it takes to go from discovery to production is typically around a decade; and in that period, a commodity bull cycle can come and go.

Simply put, the project generator model focuses juniors (often with personnel consisting of prospectors and geologists, not mine builders) on what they are experts at: Exploration. The model encourages juniors to hand off discoveries of merit to larger companies or majors to deal with the regulatory hurdles of developing a mine (among other challenges), something explorers lack in experience.

Prospector Generation in Colorado – Viscount Mining

A group of industry veterans, led by Chairman Kaare Foy, the former Executive Chairman of NYSE-listed Great Panther Silver, are running Viscount Mining (VML:TSXV) – a sponsor of Pinnacle Digest. This junior explorer and project generator is targeting mining friendly jurisdictions in the Western United States, namely Colorado, but also Nevada.

Colorado has as rich of a history in mining as virtually any other state in the Union, except perhaps for California and Nevada. In fact, mining in Colorado began before Canada even became a federation…

Explorers found gold in Colorado as early as 1807. However, it wasn’t until 1858, after a gold discovery near present-day Denver, that a gold rush in the Rockies kicked off. Then, as noted by Wikipedia, two decades later the Colorado Silver Boom started “in 1879 with the discovery of silver at Leadville. Over 82 million dollars worth of silver was mined during the period, making it the second great mineral boom in the state, and coming twenty years after the earlier and shorter Colorado Gold Rush of 1859.”

This eventually gave birth to the Hardscrabble Mining District, and the town of Silver Cliff… more on this historic town and how it ties into Viscount Mining’s story shortly.

Peak Gold?

Although there have been several million ounces of gold produced in Colorado history, annual production peaked in 1900 at 1.4 million cumulative ounces.

Like all prolific mineral regions in the U.S., and gold production globally, the glory days appear to be in the past. Peak gold production, which is speculated to have occurred in 2015 according to Goldcorp’s previous CEO Chuck Jeannes, is one of the most underreported stories in the commodity space today.

Peak Gold is Real

 

A Global Mining Leader in the State of Colorado

Regionally relevant to Colorado, let’s briefly look at Newmont’s Cripple Creek Gold and Silver Mine…

Newmont’s Cripple Creek & Victor Mine is the last producing large-scale mine in the state of Colorado. Commercial production began in 1976; and this mine gave birth to the Cripple Creek Mining District. The large-scale mine that produces hundreds of thousands of gold ounces annually takes its name from the nearby towns of Cripple Creek and Victor. In 2012, the CC&V Mine received an approval from state and local governments to extend production until 2025.

In an August 2015 press release, Newmont reported on the Cripple Creek & Victor Acquisition:

“Adding between 350,000 and 400,000 ounces of gold per year in 2016 and 2017 at all-in sustaining costs (AISC)1 of between $825 and $875 per ounce”

In late 2015, the 5 millionth ounce was poured at the CC&V Mine. As of December 2016, Newmont reports having 700 employees and contractors, annual gold production of 396,000 ounces and four surface operations mining gold and silver.

Viscount Hopes to Return Silver Cliff Region to Former Glory

Viscount Mining (VML: TSXV) is exploring the Silver Cliff Prospect, which hosts a historic high-grade, near-surface silver deposit, in the mining friendly state of Colorado, U.S.A. Newmont’s Cripple Creek & Victor Gold Mine is located just west of Colorado Springs, about 65 miles north of Viscount’s flagship Silver Cliff project.

Viscount Mining Project Location

Newmont’s CC&V Gold Project is in the same central region of Colorado as Viscount Mining’s Silver Cliff Project.

Viscount Mining Project Location

In the historic Hardscrabble Silver District of Colorado, Viscount is currently drilling it’s 100% owned Silver Cliff property. The property boasts significant historic past production occurring in the late 1800s.  Mining in Colorado, as mentioned, is part of the state’s DNA. But if the old timer prospectors hadn’t struck pay dirt, Viscount likely wouldn’t be working in the region.

According to Viscount,

“The Property consists of 96 lode claims where high-grade silver, gold and base metal production came from numerous mines during the period 1878 to 1894.”

Certainly, a major mining company has now explored most mineralized regions of the world. This holds true with regards to the Hardscrabble Silver District of Colorado, as major exploration occurred in the 1980s. However, we’ve learned over our more than a decade experience covering this sector that one of the hardest challenges mining and exploration companies face is almost completely out of their control: timing commodity cycles. And, as mentioned earlier in this report, sometimes tens of millions can be spent developing a project only for the chief commodity to enter a bear market halfway through. In the years after a company known as Tenneco Minerals drilled the Silver Cliff project extensively, an epic precious metals bear market took hold…

Tenneco’s work resulted in a historical pre-feasibility study (before Canada’s updated NI 43-101 resource calculation laws), which formed the company’s decision to put the property into production. Halted due to the restructuring and ultimate sale of Tenneco, the project lay dormant. On April 23rd, 1992, Houston based Tenneco announced it would sell its Tenneco Minerals Company subsidiary to a Belgian company for $500 million in cash.

