Chris Wilson, president
of Exploration Alliance, a niche consulting group, believes education is an
investment basic. In this exclusive interview with The Gold Report, Wilson shares his
guidelines for winnowing out the crowded junior mining sector to find the
companies worth serious investigation and urges investors to know their
porphyries from their narrow veins.
The Gold Report: Chris, you have
described the junior mining industry as being "in disarray." Do you
have any ideas for investors who might want to participate in the space, but
may be a bit confused or discouraged?
Chris Wilson: Well, upfront I would
say do not lose heart, but do not go throwing your money at just any junior
at the moment.
We have to find 80
million ounces (Moz) of gold a year just to replace
what is being mined. That is equivalent to the whole of the production from
the Carlin Trend. Clearly, any company with a significant discovery will be
extremely valuable. That value will grow exponentially moving forward because
new discoveries are getting harder to find. The value most likely will be
unlocked by the major companies buying the juniors out.
It is a big leap for a
junior trying to be a miner. When the major companies are mining
successfully, but not exploring successfully, acquisitions have to become
part of the future. The trick will be finding juniors that have a commodity
and a deposit style that are attractive to the majors.
"When the major
companies are mining successfully, but not exploring successfully,
acquisitions have to become part of the future."
There are probably 3,000
junior explorers on the Toronto, Australian and London stock exchanges. So,
you have to do your homework. First, you discount the 20% that have
managements with a reputation for pumping and dumping or that lack technical
prowess. Next, you eliminate companies working in countries you do not like
for reasons of geopolitical risk.
With a little bit of
research you can see where mines are being built successfully and where
potentially good mines are not being built. For example, take Gabriel
Resources Ltd.'s (GBU:TSX) Rosia
Montana mine in Romania. This mine has been in existence since Roman times.
It is a 10 Moz deposit that would make a difference
to the region. It would remediate the legacy of 2,000 years of mining
history. But, it has been shut down by popular vote and sentiment on the
Once you discard
management and geopolitical risk, you have 1,500 or 1,000 names left. Next,
you have to look at deposit style. Irrespective of grade, major companies do
not buy small vein deposits with often complex and discontinuous ore shoots.
Such deposits will always remain the remit of Junior explorers who may
struggle to stack together resources or commercialize production. Neither do
major companies want small copper mines with difficult metallurgy. It may
take $4 billion to put a big copper porphyry into
production. As an investor, you have to target companies with the potential
of finding a deposit in the commodity of choice, probably copper, silver or
gold, that has the chance to get the attention of the majors.
Of course, you want to
look at the number of shares a company has out there and how much cash it has
in the bank. If a company is going to have to raise money in the near term,
that will be dilutive and something you want to steer away from.
You can go on to the System of Electronic Disclosure by
Insiders (SEDI) to see if
management has been selling their shares and have a look at the stock curve.
If it is a typical up and down parabolic curve, it probably does that for a
reason. Juniors with good assets tend not to have that parabolic curve up and
down. They may have come off 20% or even 50%, but they are holding steady.
What percentage of the shares is held with management? Put that into the
By now, the list of
3,000 companies is probably down to about 100, and that is a manageable
number of companies to do your due diligence on.
The last thing I would
say is go and talk to a geologist. Not necessarily the company geologist, who
will sell you any story the company wants. If you
are going to invest in this commodity and you do not understand geology, you
need to find a geologist that can help you.
TGR: Is that what Exploration
Alliance is? Are you essentially geologists for hire?
CW: Exploration Alliance is
a practical, hands-on niche consultancy started by a group of us who had
worked as geologists at Ivanhoe Mines and wanted a change, a bit of fresh
air. We tailor our services to meet the needs of junior and midtier explorers. We are the kind of consultants who can
sit on boards and present to the market. We know what it takes to raise money
and spend it wisely. We are very discerning when it comes to project
selection and ensuring that each project achieves a definable benchmark
before progressing to the next stage. Exploration is a game of statistics and
most projects never make it.
Over the last four or
five years we have grown to a core group of 10 people. We could make it
bigger, but the prerequisite to being an Exploration Alliance consultant
geologist is practical, hands-on industry experience. The 10 of us have
worked in over 90 countries.
Most of our work has
been for private groups. For example, a large, well-funded Kazakh group and a
Middle Eastern trust with considerable billions in firepower, as well as some
European funds. When you consult for private money, the clients just want to
know if they should invest. They want the hard facts, without any lipstick on
them. That suits the Exploration Alliance mandate.
What has become apparent
over the last two years is that the average individual commodities investor
needs geology simplified. So, we are starting to morph the consultancy into
an entity that interfaces more with public companies. Before we take on a
job, we do our own internal review. We try to hedge our bets by taking jobs
in companies that have projects of merit. Then we try to write the reports in
a way that the people the report is intended for can actually understand it.
We want to leverage our
years of experience, the input and knowledge from hundreds of geologists we
have worked with and our familiarity with many types of deposits. If we can
simplify that and get it right, that will be valuable for the investors and
for companies with good projects. We think that is where our niche will be.
TGR: Do you specialize in
looking for precious metals assets or all types of minerals?
CW: We specialize in gold,
silver and base metals—copper, lead, zinc, etc.—as well as bulk
commodities such as iron ore. We have coal experience but it is limited.
"There is a lot of
positive sentiment for gold."
There is a lot of
positive sentiment for gold. You can transport gold in a helicopter—fly
it out of a property—without the massive capital expense and
infrastructure you would have with a big copper porphyry project.
