OUR GREAT MINDS

    by Tina Olivero

    Exploration: The game changes as minerals market elevates

    Vulcan Minerals is a mineral prospect generator and exploration company. After several years of focussing on the exploration for petroleum in western Newfoundland, where it made unconventional oil and gas discoveries, it has shifted its focus to the mining business where prospects for smaller independent companies are more promising in an emerging commodities cycle.

    Vulcan is the parent company of its spin-off subsidiary Red Moon Resources Inc. (V.RMK), holding a 67% interest. Red Moon owns a highly prospective salt deposit in western Newfoundland for which it has already prepared a NI 43-101 compliant resource estimate in preparation for a feasibility study.

    Vulcan’s current operational focus is its Colchester copper/gold property near Springdale Newfoundland, which it acquired in May 2016. The company has already carried out geological and geophysical field programs and a preliminary drilling round this past Fall.

    Vulcan has acquired a portfolio of strategic mineral properties in the Newfoundland and Labrador, which forms the basis of its current business plan. We had the opportunity to interview Patrick Laracy, President of Vulcan Minerals, for his take on the mining industry potential.

    THE OGM: Where is the mining industry headed?

    PATRICK LARACY: The mining industry has a bright future because of a pending supply and demand imbalance for key metals. A growing world population, continued growth in emerging economies combined with an economic resurgence in the western economies will ensure a strong demand for raw materials.

    As well there is a growing appetite for new metals in evolving technologies such as Lithium batteries. This growing demand will not be met by a timely adequate supply for a couple of reasons.

    Firstly, there is a significant lag to bring new production on stream, particularly following the Great Recession and the unprecedented downturn in the industry after a period of overinvestment. The industry has lost significant amounts of capital and human resources while high-grading its mines and cutting its exploration budgets to survive. As well larger companies have sold projects to generate cash to decrease their debt loads causing a decentralization of assets in the industry. These were projects that were acquired during the mergers and acquisitions phase of the last capital cycle when debt and equity financings were readily available. But to the credit of the industry, it has made the tough decisions imposed by the free market and is emerging in a strong financial condition.

    Secondly, environmental and regulatory constraints have increased the barriers to production, both by shrinking access to potential supply and by increasing the costs of the supply that is accessible. In a world increasingly headed towards deglobalization, many countries will opt to extract as much revenue as possible from their resources, adding further to costs. The combined effect of tighter supply and increasing demand will significantly elevate prices for most metals. Producers will have to replenish reserves and will look to the junior explorers and developers for that supply.

    THE OGM: Which metals are on the rise?

    PATRICK LARACY: The base metals (copper, lead, and zinc) have shown a strong price recovery in recent months and appear to be coming off their cyclical lows. Current demand is primarily driven by industrial uses in Asia, but a resurgence in the western economies is also underpinning a positive outlook even in the face of a more tempered Chinese economy. Zinc, in particular, has specific supply issues as some major mines have been exhausted. Copper is the “workhorse” metal and will lead the charge in any economic recovery and is a key component in electric cars. Specialty metals such as Lithium and Graphite have done well as the demand for batteries increases, particularly driven by Tesla’s vision for a future dominated by electric cars. Gold demand is essentially driven by emotion as a currency and insurance hedge against financial risks and is thus prone to manipulation in the speculative markets. However, it will always be the desired exploration objective because of its universal appeal and value. Silver has disappointed for some time as it has not always followed the moves in the gold price. Uranium is at a cyclical low primarily due to Japan’s slow return to nuclear energy after the Fukushima accident in 2011. Many market commentators believe it has only one way to go and that is up. As an exploration target, it is not very appealing unless you have a good land position in the Athabasca Basin of northern Saskatchewan where several world class discoveries have been made in the last couple of years by junior explorers. Their shareholders have been well rewarded.

    THE OGM: What excites us about Newfoundland mining projects?

    PATRICK LARACY: The most exciting thing about our projects is that they are in underexplored areas of Newfoundland and Labrador where the geological potential is first class and we can explore on a cost effective basis because we are familiar with the regulatory, cultural and business environment. Operating in our “back yard” has many obvious advantages.

    THE OGM: How are technology and innovation changing the exploration and mining sectors?

