|Saskatchewan Mineral Exploration Boom Increases Intensity|
Saskatchewan has seen a sharp resurgence in mineral exploration since 2001. Home of world-class potash and diamond-hosting kimberlite deposits, and the world’s highest-grade uranium deposits, this province promises almost unlimited potential. Add to the mix: declining mineral reserves, ravenous Asian and Indian markets, skyrocketing mineral prices, eager investors, a stable, pro-industry political system, tax incentives and junior exploration companies. The result? A guaranteed recipe for an ongoing exploration frenzy.
Saskatchewan was the number one destination in Canada for greenfields (off-mine-site) mineral exploration in 2006; that is expected to continue in 2007. In 2007, uranium remained the commodity of choice for companies conducting exploration in Saskatchewan, with forecast expenditures of more than $130 million. Diamond exploration continues very strong, with forecast expenditures of $90.5 million; gold, and base metal programs will see significantly increased activity of $19.5 and $16 million respectively. Exploration for rare earth element and other industrial mineral programs will also receive considerable attention with projected expenditures of $21.1 million.
Junior companies (defined as those with no producing mine operations) in particular are driving this trend full throttle. By 2004, the junior companies had surpassed senior companies in total exploration and deposit appraisal expenditures. In 2006, of the $244 million shelled out for those expenditures in Saskatchewan, juniors spent $167 million for greenfields exploration alone.
“Saskatchewan has been the most under-explored jurisdiction probably in Canada,” said Alan Cruikshank, Vice-President, Union Securities Ltd. However, that is rapidly changing. “In 2003, $30 million was spent on exploration in Saskatchewan. In 2006, that number was $225 million and it is expected to be almost $280 million in 2007,” he said.
Flow-Through Shares and Tax Incentives
Where does the money come from to fund all this activity? Since exploration companies do not carry debt, money must be new capital raised by companies, often through flow-through shares. These shares are issued by eligible companies to new investors; in return, investors receive income tax deductions and an equity interest in the company. Flow-through shares are most beneficial to non-taxpaying junior companies who are often unable to use income tax deductions against corporate income and are willing to forgo the deduction to new investors.
In 2001, the provincial government realized that Saskatchewan’s exploration expenditures of $22.9 million were unsustainably low. Consequently, in 2002 the Saskatchewan Mineral Exploration Tax Credit (SMETC) was implemented to boost activity. SMETC offered a 10% non-refundable tax credit to Saskatchewan taxpayers who invested in certain flow-through shares. From its inception to December 2005, SMETC claims totalled $1.6 million. The program had done its job and the government let SMETC die a natural death. Meanwhile, exploration continued to grow. At $244 million expended on exploration of Saskatchewan minerals in 2006, spending had grown by more than 10 times.
Complementing the SMETC and offering a 15% non-refundable tax credit was the federal Investment Tax Credit for Exploration (ITCE), introduced in October 2000. This year, the ITCE renewed for a third time and is set to expire March 31, 2008. During the four-month gap with no ITCE in early 2006, mineral exploration did not slow down. Instead, flow-through shares raised approximately $145 million throughout Canada – significantly higher than the same period in 2005.
ITCE helped companies like Great Western Diamonds Corp. (GWDC) raise $11.4 million in a single offering this spring. JNR Resources Inc. expects to raise $16.5 million this year through a combination of flow-through and non-flow through shares.
“ITCE is a good way to raise money and very effective in helping Canadian companies explore,” said Rick Kusmirski, JNR’s President.
Despite excellent tax benefits, investing in the junior resource sector can be risky. “I encourage potential investors to ask lots of questions, do your due diligence, and check on the various companies you are thinking of investing in,” cautions Cruikshank.
Red Tape Hurdles
While the government has helped with tax credits, red tape is causing a bottleneck. Some fear this bottleneck will result in lost opportunities.
Neil McMillan, Claude Resources President and Chief Executive Officer, stresses the importance of capitalizing on this cyclical trend. “This is not going to go on forever,” he said. “Regulators really have to double their efforts on every front to make sure we take advantage of the cycle.”
“Industry and Resources and more particularly the Saskatchewan Environment seem to be vastly understaffed,” agreed Paul Ogryzlo, Director, Exploration Denison Mines Corp. “That makes big issues in permitting,”
Juniors and Seniors Active
Many companies are doing their best to capitalize on the cycle. Although it began small, Golden Band Resources Inc. strategically acquired land when gold prices were less attractive. “With about 750 square kilometres of land in the La Ronge Gold Belt,” said Rodney Orr, President and Chief Executive Officer, “we currently own all of the main prospective ground that is there – that includes 10 deposits and a licensed gold mill.”
Even the seniors are stepping up their exploration efforts. With a 2007 Seabee Mine area exploration budget of about $7 million, Claude Resources expects to drill up to 70,000 metres on surface this year.
“We spent more on exploration this year than most junior companies will. We do about 50,000 metres of underground drilling at our existing Seabee operation to replace the gold that we mine out every year,” said Neil McMillan, President and Chief Executive Officer, Claude Resources. “Our principal objective is to find ore that would enable us to expand our operations.”
Jobs and Expansion
What does all this activity mean for the province?
“This creates jobs, it creates further tax bases for our provincial government, and it increases the economy,” explained Shirley Ryan, Executive Director of the North Saskatoon Business Association.
