1. Registering a private company

The growth of mineral exploration companies started as private companies. The company promoters raise funds themselves and register an exploration company to operate. Since mineral exploration companies do not have cash flow back during the risk exploration stage, due to tax considerations, they often choose to register in tax-free locations such as the Cayman Islands and Virgin Gorda. Before a primary exploration company goes public, a private company registered in a duty-free island (country) can sign a joint venture, cooperation or option transfer agreement with a legal person or natural person who owns exploration rights. However, you should be cautious when cooperating with private companies registered in duty-free islands (countries). In order to have a detailed understanding and analysis, we cannot be sure of everything, nor can we deny it easily.

2. Looking for mineral exploration projects

Junior private exploration companies or junior exploration companies must first look for risky exploration projects. The target minerals are minerals and projects that have a good return on investment and are easy to transfer to large mining companies, or are high-grade and easy to mine and process, and can realize cash flow back as soon as possible. Currently, gold is the first choice, followed by silver, platinum and palladium, diamond, copper and nickel, and then uranium, lead and zinc, and industrial minerals. It is difficult to seek risky exploration investments for other minerals. The target area should be ranked according to the investment conditions in the area, and is also related to the development strategy of private companies or junior mineral exploration companies. For example, junior exploration companies such as Aohua, Minco, Silvercorp, Kingsoft, and Asia Modern all use China as their strategic development target area. Some areas have stable investment conditions, but the threshold for environmental protection is too high, such as Canada and Australia; some areas have great prospecting potential and a high level of basic geological work, but low marketization and serious corruption, such as Russia and the five Central Asian countries. . Private primary exploration companies or primary exploration companies must conduct a comprehensive analysis when looking for risky exploration projects. For considerations on mineral exploration investment decisions and selection of investment minerals and regions, please see Chapter 3.

The purpose of commercial mineral exploration is to make a profit. In order to achieve the purpose of making profits, commercial mineral exploration investment entities should consider the following two points when searching for or transferring mineral exploration projects, regardless of the commercial mineral exploration operation method:

1. Exploration rights The "psychological price" of value

Exploration rights are the carrier of commercial mineral exploration operations. In the exploration stage, there are only limited geological data and a small number of exploration projects, which only provide limited information about the value of the exploration rights; the evaluation of the value of the exploration rights in the exploration stage is actually an evaluation of the prospecting potential of the exploration rights; in the exploration stage, the exploration rights The value has almost nothing to do with the initial exploration investment; do not expect an "accurate calculation" of the exploration rights in the exploration stage. For both parties in commercial mineral exploration transactions, the evaluation results contain huge risks. At this point, the experience of the junior exploration company's geologists and managers, their "psychological price" of the value of the prospecting rights, becomes the key to the transaction. When participating in commercial mineral exploration, the general manager of a junior exploration company must have an idea of ??the value of an exploration right and have his or her own "psychological price". During the risk exploration stage, it is best not to rely on the evaluation results of the mineral rights appraiser to decide your business behavior. Judgment that the value of exploration rights is too high or too low will result in failure to buy in time what should be bought and failure to sell in time what should be sold, resulting in loss of business opportunities. Whoever can accurately judge the value of exploration rights is often the winner in the commercial mineral exploration market.

2. Rough economic evaluation

In the exploration stage, although the parameters of the mineral deposit are very few, the geologists and managers of the junior exploration company still need to make an outline of the options as much as possible Economic evaluation. Based on the current price and price trend of the target mineral; the possible grade and resource volume of the target mineral deposit; through comparison of ore types, estimate the mineral processing recovery rate; estimate the mining cost based on the surrounding rock and occurrence of the mineral deposit. Through a rough economic evaluation, the cost of ores, concentrates, and mineral products are estimated, as well as the competitive position in the mining industry. Make qualitative or semi-quantitative judgments on whether mineral deposits can be developed and the prospect of prospecting rights transfer.

For a successful junior exploration company, a high level of rough economic evaluation is the key. Commercial mineral exploration rejects idle ores. Although my country's "General Principles of Solid Mineral Geological Exploration Code (GB/T13908-2002)" requires that a general economic study be conducted during the census stage, in fact, the relevant content of the project application and results acceptance has not been carefully prepared and reviewed; The erroneous and harmful concept of "potential economic value" is still widely used to replace rough economic evaluation; "general industrial indicators" that have not changed for many years are still widely used as the basis for distinguishing minerals and non-minerals. To promote domestic commercial mineral exploration, it is necessary to cultivate a group of high-level exploration geologists and exploration managers who can correctly conduct rough economic evaluations.

