Majors Are Rediscovering British Columbia

By: Richard Mills | Fri, Aug 19, 2011
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As a general rule, the most successful man in life is the man who has the best information

Vancouver BC is undoubtedly one of the greatest mining centers in the world and British Columbia should be a mining powerhouse, consider:

Land claims of the First Nations remain a stumbling block in many areas - perhaps in part because so many claims overlap - but First Nations are now coming to understand and embrace resource development as a way to generate training, jobs and financial security for their people and their communities.

While things aren't always as smooth as we would like dialogue is taking place and things are getting done - projects are moving forward.

"BC-based mineral explorers and developers appreciate the key measures that were announced in today's federal budget. Maintaining the Mineral Exploration Tax Credit and reducing red tape will help sustain Canada's mineral exploration and mining sector, encourage capital investment and ultimately benefit all Canadians well into the future." Gavin C. Dirom, President and CEO of AME BC, June 6th 2011

BC is taking the lead in regulatory reform - the largest cut in red tape could come from dropping the duplication of process in regards to environmental assessments. B.C. has taken the position that the province's own process already takes into account the responsibilities of the federal government and that doing a second duplicate federal review forces a company to spend more money and time on needless duplication of process.

The process does work - three major mines are being constructed, six major mines are in advanced development, and over eighteen mining projects are in earlier stages of environmental assessment


Mining Facts:

BC Exploration Spending
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- amebc.ca

Mineral Exploration Expenditures
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- amebc.ca


Government Support for mining

In 2001, the Province introduced the Mining Flow-Through Share Tax Credit to provide a 20 per cent tax credit for grass roots mineral exploration. Flow-through shares allow exploration companies to pass eligible Canadian exploration expenses to investors. When combined with a similar federal tax credit, the flow-through tax credit helps to reduce the cost of a $1,000 investment to approximately $380.

The Province has also eliminated the capital tax and the introduction of the HST will increase the savings from the current sales tax exemption for mining machinery and equipment by eliminating all sales tax currently paid on mining inputs when fully implemented.

The "new mine allowance" encourages the development of new mines by allowing for a deduction of 133% of capital costs incurred to bring a new mine into production. This program runs till January 1st 2016.


BC Mining Tax Credits

In BC a mineral exploration company can raise equity funding in one of two ways, each of which is tax advantaged. These types of share issues are normally referred to as hard dollars or soft dollars.

Hard dollars come from non-flow-through stock that is issued, usually at market price or at a slight discount. Hard dollars can be spent on all capital expenditures including exploration, office expenses or promotion. If the hard dollars are spent on exploration, a company will get 20% of that amount back from the provincial government through the Mining Exploration Tax Credit (METC), and if the exploration is in a pine beetle kill area that credit jumps to 30%.

Most of BC is now classified as in the pine beetle kill area, so the majority of companies now get 30% of qualifying exploration expenditures back. This tax credit is usually paid three to six months after the claim is filed. The remaining after tax credit amount of 80% or 70% is added to the company's Canadian Exploration Expense (CEE) pool to be used for future tax sheltering which has an advantage of never expiring and is 100% deductible against any capital gains in the future.

Soft dollars come from issuing flow-through shares to investors. The continuation of the BC Mining Flow-Through Shares Tax Credit (BCFTSTC) and the Federal Investment Tax Credit is intended to help companies raise capital for mining exploration by providing an incentive to individuals who invest in flow-through shares issued to finance exploration. The program only applies to preliminary mineral exploration activities conducted from surface. Expenses for underground exploration or for the purpose of bringing a mine into production are excluded.

A company can issue flow-through shares at a premium to the market price, preserving their capital structure with less dilution, since buyers will end up getting tax savings and credit from the purchase. The company can only spend this money on exploration in Canada, nowhere else, and it must be spent within a limited period of time. For the privilege of issuing stock at above market prices, all the exploration expenses flow through to investors and the company does not get any tax credit money or CEE tax pools.


Geoscience BC

The Province of British Columbia is very progressive when it comes to mineral exploration. In 2005, the province implemented online staking - saves exploration companies money and time by allowing ground to be staked on the internet instead of boots on the ground.

The province also created - in 2005 with a $25 mm grant - an organization to put money into grassroots exploration in BC. Geoscience BC is an industry-focused organization with a mandate to encourage mineral, oil and gas exploration investment in British Columbia through the collection, interpretation and marketing of publically available, applied geoscience.

Subsequently, almost $12 million has been given to Geoscience BC to spend on grassroots mineral and oil & gas projects.