    PATRICK LARACY: Technology is driving new and increased uses for specialty metals in electronics, computers, cell phones, batteries and related accessories. The mining industry is increasingly looking toward robotics to remotely operate their mines underground. The exploration industry is utilizing sophisticated computer processing and software to model complex systems to allow better predictability in its geological and drilling programs. These, of course, are in addition to all the other digital advancements that affect all commercial activities these days such as communications and data management.

    However, the mining sector has not been subject to any recent major disruptive technology that would increase the geological supply of metals. This is unlike the petroleum industry, of course, which went through the game changing shifts to 3D seismic, horizontal drilling and multi-stage fracking which has turned rock once regarded as non-productive into a very productive asset. This ultimately led to a change in the global supply equation for petroleum and all the associated economic and geo-political consequences. Barring some “black swan” event there is nothing in the mining world on the horizon that would compete with the game changing technology that has affected the petroleum industry. As a result, the mineral supply-demand dynamics are well recognized, thus our optimism for the next upswing in the mining cycle.

    THE OGM: How do you see the mining business evolving in the next five years?

    PATRICK LARACY: I see an industry with steadily increasing but volatile metal prices reflective of an anticipated supply-demand imbalance. The volatility will arise as the markets get fragmented because of deglobalization forces. Less efficient markets tend toward volatility depending on what market you are in and what trade agreements affect that market. Regardless of market gyrations, there should be a move by the producers towards reserve replenishment that will bode well for explorers as they sell projects up the “food chain” to the miners.

    THE OGM: What does Newfoundland have to offer that’s rare and valuable in the mining business?

    PATRICK LARACY: I believe the rarest and valuable thing we have is a large and prospective underexplored geography with a rural culture that understands the benefits of mining to our economy particularly for the rural parts of the province. As for commodities, we are well endowed with many industrial minerals which have not been adequately explored, developed and marketed. These include industrial materials like gypsum, salt, silica, feldspar, graphite, rare earth etc. some of which have applications in new technologies. We can’t forget the value of basic construction materials either such as aggregate, sand and gravel which will be in demand as infrastructure renewal ramps up in the USA and Canada.

    THE OGM: Where do you think Canada/US relations will go regarding resource development?

    PATRICK LARACY: If President Trump is successful in his push to stimulate infrastructure renewal in America there will be an increased demand for our resources. That will be good for our industry. How his protectionist tendencies play out is less certain, but I suspect that what America imports from Canada by way of resources are things that America needs, items required by the productive aspects of their economy as opposed to what their consumers desire, which are predominately manufactured goods. As such I see a trade benefit for Canadian miners, particularly if the US dollar remains strong which is advantageous for Canadian production and should spur further investment into Canadian resource developments.

    Vulcan has spent the last year or so researching the best possible mineral prospects to stake in Newfoundland and Labrador for several reasons. Firstly, the long bear market, from which we are emerging, has opened up a lot of prospective properties because companies and prospectors haven’t been able to make the expenditures required to keep them in good standing. As a result, some excellent prospects are available for staking which, of course, is the least costly method of acquisition.

    Given the scarcity of exploration dollars, we have focused on prospects which are easily accessible. This means that most of the money we spend will add value to the project by going “into the ground” and not for remote camp and helicopter access. The financial markets currently are not supportive of remote access unless you are delineating a significant discovery.

    As well, we are prepared to spend the time and money to digitize a lot of historic information on properties that will benefit from the latest geological software compilation and interpretation. During the “paper-analogue’ years it was often difficult to impossible for a new round of explorers to fully appreciate previous work because of the inability to integrate data sets of different vintages and cross correlate information to recognize positive mineral indicators.

    Also, we have focussed on the projects where state of the art geophysics will be most effective. The mineral world is developing more interrogative geophysical technics, data processing, and 3-D imaging to better interpret the geology and delineate drill targets. This is particularly important in areas with significant ground cover (till and vegetation) because seeing through this “blanket” is imperative to increasing exploration success. As a result, projects that contain modern geophysical surveys are attractive because we can add immediate value through data processing and interpretation. It is our experience that a lot of existing geophysical surveys have not had their full value extracted. This represents a technology driven element of our approach to exploration.

    Looking out over the next two years we expect the best opportunity for increased value for Vulcan to come from the Captain Cook salt resource through our subsidiary Red Moon and also from a resource definition and expansion at the Colchester copper/gold project. Colchester also has the potential to deliver new discoveries for gold and copper. We would love to pull some brand new mineralized intersections out of this property and intend on giving it a serious shot.

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