Primary exploration private companies or junior exploration companies can directly obtain exploration rights through registration, or jointly explore with other mineral rights holders to obtain the rights and interests of exploration projects.

3. Exploration project evaluation

Private companies listed or junior exploration companies using risky exploration projects to expand their shares in the capital market must pass the evaluation of the project by independent exploration geologists. In China, for various projects funded by national and local finances to carry out mineral exploration projects, the applicant unit itself publicizes and demonstrates the feasibility and prospecting potential of the project, which is reviewed by an expert group and issued by the superior authority.

Under normal circumstances, the expert group cannot go to the mining area for on-site inspections. The expert group can only evaluate the information provided by the applicant based on its own experience, and cannot be responsible for the authenticity of the information. In countries with a market economy, independent exploration geologists who have no interest in the company evaluate the project, and they cannot "sell their own melons and boast about themselves." Independent exploration geologists are also responsible for the authenticity of exploration project data.

The role of independent mineral exploration geologists in commercial mineral exploration was mentioned in Chapter 2 of this book. Independent exploration geologists generally operate as partners. In commercial mineral exploration, they are the intermediaries between fundraisers and investors and are an indispensable part of the financing and operation of commercial mineral exploration.

The independent exploration geologist’s report must first evaluate the exploration projects of the company that will be listed or the exploration projects that will be expanded. It mainly evaluates the authenticity of the existing geological data, the legal status of the exploration rights, and the prospecting potential of the target mineral deposits in the exploration rights area. Secondly, independent exploration geologists should review the first exploration plan proposed by the junior exploration company, evaluate whether the exploration project design and budget are reasonable, and evaluate the possibility of achieving the objectives of the first phase of the exploration plan.

In order to achieve the purpose of exploration financing, we must not only have an exploration rights area with attractive prospecting potential, but also have an advanced and reasonable exploration plan that can arouse investment interest. Give two examples that have worked in our country. Columbia Gold Inc. has selected copper and gold exploration projects for investment in the Lucong area of ??the middle and lower reaches of the Yangtze River. The well-known independent exploration geologist John Barakso was invited to conduct project evaluation for it. After a detailed study of the information provided by China and on-site investigation, Balakso believed that there is almost no possibility of finding large-scale porphyry copper-gold deposits in the Luzong area. The value of the rights area was negatively assessed. Therefore, Columbia Gold Mining Company failed to achieve its purpose of raising capital for share expansion. Another example is that a Canadian company, Xiaomaping Company (XMP) with a Chinese private capital background, hired independent exploration geologist C. Staargaard to evaluate the Sinian carbon dioxide of the North China Platform provided by China. The Great Wall-style gold mine in acid rock is the Xiaomaping gold exploration rights area. Although some Chinese geologists were not very optimistic about its prospecting prospects at the time, Stracat made a positive assessment of the prospecting potential of the mining area. The conclusion of the Stracat assessment report is: "The alteration of the Xiaomaping gold mine and the element combination characteristics of gold, arsenic and mercury indicate that the mine has the mineralization characteristics of low-temperature hydrothermal fluids. In many aspects, it is similar to Carlin, Nevada, USA. This type of gold deposit is very similar. This deposit is a layer-controlled deposit with many mineralization points on the surface, a large trend extension, and a low degree of work. Therefore, it has excellent potential for the discovery of very significant gold deposits. . It is expected that more than 1 deposit with more than 30 tons of gold can be circled for open-pit mining. The potential of the entire area may be 50 to 150 tons. "This conclusion is too optimistic in the author's opinion, and it well supports the listing process. . In early 1998, XMP was successfully listed on the Vancouver Stock Exchange, with an issue price of 0.40 Canadian dollars per share.

In short, venture capital institutions must decide whether to participate in the company's financing based on the evaluation results of the exploration rights area and the analysis of exploration risks by independent exploration geologists. A geological report signed by an independent exploration geologist is a key factor in whether an exploration project can be funded.

