Mineral Exploration

4 Mineral Exploration | amebc.ca PHOTO CARLOS TAYLHARDATœART OF HEADSHOTS A s the spring issue of AME's Mineral Exploration magazine goes to press, a successful 2017 AME Roundup conference has just completed, at which we welcomed 5,834 registrants from 43 countries around the world. Importantly, the conference displayed a sense of optimism about the year ahead, reflecting improving capital markets and growing investor interest in British Columbia's mineral exploration and development industry. As markets continue to turn, it will be important for all of us to reinvigorate the sense of passion, pride and confidence that has long been a hallmark of our sector, and for government to clearly and publicly rea¤irm that the province is open for mineral investment. While recovery within the exploration and development sector has thus far been uneven and commodity-dependent (led by higher prices for gold, zinc, metallurgical coal and, more recently, copper), there has been a growing trend toward new investment coming into the industry. B.C.-based exploration and mining companies with international projects, such as Reservoir Minerals, JDL Gold and Anfield Gold, represented some of the top financings on the TSX-V last year. But the real measure of any sustained upturn for our sector is on-the-ground exploration expenditures, particularly those directed toward grassroots and early- stage exploration. Although 2016 delivered a fourth consecutive year of declining mineral exploration expenditures overall, down 26% to $205 million, 1 a deeper look at the data shows some promising trends. 2 1 www.empr.gov.bc.ca/Mining/ Geoscience/PublicationsCatalogue/ InformationCirculars/Pages/IC2017-1.aspx 2 As compiled by the Ministry of Energy and Mines along with AME and Ernst & Young LLP (EY), which is a new collaboration in 2016 and involves some di¤erences: The new survey does not capture exploration expenditures for aggregates (previously done for the Southwest region only), and allows respondents to partition expenditures (e.g., grassroots 60%, advanced 40%). For details, see EY's British Columbia Mineral and Coal Exploration Survey 2016 Report viewable at amebc.ca. Of particular note is the number of advanced-stage projects with high expenditures in recent years that have now advanced beyond the exploration phase. For example, B.C. experienced significant private-sector capital investment in construction-phase projects in 2016 – such as Pretium Resources' Brucejack gold project in the Golden Triangle, and JDS Energy & Mining's Silvertip silver-lead-zinc mine in northern B.C. In fact, some $150 million of the $205 million invested in mineral exploration in B.C. last year was incurred at cost- intensive later-stage exploration projects. This was reflected in significant public financings for the likes of Seabridge Gold and IDM Mining in the Golden Triangle, and Barkerville Gold Mines in central B.C. Of the 177 exploration companies active in B.C. last year, 87% were junior companies, mainly publicly trading with market capitalizations below $10 million. Of these, 73% were focused on grassroots and early-stage exploration for 38 di¤erent commodities – primarily gold, silver, copper, zinc, lead, molybdenum and coal. Financings in support of earlier-stage exploration projects and commodities other than gold were harder to achieve in 2016. That said, Westhaven Ventures, Dolly Varden Silver and Colorado Resources all achieved market financings that prove opportunities are beginning to expand beyond the later-stage projects. As financial and commodity markets continue to recover in 2017, I suspect we will increasingly see a shift in exploration focus to less capital-intensive grassroots and early-stage exploration. Reviewing 2016 investment data also provides evidence of an increased focus on the Americas by some majors, and – in particular – a renewed interest in B.C. For example, the Canadian subsidiary of Daewoo International Corp. invested in Serengeti Resources' Kwanika project last year. More recently, Antofagasta plc signed an exclusivity agreement with Evrim Resources on its Ball Creek project. Total expenditures on grassroots and early-stage exploration projects in B.C. increased to $57 million in 2016, up from $40 million in 2015. Of this total, $15 million was invested in grassroots work (or 7% of all expenditures), while $42 million was focused on early-stage activities. By way of contrast, when exploration spending peaked in B.C. at $681 million back in 2012, grassroots activities represented only 2% (or $13.6 million) of the total. It has been suggested that at least 20% of exploration expenditures must be directed toward grassroots exploration in order to sustain B.C.'s mining industry by making quality discoveries with the frequency and number to replace mining operations where orebodies are exhausted. So although these early signs of increased investment into grassroots and early-stage exploration are encouraging, policies aimed at nurturing and growing this trend must continue in order to sustain and grow our industry. B.C. has a diverse mineral endowment and an experienced exploration sector that enjoys many competitive advantages. These include access to good geoscience, a legacy of exploration and development excellence, political stability, good regulatory processes, safety standards established through the Mines Act, and a range of other advantages – such as excellent location, growing infrastructure, legal structures and tax incentives. Despite these attributes, B.C.'s share of exploration spending in Canada dropped to 14% in 2016 from a peak of 22% in 2014. This is of concern: there is a very real requirement not just to maintain our sector, but to grow our presence in B.C. in order to identify new orebodies upon which the mines of tomorrow can be developed. Existing mining operations in B.C. collectively generated $7.7 billion in gross mining revenues in 2015, including CHAIR'S MESSAGE DIANE NICOLSON ˆ Chair of the Board of Directors

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