B.C.'s junior exploration firms stand to make big gains from joint ventures with senior producers as Canada's mining industry enjoys heady times not seen in more than a decade.

Industry insiders attending the recent Mineral Exploration Roundup 2006 conference in Vancouver predict joint ventures between big and small firms will increase as B.C. attempts to boost the $220 million invested in the province's mining industry in 2005, and achieve gross revenue targets - estimated by the provincial government and industry to be between $5 billion and $7 billion.

Major mining producers indicate they will look for more help from juniors on early-stage research and development as they deal with consolidation and increased expectations from fickle investors.

"If you look at a lot of major discoveries, it's junior mining companies ... I think they're a key part of the formula that we have to explore," says Aaron Regent, president and CEO of Falconbridge Ltd. "I'm not sure about other companies' (plans to joint venture.) But I'm sure (partnering with juniors) is part of their strategy."

Bayne Stanley, Business Edge
Dan Jepsen, president of the Association for Mineral Exploration British Columbia, checks out a core sample.

B.C. has long been a centre for junior exploration companies that love to prospect for minerals but struggle to gain adequate financing and have few employees. On the other hand, senior producers are becoming increasingly focused on operating large mines while leaving the drill-testing to others.

During a speech to the conference, Regent said increasing consolidation and a more conservative mentality are prompting large producers to focus on big plays, "indirectly keeping a lid on" marginal properties that could be put in production. As a result, it's taking longer to put large mines in operation - while demand for base metals is rapidly rising. He estimated discoveries must increase by two-thirds to keep up with increasing global demand, but have only risen 25 per cent.

Toronto-based Falconbridge is in the process of merging with Toronto-based Inco Ltd. as part of Inco's friendly $12.5-billion takeover.

The deal, under review by the federal Competition Bureau, will see the new entity become one of the world's top five mining producers.

"We're probably looking to increase the number of partnerships versus what we've had in the past, which (means) we're trying to cast the net wider to catch a fish, so to speak," Regent told reporters after speaking at the conference.

Regent says joint ventures allow his firm to retain value from properties that do not figure to become major plays, while juniors get the assets they need "to get in the game" and grow.

"There are some properties that would be, let's say, immaterial to us, but could be quite material to some companies around here," says Regent.

Dan Jepsen, president and CEO of the Association for Mineral Exploration British Columbia (AME BC), says juniors and major companies will eventually have to hook up on projects that become mines, because majors have the money to build large mines that can cost upward of $1 billion.

"The majority of greenfield exploration is being undertaken by the junior community," says Jepsen, whose group staged the exploration roundup conference. "The majority of the brownfield exploration is generally being undertaken by the majors.”

Brownfield means that they're looking to expand the deposits around the currently operating mines.

The trend toward juniors conducting exploration and seniors operating mines has been evolving for 15 to 20 years, because juniors are can adjust their exploration programs more easily than large firms can, he adds.

"This is where the juniors are very attractive," says Jepsen. "They're mean, they're lean, they've got great talent, they've got low overhead, they're aggressive, and they're very entrepreneurial - which is what the mining companies like to see."

During the conference, which attracted some 6,000 mining industry players from 29 countries, several juniors and majors discussed potential deals. Vancouver is home to 850 junior mining firms, and majors have great confidence in their technical expertise, says Jepsen.

Don Lindsay, president and CEO of Teck Cominco Ltd., says producers will seek to operate larger mines as companies get bigger.

"One of the effects of consolidation, where companies have become bigger, is that you do tend to look for projects that would have an impact on the company," says Lindsay.

As a result, he says, his company is looking to do more joint ventures. "We have positions in 30 junior companies now, so we're really developing our portfolio."

Such talk is what David Caulfield, president and CEO of Vancouver-based Rimfire Minerals Corp., loves to hear. Caulfield's strategy is to develop partnerships with producers that can operate sites while his firm retains a financial interest after making initial discoveries.

Rimfire is developing joint-venture gold, silver and uranium projects in B.C., the Yukon, Nevada and Alaska with such major firms as Denver-based Newmont Mining Corp., AngloGold (U.S.A.) Exploration Inc., and Toronto-based Barrick Gold Corp., which last month acquired Placer Dome Inc., in a $10-billion deal. Rimfire also partners with other juniors in tandem with senior producers or separately.

"What we like to do is have our partners take (a project) all the way through to production," says Caulfield, whose firm has seven employees.