Herein lies the opening for Viscount Mining…

Silver prices collapsed shortly after that and stayed depressed throughout the 80s and 90s. The low price environment led to many precious metal projects sitting idle – similar to what we witnessed from 2013-2015. Viscount picked up the claims in 2014… Click here to read the terms of the deal.

Silver Endured Nearly 2 Decades of Price Collapses

silver bear market
Above chart shows the inflation-adjusted price of silver over the past 100 years

source: http://www.macrotrends.net/1470/historical-silver-prices-100-year-chart

 

Viscount is a project generator. For that reason, the company aims to identify projects with advanced exploration, underground development, and past production. If substantial upside potential is identified, Viscount will look to bring on an operator at favorable terms to advance the asset. On Silver Cliff, Viscount is moving ahead with additional drilling. This drilling has the potential to increase the odds of attracting a JV partner under favorable terms.

Note: At Silver Cliff, according to Viscount Mining,

“Known historical silver grades range from below detection to a high of 2,125 g/t (68 o/t) Ag over 13.4 metres.”

It is understood that all historical information is not NI 43-101 compliant and has not been verified by a qualified person.

 

For Viscount, exploration results must justify further development. According to the company,

“Past drilling at Silver Cliff was designed to test only the flat-lying shallow mineralized bodies with vertical holes but not the High-angle mineralized structures which are the ultimate controls for the emplacement of these mineralized bodies.”

The company went on to explain that,

“This indicates that follow-up drill programs need to include angle holes which will cut these mineralized structures, potentially upgrading the deposits.”

Certainly, this knowledge contributed to why Viscount secured the project back in 2014; and it created the impetus for the 2016 drill program…

As the results trickled out, the company affirmed its belief in the potential of the project. Drill hole K16-01 assayed 1,778.5 gt (57.2 ozt) silver over a 20-feet (6.1m) interval within a 50 feet (15.2m) mineralized intersection averaging 837.4 gt (26.9 ozt).

Kaare Foy, Viscount Chairman stated:

“We are very pleased with the drill program conducted in 2016 as it has demonstrated that there is significant silver mineralization that occurs at a shallow depth between 50 ft. (15.2m) to about 175 ft. (53.3m) that may be amenable to open pit mining.”

Read the entire press release here.

 

Below are the results from that program – notice the silver grades on the far right:

Viscount Drill Results

Undervaluedequity.com highlights what it considers to be low, medium and high-grade mineralization for a variety of minerals:

viscount mining latest drill results
source: http://www.undervaluedequity.com/Drilling-Results-How-Can-You-Determine-if-a-Mining-Company%27s-Drill-Results-are-of-Low,-Medium-or-High-Grade.html

 

As can be seen in red below, Viscount’s results were as high as 1778.5 grams per ton over 6 metres or 20 feet. Its top drill hole of 837 grams per ton over 50 feet or 15 metres is specifically noteworthy.

In relation to the results below, the company states in its fall 2017 corporate presentation, “A summary of drill intersections of all the assays are presented below. The hole collars lie within a northeast trending corridor that is 833 ft. (254m) from K16-05 to K16-03. Holes K16-03 and -04 were drilled at -90° (vertical) and the others toward north at -60° to the horizontal.”

viscount high-grade silver results
source: http://viscountmining.com/assets/viscount1-powerpoint-fall-2017.pdf

 

Note: Viscount Mining highlights the early nature of their work to date on the project and reported:

“The Company has an exploration target of 40 to 50 million ounces of silver. However, potential quantity and grade is conceptual in nature, as there has been insufficient exploration to define a mineral resource, and it is uncertain if further exploration will result in the target being delineated as a mineral resource.”

 

Viscount’s 2016 drill program was the beginning of a process designed to upgrade historic drill results as they are non 43-101 compliant.

 

Viscount Mining | Senior Management Team

If leveraging exploration upside into development potential is atop your to-do list, then, for explorers, it’s wise to bring in talent that has done it before. Not complicated from a business perspective – know your expertise. And that is what Viscount Mining did when it welcomed Mr. Kaare Foy to the Chairman of its Board in July of 2013.

