Royalty mining — Globex's business plan

Materials World magazine
,
1 Sep 2008

Jack Stoch, CEO of Globex Mining Enterprises, Quebec, Canada, speaks to Michael Forrest about the company’s business plan of exploration, discovery and royalties.

Junior mining companies now invest over 50% of the world exploration budget and they are responsible for many of the new deposits that are required to meet the increasing demand for metals and minerals. Most junior exploration companies do not have sufficient capital, and sometimes the interest, to develop a mine based on their find and instead choose to sell outright to a larger company or enter into a joint venture that will bring them a share of a larger project.

A less common method is to find and quantify an economic deposit and then sell it in its entirety, retaining no stake except a royalty on the minerals when they are mined. It sounds simple but it requires a strong exploration capability, an ability to recognise potential overlooked by others, and a track record that inspires confidence in potential investors.

Geological role

One company that has built a portfolio of exploration properties is Globex Mining Enterprises, based in Quebec, Canada. Chief Executive Officer Jack Stoch is a geologist with experience of gold and base metal mining in Canada and the USA. The other directors of the company are also geologists.

This predominance of earth scientists is unusual but, according to Stoch, ‘As the company’s success is based on the recognition of mineable deposits, it is imperative to have wide ranging experience in exploration’.

The Globex business model is one of exploration, discovery and royalty. It has over 80 properties in Canada and the USA, a limited geographic extent that Stoch says fulfils the company needs. ‘Concentrating in known areas with excellent infrastructure and low political risk allows the company to focus on the identification of economic deposits,’ he says.

‘Furthermore, by choosing to operate in known mining camps, the company geologists can bring a great deal of knowledge to bear on possible economic prospects. Commodity price risk is also ameliorated by exploration for wide-ranging base and precious metals, speciality metals and diamonds. The current high prices for most metals has effectively lowered the grade (metal concentration) at which metals can be economically mined and re-introduced many deposits.’

As an illustration of this, 2003 marked the beginning of the bull market in commodity prices that is still evident today. Using May values (2003 and 2008), increases in prices can be seen in the table below right.

Mine sites

Globex has long operated in the Abitibi greenstone belt that straddles the Canadian provinces of Quebec and Ontario. The Quebec part, in particular, hosts many gold and base metal mines and has the added bonus of a rebate of up to CAN$0.47 on every CAN$1 spent on exploration from its provincial government.

Globex has a number of properties in this greenstone belt that historically has produced metals to the value of over US$236 billion. The area that stretches between Timmins in the west and Val D’Or in the east hosts particularly fertile ground between the northern Destor-Porcupine faults and the Larder Lake-Cadillac fault system to the south.

The company has five gold properties in Ontario and over 50 gold, or gold-bearing properties, in Quebec. These are in various stages of development from early exploration to near production and represent future income for the company. The criteria for selection are wide ranging but the common factor is good potential for production.

Modern take

Globex has also entered into joint production with Queenstown Mining Inc, Canada, whose Pandora property historically produced 35,000oz of gold. Adjacent to Pandora is the Lapa project, currently being developed by Agnico-Eagle, Toronto, Canada, whose reserves and resources have been estimated at 5.66Mt grading 7.8g/t. All of these are hosted in the regional structure of the Cadillac break. The property was selected for joint venturing because of historic gold production, prospective geology and favourable mining laws including tax relief.

Recent exploration has revealed strong gold values in the Ironwood gold zone including 11.6m at 22g/t, 19m at 8.9g/t and 7.1m at 28.6g/t. Drilling has confirmed the vertical nature of the gold-hosting structures at relatively shallow depths (~300m at Central Cadillac). ‘These new finds in an established gold camp indicate that although exploration has been active in the area for many decades, the application of modern techniques reveals strong potential,’ says Stoch.

Illustrating this philosophy is the Russian Kid gold mine in Dasserat Township, Quebec, Canada. The historic resource was developed mainly by diamond core drilling. This has resulted in measured reserves of 107,800t at 6.06g/t, indicated at 414,000t at 4.92g/t, and over two million tonnes at 6.32g/t, all National Instrument 43-101 conformable.

In late April 2003, Globex purchased 100% interest in Russian Kid from the receiver KPMG Inc following a dispute between the previous mining company and its bank. In 2005, Globex optioned the property to Rocmec Resources Inc, Quebec. Rocmec has paid Globex US$700,000 and 1.75 million Rocmec shares. In addition, Globex will receive five per cent of the first 25,000oz of gold produced and three per cent of all subsequent gold production.

Base projects

Globex also has explored for and developed a number of base metal properties in the Abitibi belt and holds some 30 base metal exploration projects. Five of these, Halliwell, Duvan, La Motte, Fabie Bay and Magusi, contain copper and zinc as well as precious metals. Fabie Bay and Magusi, were optioned to Canadian company First Metals Inc in April 2006 for a consideration of CAN$1 million, 10% of the issued capital of First Metals, a two per cent net metal royalty and a 10% net profit royalty (net metal royalty is a Globex term for a share of the metals produced before any charges whatsoever).

Fabie Bay has a chequered history. Following staking, after the release of airborne geophysical data in 1972, the Hebecourt Syndicate, a local company, began prospecting. Two years later Noranda Mines Ltd, Quebec, leased the property following the purchase of the adjacent Magusi deposit. Noranda nearly bought the mine into production in 1974, and in 1976-77 developed a small open pit mining 103,500t of ore grading 2.64% copper. Approximately 80m of ramp and 215m of development work were all that was required to facilitate production.

In 1977, due to depressed copper markets, Noranda requested that the syndicate agreed to close the mine and extend the terms of the lease. This extension was granted, however, the Fabie Bay Mine was never re-opened and was eventually optioned to Deak Resources Corporation, Toronto, Canada.

In time, both sites became the property of AJ Perron Gold Corporation, Ontario, and Sikaman Gold Resources, Ontario, and two other associated juniors. Sikaman and its partners eventually went bankrupt and the claims fell open in 2002.

Globex acquired 100% interest in the claims in 2002 and subsequently optioned the property to Noranda Inc, which explored for a large deep orebody. They intersected uneconomic sulphides and terminated the joint venture in late 2003. The following year, Globex drilled an exploration hole on the east side of the Fabie Bay deposit. The hole encountered massive sulphides grading 3.44% copper and 8.1g/t gold over 3.7m. In November 2005, Globex engaged Canadian company Micon International Ltd to complete a NI 43-101 compliant reserve calculation.

These examples illustrate the business model developed by Globex. In a recent presentation in London, Stoch claimed this had resulted in a unique company that was both an exploration, discovery and royalty company based on professional management, extensive land package in established mining camps, small issued capital and no debt. Only in exceptional circumstances has there been a need to raise finance.

The company’s area of interest in North America eliminates political risk and, in the case of Quebec, brings significant financial support for exploration.

In addition Globex has US interests in a zinc mine in Tennessee, gold in Nevada, and platinum and palladium in Washington State. In Canada it has gold in British Columbia, uranium in Quebec, and magnesite and talc in Ontario.