Gold-exploration outfits ready for a long downturn
August 20, 2013
Gold-exploration companies in Northern Nevada are buttoning up for what they expect to be a long, cold period — one of the coldest that they've seen in recent memory.
Exploration companies — the folks who scout prospects and raise investor money to undertake drilling and collect data in hopes of selling a promising project to a big gold-producing company — are cutting back their land holdings, trimming their staffs and hoarding their cash.
Many of those companies are either headquartered in the Reno area or have their operational bases in northern Nevada while they maintain their corporate headquarters closer to their investors in Vancouver or Toronto.
One of them, Reno-based Wolfpack Gold Corp., headed by longtime exploration professional William Sheriff, decided last month to pull in the reins on its exploration program.
The company froze its hiring, reduced staff by more than a third and cut salaries by 20 percent. It's in talks, too, with suppliers about further cutbacks.
And it's cutting back its claim holdings — currently than 40 properties, most of them in Nevada — by 40 percent to save on the costs of holding them.
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Instead, Wolfpack will focus on a handful of projects such as its Adelaide prospect 20 miles southeast of Winnemucca and its Fourmile project in Nye County.
The company has about $6 million in cash, but Sheriff isn't confident about the ability of Wolfpack Gold — or other exploration companies, for that matter — to raise more money from investors. The company's current plan is based on the expectation of no new money from equity investors for a good while.
"The mining industry has zero credibility on Wall Street," he says.
Investors jumped onto the mining industry bandwagon as gold prices moved to record-high levels in recent years, he says, but mining companies focused on production numbers and failed to convert high prices into bottom-line returns.
"Investors don't care how big your trucks are, they care about how big the profits are," says Sheriff.
As a result, the phones stopped ringing in exploration-company offices.
Renaissance Gold, another Reno company headed by veterans of the exploration sector, saw strong activity through 2012, even though the market was clearly softening, says Richard Bedell, its president and chief executive.
"This year, we really have had decreased activity by partners," he says. "Early in the year, we have a tremendous amount of interest in our projects, but we have had a difficult time getting people to sign and commit."
Some longstanding commitments, however, keep Renaissance moving forward.
The company said a few days ago, for instance, that it's working on a $525,000 budget to continue exploration of its Spruce Mountain project in eastern Elko County. That work is financed through a longstanding deal with a subsidiary of Japan's Sumitomo.
Struggling to find investors to up money to finance the drilling and geophysical work that's necessary to prove-up a property enough to get the interest of a well-capitalized gold-production company, exploration firms are letting go.
Ranger Gold Corp., a small publicly held company based in Reno, cautioned in a filing with the Securities and Exchange Commission last week that it's running through the $300,000 in cash it raised through an equity offering in late 2011.
If it's not able to raise more money, the company said there's substantial doubt about its ability to stay in business.
In February, Ranger Gold decided it couldn't afford to pay this year's payment of $30,000 for an option on a 1,080-acre mining property in Mineral County and turned the property back to MinQuest Inc. of Reno.
Now, Ranger's sole holding is a small property just east of Battle Mountain, for which it's paying $5,600 a year in lease costs and claim maintenance while it awaits the days when investors are willing to pony up for exploration.
Sheriff expects that many small operators with claims on federal lands will walk away early next month, when they're required to make their annual payment of claims fees with the Bureau of Land Management.
"There are more people throwing fish back into the pond than there are taking them out," he says.
While some potentially good properties may be available as exploration companies give up, there's little sign so far that bargain-hunting investors are scooping them up.
"There are a few bottom-fishers, but money is so tight that there is a tendency to just try to hold onto the best properties," says Renaissance Gold's Bedell. "If someone is to go out and try to acquire prospective mineral rights, they need to be prepared to hold onto those for years."