Pam Schwann, Executive Director of the Saskatchewan Mining Association adds, “Saskatoon is becoming Canada’s newest mineral exploration and mining headquarters, boasting over a thousand employees in Saskatoon. With majors like Cameco, AREVA, PCS and Claude Resources already making Saskatoon their home, they are now joined by almost a dozen junior companies including Shore Gold, Golden Band Resources, JNR Resources, Great Western Minerals, Denison Mines, Athabasca Potash, Wescan, and Titan Uranium,” she said.
“And all the eggs are not in one basket, as these companies are exploring for and developing a diversity of minerals in Saskatchewan including uranium, potash, diamonds, gold, base metals and rare earth elements. With the Saskatchewan Research Council’s geoanalytical labs in Saskatoon working flat out to process samples from these companies, Saskatoon is also adding value to the primary exploration industry and quickly becoming a recognized centre of excellence and expertise in the mining industry,” said Schwann.
The experience and expertise of the service sector is not limited to Saskatoon. A significant amount of exploration services are provided by northern businesses. Data collected by Saskatchewan Advanced Education and Employment in La Ronge indicates that in 2005 local businesses and employees based in northern Saskatchewan earned more than $226.6 million for goods and payroll from mining companies operating in northern Saskatchewan. With the resurgence in exploration activities, existing 2006 and forecast 2007 numbers are anticipated to exceed this value.
GWDC signed an agreement with the Montreal Lake Cree Nation earlier this year. Besides other provisions, “We employ First Nations people,” said Doug Patrick, Manager, Investor Relations, GWDC. “We had 50 people working around the clock from October through ‘til March. Our project in Candle Lake went into standby mode with spring break-up but the people who are working at security are from Montreal Lake First Nation.”
Kitsaki Management Limited Partnership (KMLP), owned by the Lac La Ronge Indian Band and celebrating its 25th anniversary in December, is also enjoying a growing employee base.
“Through Northern Resource Trucking, Athabasca Catering, and CanNorth, “we have just a little over 400 directly related to the mine, and probably another 50 for casual,” said Chief Executive Officer Russell Roberts.
“There has been increased activity within our community and for our band members too,” added Roberts. “There are a lot of opportunities for expediting and service-related businesses that deal directly with exploration.”
“People up there like Scott Robertson of Robertson Trading are just swamped,” agreed Kusmirski. “We likewise are challenged when it comes to recruiting. We try to recruit local people as much as possible.”
Geologists, in particular, are in high demand. At Denison Mines, “We hired four recent graduates from U of S – geologists,” added Ogryzlo. “We will have one U of R student back this year. We have hired a couple of geologists from eastern Canada – also recent graduates – and one out of Alberta – that is always a coup,” he chuckled. “We have had a couple of people on an ongoing basis from northern Saskatchewan who have been working for us on seasonal employment. We have hired another handful from the Athabasca area on short-term jobs from time to time.”
Job growth is also occurring in the Athabasca community. Athabasca Basin Development Limited Partnership (ABDLP), the investment arm of the seven Athabasca communities, is capitalizing on the exploration boom. ADLP bought into Points North when it recognized the growing exploration trend.
“We now own 50% of Points North, which supplies fuel, room and board, and freight to all the exploration companies. We also have started a line cutting company, which resulted in increased contracts for us and consequently more Athabasca employment,” said Geoff Gay, General Manager of ABDLP.
“I hear of Athabasca people doing some expediting work,” added Gay. “There’s talk of people getting involved in drilling. There’s more barging activity, more transportation.”
In the exploration business, for every geologist, the industry needs two drillers and a core splitter. These specialists and their companies in turn increase demand for supplies and suppliers.
“Even in a place like Stony Rapids, the hotels are much busier,” noted Gay. “The guys renting out skidoos and equipment and selling groceries are busier too. Each one of those companies, as they get busier, obviously needs more people.”
Golden Band Resources increased both staff and office space and resituated in Saskatchewan. “We’ve gone from 1000 square feet of office space to about 6000,” said Orr. “We moved the headquarters of the company from Vancouver to Saskatoon in 2004.”
“We have been able to attract local people. We are still looking to bring in support staff,” added Orr. “For goods and services, we are talking to the northern suppliers – people in La Ronge, for instance. The groceries, the logistics – everything that we need is all purchased in La Ronge.”
With such positive exploration efforts and high demand for Saskatchewan minerals, companies are doing much more than expanding their employee base. They are also expanding their programs.
“Golden Band now plans to move forward towards production,” said Orr. “We are aiming at the end of 2008 but that is still a moving target.”
“We are progressing from the land acquisition phase to more surveys and drilling of our uranium targets in the Athabasca region,” says Ogryzlo.
At GWDC, “Our most advanced program is our evaluation of Candle Lake Kimberlite, which is in the Fort a la Corne kimberlite field,” said Patrick. “It is diamond fierce and it is large – 100 million tonnes plus kimberlite. We are basically where Shore Gold was three and a half years ago.”
At Claude Resources, “We currently operate at about 45 to 50 thousand ounces per year of production,” said McMillan. “We have enough ore in front of us now to go for about 10 years if everything goes well. We are looking for additional orebodies within trucking distance that would enable us to increase our production over the long term.”
Since it can take 10 to 15 years to bring a mine to production, exploration is the key to sustainability in the mining industry. It is anticipated that the current high levels of exploration will ultimately result in the ultimate reward – the discovery of a few new mines. This will ensure Saskatchewan’s place as Canada’s newest mining and exploration headquarters, a province where mining continues to be a pillar of economic prosperity.
Created by: Shirley Collingridge, Wordsmith