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Dispelling the Myth of Over-Diversification: Canadian Miners Branch Out
June 27, 2011 by prospectingjournal · Leave a Comment
ANALYSIS—ProspectingJournal.com—It can seem that only in the Canadian exploration sector can you have a company that carries a vast portfolio of projects that cover potash and gold, oil and copper, silver and ore, and so on. This project diversity, once thought of as a warning sign for potential investors, is emerging as a successful (and enviable) business strategy in the increasingly competitive mining industry.
They’re called exploration companies for a reason, after all, and their ability to do away with the negative “over-diversification” label has been a topic of great interest to the team at the Prospecting Journal. Our research has uncovered several of these trend-setting, diversified companies, whose project flexibility has given them a strong reach, a flexible business strategy, and a solid presence.
Marifil Mines Ltd.
“Our business model is to farm everything out,” says John Hite, President & Director of Marifil Mines Ltd. [MFM – TSX.V]. A Canadian-based exploration company, Marifil focuses on high-potential joint-venture opportunities. With 20 properties in Argentina, Marifil has developed a diverse portfolio, including several projects that focus on bonanza grade gold, silver, copper and indium.
“There are four points to know about Marifil’s business model,” says Hite. “One, we are becoming a hybrid company; two, we are very active this year, with five separate programs on five different properties; three, because of our diversification we are now cash flow positive in excess of $1 million; and four—we are diversified into precious metals, base metals, industrial metals and oil and gas.”
With such a large amount of projects, a company like Marifil needs to take the same approach as your average stock-trader: detachment from the losers and aggressive support for the winners. Hite says, “This business model absolutely requires that we have a pipeline of projects. Each year we bring five or six new projects, look at them and either put them in the pipeline or get rid of them.”
The Company’s highlight project, the San Roque in the Rio Negro province, is a large, bulk mineable, lead-zinc-silver-gold-indium mineral deposit. It comprises eleven claims, three of which are owned by MIM Exploraciones SA (“MIM”). The property contains a large sulphide system, highlighted in the first diamond drill hole (DDH) program. Results show the interception of high-grade Indium, Zinc, Silver, and Gold; intercepts include 5.1 meters of 2.61 g/t Au and 24 g/t Ag and, in DDH 11, 0.75 meters of 2.05 g/t Au, 0.22% Pb, 0.32% Zn and 448 g/t In.
The results have, as anticipated, caught the eyes of big players. NovaGold Resources Inc. [TNG—TSX] has entered an option agreement with Merifil to earn an interest in the San Roque project. Combined with MIM, who is in the process of purchasing three of San Roque’s claims, it’s easy to see that not only Marifil believes the mineralization is analogous to the giant Penasquito deposit in Mexico (now mined by Goldcorp). As Hite says “we focus like a laser on our number one project. Then we find a partner and let them handle the rest of it and it goes on auto pilot.”
Eagle Star Minerals Corp.
Eagle Star Minerals Corp. [EGE – TSX.V, E6R – FSE, ELGSF – OTC PNK], a natural resource company headquartered in Vancouver, has also made the jump to diversification, from its early days with natural gas in Canada to its present strategy backed by iron ore and a newly acquired phosphate property in Brazil.
The Company’s Angico Iron project, near San Raimundo Nonato in Brazil, comprises 27 claims in 5 concession blocks that span 120,000 acres. Recent cutting, mapping, surveys and sampling have found BIF outcrops and trends on all main concession blocks, significant mineralization at depth and along strike, and average iron grades between 26%, 33% and 52% Fe203. These strong results greatly align with Brazil’s emerging BRIC status as a steel-maker. When considering the costs of ore transportation, the promise of domestic exploration becomes very attractive.
Moreover, Eagle Star has recently announced its acquisition of 41 mineral claims covering an area of 80,000 hectares in the Piaui state in northeast Brazil. Three samplings among the claims, covering 180 km², 340 km² and 240 km² returned values of 2-22% P2O5, 3-10% P2O5 and 2-5% P2O5, respectively. As one of the world’s major agricultural producers, Brazil has become the world’s 4th major importer of fertilizers and 2nd major importer of phosphate.
“This is a significant milestone for us,” states Eran Friedlander, President and CEO of Eagle Star. “The Company’s Brazilian team has been directly involved in the selection and claiming process, and as a result we are very confident about developing this project to production. With phosphate demand being strong in Brazil we believe that this new asset will add significant value to our portfolio.”
Indeed, with the promise of vast iron ore and phosphate discoveries in a country demanding more of both, Eagle Star should be set to attract major players as its projects unfold.
Millrock Resources
Millrock Resources Inc. [MRO – TSX.V] is a Canadian and Alaskan-based company focused on generating projects for joint-venture exploration. Now in the early stages of development, Millrock utilizes what it calls a “Project Generator” model, where it takes a similar approach as Marifil and Eagle Star: focusing on early-stage exploration of copper and gold porphyries and pluton-related gold deposits, with the intent to sell these ore discoveries to major miners. The Company is focusing its attention on Alaska and Arizona, two states that offer a large swath of underdeveloped and underexplored mineral deposits.
Millrock is currently operating 11 exploration projects, which it points out minimizes risk by not tying success to a single source. The Company recently announced the expansion of the Estelle gold property in Alaska, which is under option to Teck American Incorporated. The expansion covers ground that has produced strong historical drill results, including a drill intersection at 3.0 g/t over 29.6 metres and chip sample grading of 18.0 g/t gold over 9.9 metres.
No Reward Without Risk?
The nature of these exploration companies (and many others) is volatile, as they do what many see as the dirty work of searching, funding and marketing. They are, of course, subject to the skillsets of their management and geology teams and have to choose projects carefully. But the rewards for investing in the right exploration company can be great, as majors, investors and whole industries rely on their daring business models and adventurous approach to fuel the ever-growing demand for resources.
Chris Devauld
Senior Writer
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No fee has been paid for the distribution of this article. The author currently holds shares in Eagle Star Minerals Corp. but not in any of the other companies mentioned in this article. Some members of Cordova Media Inc. may or may not hold shares in companies mentioned in the article. The Prospecting Journal will not be held liable to anyone for financial losses pertaining to companies profiled or information provided within this article