IV. Mineral Exploration Financing

Junior exploration companies mainly obtain risk exploration funds through listing. See Chapter 4 for details. Here is a brief summary: if junior mineral exploration companies want to go public to raise risk exploration funds, they can use various methods such as initial listing (IPO), shell listing (RTO) or share expansion. It is necessary to choose a securities company with a good reputation to package, evaluate, recommend and list primary mineral exploration companies, and use its extensive sales channels to underwrite securities. The securities company prepares a prospectus on behalf of the junior exploration company, including the company's composition, description of the exploration minerals and exploration prospects, investment background, financing usage direction and risks, company's capital structure, company's financial status, etc., and is accompanied by independent exploration Geologists' evaluation report of the junior exploration company's exploration rights and first-phase exploration plan review report.

5. Implement exploration and promote company growth

Junior exploration companies invest the raised risk exploration funds into the implementation of exploration projects. Junior exploration companies have few management levels, flexible decision-making, and are adaptable to risky mineral exploration. For example, the Canadian company SKN took only four months in the Tobuka mining area in Yunnan from signing an agreement, carrying out soil geochemical measurements, large-scale geological mapping, determining hole locations, and launching three drilling rigs for verification. Since the success rate of mineral exploration projects is only about 1%, cooperative exploration generally takes the form of unincorporated cooperative enterprises. If the implementation of the exploration project is not ideal or other conditions change, the junior exploration company will quickly withdraw and invest in the implementation of new exploration projects. Most joint venture exploration projects are terminated halfway, which is a normal phenomenon due to the high-risk nature of mineral exploration.

Requiring parties to complete all share-earning investments in the joint venture agreement does not understand how risk exploration operates.

The exploration operations of junior exploration companies and the company's growth can be reflected by the movement patterns of exploration and development stock prices (Figure 5-1).

The exploration period is a speculative stage of investment, and it is also a period of investment enthusiasm. As the exploration work progresses, news of discoveries in mineral prospecting are constantly disclosed, such as the discovery of promising geophysical and geochemical abnormalities, trench exploration controlling the surface mineralization zone, drilling holes, and controlling the amount of resources. The stock prices of junior exploration companies continue to follow. rise. If rich ore bodies are found in the first few drill holes, the stock price will rise the most. Many of these processes are introduced in the typical cases of commercial mineral exploration in Chapter 10 of this book. Exploration can suffer setbacks at any stage, and as Figure 5-1 shows, the stock prices of junior mineral exploration companies can suddenly drop at any stage. If there are abnormalities in geophysical and geochemical exploration, ore-bearing fault zones, or if surface ore bodies have been found in trench exploration but no ore has been found in deep drilling, the stock price will suddenly drop sharply after a sustained rise. The first few holes showed good ore penetration, but after infill drilling, the ore body became discontinuous and the stock price fell. For example, Southwest Resources' stock price surged after it discovered a thick, high-grade ore body at the Boka Gold Mine in Yunnan. However, in July 2003, a batch of mining drill holes were announced with a gold grade of only about 2 grams/ton, causing the stock price to fall by nearly half (see Figure 10-5).

Figure 5-1 Exploration-development stock price movement rules

After the amount of mineral deposit resources is determined, exploration stocks rise to the top (A). Moving to feasibility studies and mine construction, a large amount of capital investment is required at this time. There will no longer be "exciting" prospecting results. It will be some time before the mine is put into production, resulting in a decline in investment enthusiasm and a cooling-off period for investment. . As the chance of profit from exploration decreases and investors in exploration for speculative purposes withdraw, stock prices will fall for a period of time. When the mine is put into production (B), since the investment has a stable return, as long as the market conditions and the parameters of the feasibility study do not change significantly, the stock price will rebound.

Explore and develop the stock price movement law curve, which is a theoretical curve. This curve does not take into account the impact of mineral product prices, investment situations, etc.

6. Prospects of Junior Exploration Companies

1. If a junior exploration company fails to find a mineral, it can have the following options

—refinance and continue exploration. If the raised exploration funds have been used up, although no economic deposits have been found, there are still prospecting prospects in the exploration rights area, and the prospecting needs to be continued for a while. This prospecting prospect was recommended by independent exploration geologists and accepted by investors. Listed companies can expand their shares and raise funds, and their equity will be diluted.

——Choose another project and look for investment. Investors believe that if prospecting fails due to geotechnical factors, "bad luck" or force majeure, these are understandable to exploration investors. If the team of this junior exploration company is indeed trustworthy in terms of exploration concept, exploration technology, financing or management, it will be worthy of further investment. You can choose another project, tell another “prospecting story”, raise another exploration fund, and continue risky exploration.