In 1994, Mr. Foy became a director of Great Panther Silver Limited, a public company listed on the main board of the Toronto Stock Exchange and NYSE MKT, with silver producing operations in Mexico. In 2003, he would transition to Executive Chairman of Great Panther Silver, which he held until 2012. During his time as Executive Chairman, Great Panther’s capitalization grew to as high as US$600 million. Although it took several years, Great Panther is a globally recognized precious metals producer.

Note: Mr. Foy received the Queen Elizabeth Diamond Jubilee Medal for Outstanding Public Service in 2013.

Viscount Mining’s 2017 Drill Program Intended to Confirm Historic Holes

While 2016’s program confirmed for Viscount that high-grade silver existed on the project, 2017 is about moving towards a 43-101 compliant resource calculation on the project. The intent behind this goal is to further define the potential of the project – precisely what project generators do…

The company has outlined 10 of the Kate Silver Deposit historical drill holes (located on Silver Cliff) to be twinned. According to Viscount’s updated fall presentation, “They will be drilled to an average depth of about 328 feet (100 metres) versus an average of 197 feet (60 metres) for historic drilling at the Kate deposit.”

On September 19th, Viscount announced that its Phase 2 twin drilling program was to start shortly at Silver Cliff. The company reported,

“Results will assess upside potential and contribute to the verification of historical resources at the nearly flat-lying Kate Silver Deposit which at less than 70 feet (21 metres) depth, and up to 88 feet (27 metres) apparent true thickness, would have open pit mining potential.”

Finally, Viscount reported,

“…Viscount will continue the process commenced with Phase 1 in 2016 for twinning past drill holes to determine intercept details that have not been available for preparing a valid update of the historical silver resource and will test the potential for multiple mineralized zones that would increase the volume of material accessible by open pit mining.”

Dr. Howard Lahti, VP Exploration, stated,

“I am extremely optimistic that this 2nd phase of drilling will not only advance confidence in the historical silver mineralization reported for the Kate Deposit, but also will demonstrate that there is considerable resource potential at depth.”

Recognize that we are biased when it comes to Viscount Mining as the company is an advertiser client and we own shares and warrants of the company. We invested in its private placement at $0.25 per unit which closed in August. Please take responsibility for practicing your own thorough and independent due diligence. Learn about the risks associated with investing in small resource companies of this nature. Pick your spots…

The drills just started turning again Tuesday morning October 24th for Viscount Mining in Colorado, near where explorers as early as 1878 extracted high-grade gold and silver from numerous small-scale mines. Viscount Mining (VML: TSXV) is hoping, like Tenneco Minerals before it, that those early miners with their rudimentary and technology-lacking mining practices, missed more than a few ounces at depth…

All the best with your investments,

 

PINNACLEDIGEST.COM

Viscount Mining Stock Information:

Stock symbol: ‘VML’ – trades on the TSX Venture

Stock price (CAD$): $0.26

10-day avg. volume (approx): 88,800

Market capitalization (approx): CAD$12.15 million

 

Online Resources:

VISIT VISCOUNT MINING ONLINE

SEDAR FILINGS

 

Viscount’s Corporate Presentation:

Viscount Mining Corporate Presentation

 

Disclosure, Risks Involved and Information on Forward Looking Statements:

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Set forth below is our disclosure of compensation received from Viscount Mining Corp. and details of our stock ownership in the Company as of October 29, 2017:

Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, has been paid CAD$25,000 plus gst to provide online advertisement coverage for Viscount Mining Corp. for a pre-paid six month online marketing agreement. The company (Viscount Mining) has paid for this coverage. The coverage includes, but is not limited to, the creation and distribution of reports authored by PinnacleDigest.com about Viscount Mining (reports such as this one), as well as display advertisements and news distribution about the company on our website and in our newsletter. We (Maximus Strategic Consulting Inc., owner of PinnacleDigest.com) subscribed to Viscount’s private placement. In that private placement, we purchased 100,000 units of Viscount at a price of CAD$0.25 per unit. Each unit consists of one common share of Viscount and one share purchase warrant (“Warrant”). Each Warrant entitles Maximus Strategic Consulting Inc. to purchase one additional common share of Viscount for a period of 1 year from the closing date of the private placement at an exercise price of CAD$0.35. We (Maximus Strategic Consulting Inc.) intend to sell every share we own of Viscount for our own profit. All shares we (Maximus Strategic Consulting Inc.) currently own or purchase in the future of Viscount will be sold without notice to our subscribers. Please recognize that we benefit from price and trading volume increases in Viscount. Please recognize that we are extremely biased when it comes to Viscount.

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