Geoscience BC puts money in the ground by funding regional airborne surveys and soil sampling projects. As an example Geoscience BC's QUEST Project in south central BC, covered the Cariboo Region and included an airborne electromagnetic (EM) survey, an airborne gravity survey and the collection of 2,200 new geochemical samples. Projects such as this help exploration companies identify targets and do grassroots exploration that would have been too expensive and high risk to undertake previously.


Gold, Copper and Gold

"What really bothers me is that in the 1980s or 1990s, we saw three to five discoveries of 5 to 20 million ounces each, and upwards of 30 to 50 million ounces a year. That is what makes or breaks the industry. There are no discoveries of that magnitude now." Pierre Lassonde a veteran gold analyst, co-founder/chairman of Franco Nevada Mining Corp., acting chairman of the World Gold Council, and former president of Newmont Mining Corp. For The Gold Report www.aureport.com

Mineral Exploration Expenditures
amebc.ca

Each year the mining industry must come up with a major new gold discovery of five million ounces just to replace what one of the world's top gold miner's digs up.

"In the case of gold, the world is currently mining it faster than it is finding it. Furthermore the average size and grade of gold discoveries continues to decline." Richard Schodde, Managing Director of MinEx Consulting

Mining is the story of depleting assets, that asset must be constantly replenished; miners that want to stay in business must replace every oz taken out of the ground and there isn't a lot of the larger size gold deposits left to find or buy that would really affect most of these larger company's bottom lines. Replacing what they've mined let alone finding more productivity/resources is getting harder and harder.

In BC, there are two styles of mineralization that are becoming increasingly important in the global quest to replace declining gold production. These two styles are porphyry copper/gold mineralization and sediment hosted mineralization.


Porphyry Copper/Gold Deposits

Porphyry copper deposits are copper orebodies which are associated with porphyritic intrusive rocks and the fluids that accompany them. Porphyry orebodies typically contain between 0.4 and 1 % copper with smaller amounts of other metals such as gold, molybdenum and silver.

In Canada, British Columbia enjoys the lion's share of this type of deposit, and they contain the largest resources of copper, significant molybdenum and 50% of the gold in the province.

Copper Shipments and Values
amebc.ca

There's a very real trend by the major mining companies towards making deals with the junior resource companies that presently own copper/gold porphyry projects in BC:


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Because large pure gold deposits are so hard to find - the low hanging fruit has already been picked - gold miners are turning to deposits that contain other metals like copper.

There are two factors that make these kinds of deposits so attractive - firstly by focusing on profitability and mine life instead of solely on grade your other inputs of scale/cost can offset the lower grade and this results in almost identical gross margins between high and low grade deposits. Low grade can mean big profits for mining companies.

The second factor affecting profitability of these often immense deposits is the presence of more than one payable metal. For gold miners using co-product (copper) accounting the cost of gold production is usually way below the industry average.

Copper-gold porphyries can offer both size and profitability. These kinds of deposits are one of the few deposit types containing gold that have both the scale and the potential for decent economics that a major mining company can feel comfortable going after to replace and add to their gold reserves.


Sediment Hosted Vein (SHV) deposit's

The term Sediment Hosted Vein (SHV) deposit is used for a family of gold deposits that consist of gold in quartz and quartz-carbonate veins hosted by shale and siltstone sedimentary rocks. These deposits occur throughout the world, but are most prolific in size and number in Asia. Most are poorly known to westerners because of their location in the former Soviet Union.

Gold Shipments and Values
amebc.ca

SHV gold deposits are some of the largest in the world:

All SHV deposits have characteristics in common with each other:

Attractive characteristic of SHV deposits are:


Conclusion

One of the most serious and unpredictable risks facing mining operations and investor interests is "country risk" - where the political and economic stability of the host country is questionable and abrupt changes in the business environment could adversely affect profits or the value of the company's assets.

Large capital investments made by mining companies are immobile - if the management side of the companies we invest in is so important then maybe we should start regarding the management of the country they operate in as at least as important?

The Province of British Columbia, Canada is experiencing a mining renaissance. What's happening in the Province, in regards to mining, should be on every investors radar screen. Is it on yours?

If not, maybe it should be.

 


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Richard Mills owns shares of Tiex Inc. TSX.V - TIX

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Richard Mills

Author: Richard Mills

Richard (Rick) Mills
www.aheadoftheherd.com

Richard Mills

Richard lives with his family on a 160 acre ranch in northern British Columbia. He invests in the resource and biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com. His articles have been published on over 400 websites, including: SafeHaven.com, WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun, CBSnews, HuffingtonPost, Beforeitsnews, Londonthenews, Wealthwire, CalgaryHerald, Forbes, Dallasnews, SGTreport, Vantagewire, Indiatimes, Ninemsn, Ibtimes, Businessweek, HongKongHerald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com and the Association of Mining Analysts.

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