——The stock price cannot be maintained, and neither projects nor investors can be found, then the company will be sold and another company will be listed on the backdoor.

——Become a shell company without projects and funds, waiting for a new round of mineral exploration and development life cycle. There are hundreds of such shell companies without projects and funds on the Vancouver Stock Exchange and the Toronto Stock Exchange. During the exploration peak periods such as 1994 to 1996 and 2003 to 2006, some shell companies may find projects again, survive the dormant period, and start a new round of exploration.

2. If a junior exploration company finds a mine, it has the following options

—The junior exploration company finances development by itself. After some junior exploration companies find world-class large mines, they "graduate" from the Vancouver Stock Exchange and the Toronto Stock Exchange's GEM, enter the main board, and use project financing to grow into large mining companies. For example, Balik Company in Nevada, USA After the state discovered the Goldenstrike gold mine, it embarked on such a development path. Some junior exploration companies, after finding small and medium-sized mineral deposits that are rich in grade and easy to mine, finance the development themselves, generate cash flow back and form profits, and then invest in mineral exploration. No longer follow the operation routine of junior exploration companies of "telling stories - financing - telling stories - refinancing".

——Junior exploration companies sell projects and large mining companies acquire projects. For example, Ivanhoe Mines sold 19.5% of the Oyu Tolgoi copper mine project to Rio Tinto, a large mining company.

——Junior exploration companies establish joint ventures with large mining companies to cooperate in development. Junior mineral exploration companies retain about 20% equity or about 10% non-dilutive equity in discovered mines. This model has enabled junior exploration companies to develop and gradually form a share of mines with relatively stable income while maintaining the business direction of risky mineral exploration. At present, domestic geological exploration units have also chosen this method when operating commercial mineral exploration, exiting unfamiliar fields of mine construction and production, retaining economic growth points, and continuing to leverage their technical advantages in commercial mineral exploration.

——The stocks of junior exploration companies are acquired by large mining companies at high prices, which is an ideal choice for operators of junior mineral exploration companies. Junior exploration companies' boards of directors and senior management are subject to regulation by the Securities Regulatory Commission when they sell their shares in the company. When the stock price of a junior exploration company is high, it is impossible for the company's board of directors and senior management to sell off the company's stock in large quantities. The junior exploration company's shares are acquired by another large mining company at a high price, and the company's board of directors and senior management can liquidate the company's shares. Geologists and managers of junior exploration companies who are successful in prospecting can complete a lifetime of wealth accumulation at this time.

3. Another prospect for junior exploration companies

Companies that have found mineral deposits constantly release news about ore drilling. Although the conditions of the discovered deposits are good, the stock price remains unchanged. Staying still; companies that have not found minerals are constantly looking for and telling new mining stories. The stories are moving, but it is difficult to impress investors. The exploration investment market is suffering from "prospecting news fatigue", and the management of junior exploration companies is plagued by non-stop fundraising. Some junior exploration companies have begun to explore a new way out. They do not necessarily have to take the traditional route of finding a world-class mine and transferring it to a large mining company. Instead, they should switch to small-scale mining as soon as possible after finding a rich ore. The cash flow of junior exploration companies has turned from negative to positive; there is no need to increase shares to raise funds to maintain exploration, and the income from mining supports the exploration companies' continued exploration and acquisition of new exploration rights; shareholders who invest in junior exploration companies have obtained their profits in advance Dividends.

This development model has been recognized by the market. Henan Faende Mining Co., Ltd., established in April 2004 by Silver Metals Corporation of Canada and the Henan Provincial Non-ferrous Metals Geological Exploration Bureau, invested 30,000 meters of drilling and 37,000 meters of pit exploration within 2 years. The resources include 3,022 tons of silver, 532,000 tons of lead, and 174,000 tons of zinc. The mining license was obtained in June 2006 and cash flow was quickly realized. The stock price of Canadian Silver Metals has risen from 0.5 Canadian dollars per share to about 20 Canadian dollars per share. It has become the company with the largest growth rate among the 100 primary exploration companies in China, and has also attracted great attention from the Canadian mineral exploration industry. Canadian Silver Metals successfully explored and developed thin-vein lead-zinc-silver deposits in Henan, and its stock price rose sharply, indicating that investors recognized this development model. Another Canadian junior exploration company, Geomaquis Exploration Ltd, is also following this model in its exploration and development of the San Francisco gold mine in Mexico. For an introduction to the exploration examples of these two junior exploration companies, see Chapter 10.