Abitibi Royalties shows creative side
Launches website aimed at finding mining investment opportunities
Ian Ball is trying to do something that is almost unheard of in the mining industry: use the Internet in a creative way.
Ball, the president of Abitibi Royalties Inc., launched an online platform this week called the Abitibi Royalties Search. The website invites cash-poor junior mining companies to submit data on their projects. If Abitibi likes what it sees, it will cover the cost of the claim fees and taxes on the project, which may be unaffordable for the struggling miners. In return, Abitibi receives a permanent royalty.
“We could provide royalty financing for a portion of the market that’s never qualified before, which (is) the junior explorers,” Ball, 33, said in an interview.
Abitibi is a tiny player in the mining royalty space, which is dominated by Franco-Nevada Corp., Royal Gold Inc. and Osisko Gold Royalties Ltd. Those firms will always get first crack at the most promising royalties, and they have billions of dollars to spend on them.
Abitibi only has about $35 million to play with, and needs to think creatively and target early-stage projects if it wants to find opportunities that the big players overlook.
The website idea is partly inspired by the famous “Goldcorp Challenge.” In 2000, Goldcorp Inc.’s then-chief executive Rob McEwen released all the company’s geological data for the Red Lake, Ont. gold mine online, and invited the public to provide advice on drilling targets. Ultimately, the advice helped Goldcorp make some key discoveries at Red Lake, which is still thriving today.
The prize money paid out was slightly more than $500,000, a bargain compared to what Goldcorp got.
Ball used to work with McEwen, and said the Goldcorp Challenge always stuck in his head. But he is surprised that other companies did not follow Goldcorp’s lead and try to use the Internet in a collaborative way. Barrick Gold Corp. tried something similar to Goldcorp in 2007, with much less success.
The other main inspiration for the site came when Ball talked to a mining executive with a gold project in Nevada. The executive’s project had potential, but his company was almost totally out of money. Ball offered to pay the claim fees in exchange for a royalty, and was told he was too late: The executive had already dropped the property, and someone else staked it.
“I thought: How many more situations exist like this?” Ball said.
Property claims usually expire every couple of years, and the cost to renew them is typically anywhere from $10,000 to $50,000.
That can be a real challenge for junior exploration firms these days, as they have minimal access to capital and also have to deal with listing fees, auditing fees and other overhead costs.
Paying those claim fees is a creative way for Val-d’Or, Que.-based Abitibi to get involved in quality projects at a low cost. But tracking down all the companies with expiring claims would be difficult. By setting up the website, Ball is inviting them to come to him.
Once the companies submit their data on the site, Abitibi Royalties will try to deliver a “Yes” or “No” answer on whether it will invest within 48 hours. The priority is to buy royalties on projects near existing mines.
In addition, Abitibi is willing to buy royalties on brand new projects. The company said it will pay the claim-staking fees if it thinks the venture has potential.
Of course, the vast majority of exploration plays never turn into mines. And even if they do, it takes many years to get them from discovery to production.
Ball said he is hoping that five to 10 per cent of these royalties are winners, which would be an extremely high success rate for early-stage projects. He also said that Abitibi’s share price should benefit from positive drilling results, even if it takes years before any of the royalties generate cash flow.
“If somebody has a property that needed $20,000, and they’re a mile away from an operating mine, and the geology is good, and the mineralization is good, I’m willing to take that bet,” he said.