TGR: You are basically
banking on the idea that demand for precious metals will continue to
increase. Why are you so convinced that gold will increase in value?
CW: Gold is a finite
resource. You've got to find 80 Moz a year to be
ahead of current annual production. So, from a supply and demand perspective,
each year we're spending more in exploration yet finding less. All things
considered, that means that good discoveries will be increasingly valuable.
In addition, politics
today works in gold's favor. Recent elections prove that people do not want
to vote for austerity. People vote for an easier life. In some respects, this
forces governments, if they want to be reelected, to print money to keep
things humming along pretty much as they have been. That is going to lead to
inflation and to paper money being devalued.
TGR: You have years of
experience traveling the world, exploring for gold deposits. Some people
believe all of the big deposits have been found. Do you agree?
CW: Not all, but a large
number of the big gold deposits have been found. Professors Roger Taylor and
Peter Pollard, consulting geologists and good friends, are fond of saying
that big deposits generally stick out of the ground. That is because big
deposits require very large fluid circulation cells capable of carrying the
metal endowment, and these hot fluids generally alter the rocks around the
deposit, resulting in large and obvious alteration systems. Moreover, large
deposits are generally associated with major structures and may present large
TGR: Based on your years with
your boots on the ground, where do you think the remaining big discoveries
CW: You need both a
discovery and a good environment to develop a project. There are countries
where you clearly should not invest even if they have good geological
potential. China, for instance, has excellent potential, but I have yet to
see a mining company succeed. Many people are fans of the former Soviet Union
republics. They are very difficult places to get ahead. There are a lot of
insider deals and corruption.
Then you go to the other
end of the spectrum to great mining jurisdictions where investments are safe:
Canada, Australia, Peru and Chile to name a few. But, those countries have
been through several cycles of exploration over the last 100 years, which
means it is getting harder to find deposits there.
So, where do you go for
new discoveries and what would those new discoveries be like? This is a
personal choice, but I favor less explored countries with excellent
geological potential that have a manageable degree of political risk.
Colombia is an obvious choice, parts of northeastern
South America fit the bill, as do countries in West Africa that are emerging
"I favor less
explored countries with excellent geological potential that have a manageable
degree of political risk."
West Africa has some of
the greatest mines on earth. For example, Obuasi
has produced 30 Moz and probably has about 35 Moz left. To date there has been over 200 Moz of gold discovered in approximately 30 mines and the
potential remains excellent.
West Africa was joined
to northeastern South America for much of its history and shares the same
geology. In comparison to West Africa, northeastern South America is
significantly under-explored, so all things considered, countries such as
Brazil, Suriname and Guyana have excellent potential. Venezuela also has
excellent potential but the politics are problematic.
There also is potential
in past-producing mines. There have been some very good discoveries recently. Azimuth
Resources Ltd. (AZH:ASX; AZH:TSX) is exploring around the
past-producing Omai mine of 4.5 Moz
in Guyana. A few weeks ago, the company announced a resource of 1.22 Moz.
TGR: So, you are talking
about a contiguous greenstone belt that existed millions of years ago that
now extends from West Africa across the Atlantic and into South America.
CW: Correct, although it was
actually formed 2.1 billion years ago. My point is that greenstone-hosted
gold mineralization is well understood and has been the focus of successful
exploration in West Africa, Canada and Australia.
Greenstone belts of the
Amazon have not been explored to the same extent.
As long as you are
prepared for the geopolitical risk of certain countries, you will probably
get a lot of bang for your buck. There will be more world-class discoveries
there than in some of the countries that have had more exploration.
TGR: What is Exploration
Alliance doing to reach out directly to investors with your expansive
CW: A lot of people who
invest in the junior exploration space, the midtier
and to a degree in major producers have a fundamentally poor understanding of
geology and key concepts. Too often, when I talk to investors, they have no
idea of what a strike extension is or what makes for a great intercept. They
do not know what the difference is in exploration potential between a porphyry and a narrow vein system.
It is amazing that
billions of dollars in speculative money is invested every year by a retail
market that really does not know the basics of simple geology. That is a huge
issue that needs addressing.
That will become a focus
of Exploration Alliance. We will keep the consultancy going because that is
what keeps our edge. But, we see an opportunity to offer something along the
lines of a one- or two-day course that takes people through basic geological
concepts. We want to educate investors in terms of geology, as well as risk
TGR: Chris, thank you for
Chris Wilson formed Exploration Alliance Ltd.
in January 2007 and serves as its principal. He has been the chief executive
officer of Hunter Bay Minerals Plc since May 2007.
He is an established geologist with over 20 years of experience in the
design, implementation and management of exploration projects from grassroots
to feasibility. Wilson has worked in over 40 countries and holds a Bachelor
of Science (Honors) in geology from University College of Wales, Aberystwyth, and a Ph.D. from the Flinders University of
South Australia. He is a Chartered Professional Geologist, a Fellow of the
Australian Institute of Mining and Metallurgy and a Fellow of the Society of
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1) Sally Lowder of The Gold Report conducted
this interview. She personally and/or her family own shares of the following
companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The
Gold Report: None. Streetwise Reports does not accept stock in exchange
for services. Interviews are edited for clarity.
3) Chris Wilson: I personally and/or my family own shares of the following
companies mentioned in this interview: Hunter Bay Minerals Plc. I personally
and/or my family am paid by the following companies
mentioned in this interview: Hunter Bay Minerals Plc. I was not paid by
Streetwise Reports for participating in this interview.