Rimfire, formed in 1999, recently announced a four-way joint venture with the Canadian subsidiary of U.S.-based Newmont; NVI Mining Ltd., a subsidiary of Toronto-based Breakwater Resources Ltd.; and fellow Vancouver-based junior Fronteer Development Group Inc., on a uranium play in the Yukon.

Caulfield says joint ventures in which producers operate the site allow his firm to pursue more projects at less cost and increase its chances of a discovery without tying up staff.

In an ideal world, he says, juniors would prefer to hold a 100-per-cent interest on every property, but just as solo plays can deliver 100 per cent of the upside, they can also deliver 100 per cent of the downside, leading to the dilution of a company's value.

"(Exploring) is almost like being a human," says Caulfield. "You know you're going to die, but few of us ever prepare for it. Well, in exploration, chances are - more times than not - you're going to fail. We do nothing to prepare for that eventuality and I think that's stupid."

Like any business, says Caulfield, mining companies have to develop strong, ongoing relationships to ensure success. He says Rimfire's joint venture efforts have paid off because Newmont approached it on the Yukon project and a Nevada project last year.

"They brought us into Nevada - which is their backyard," says Caulfield. "Here's this tiny little company from Vancouver and they invited us to go into a Nevada, where they have all this data already, and let us go explore. They can only do so much in Nevada themselves. This is an area they wanted to explore, but they just didn't have the time to do it."

Michael Gray, a mining analyst with Pacific International Securities Inc., says juniors that are pure exploration companies, have good business models and high-potential properties will still be able to equity-finance their projects - and go it alone if they want to.

The rate of joint ventures will depend how much risk juniors are willing to assume - by spending their own money. But if juniors are robust enough, senior producers will "take those juniors out" in order to grab more production.

"So there's a couple of exit strategies for the juniors, but they are really starting to have the capability to raise the funds without heavy dilution (of assets)," says Gray.

As occurred in the oil and gas industry following several large mergers and acquisitions, many junior exploration firms are now run by veteran management teams who left senior production companies as a result of mergers and acquisitions.

"I think that (comparison to the oil and gas industry) is an excellent analogy," says Gray. "In terms of exploration, it has, over time, almost been out-sourced to the juniors and the big guys ... have done their thing by gearing their firms to production-pipeline assets whereas upstream the juniors have been trying to find things. So the juniors are where they probably naturally should be."

Gray says consolidation has led to the disappearance of mid-sized mining companies, but many junior gold producers are evolving into "the next generation" of major producers.

For example, Goldcorp Inc. of Vancouver was able to maintain a 100-per-cent interest and develop one of the world's highest-grade gold mines at Red Lake in Northern Ontario, which now produces 550,000 ounces of gold annually.

Several observers say there is a global shortage of minerals, caused largely by increased demand from China and India, but it will still take several years to bring new mines onstream.

Michael McPhie, president of the Mining Association of British Columbia, which represents producers, says juniors will help seniors replenish their reserves.

"So you're probably going to see a lot of takeovers, a lot of mergers, a lot of interesting things happening," says McPhie.

McPhie predicts at least three new mines will commence production in B.C. this year, in northwestern B.C. and in the northeast near Tumbler Ridge. While the province's mining activity trend is likely to continue upward, it's still difficult for some producers to raise funds.

"I did a presentation to the investment community, a number of the pension funds and things, in Toronto not too long ago and there still exists some concerns about B.C.'s jurisdiction," says McPhie. "We still have a long way to go. People's memories are long. They remember those projects that fell through or the chief project that took 12 years to get through the permitting."

Executives and government officials alike say the biggest impediment to growth will be a shortage of skilled professionals and trades workers, which Lyn Anglin, the new president and CEO of Geoscience BC, described as "a crisis."

Bill Bennett, the province's minister of state for mining, announced the provincial government will host more than two dozen mining job and career fairs between February and April in various communities around the province. Meanwhile, Premier Gordon Campbell has also unveiled a mining-industry training program.

Bennett says the Liberals are also looking at implementing a province-wide storefront, or one-window, regulatory approval process, which is already in place in some areas.

Energy and Mining Minister Richard Neufeld says B.C. now accounts for 14 per cent of mining investment across Canada and that will likely increase.

Several B.C.-based juniors have boosted investment in uranium exploration activities outside the province. Neufeld says the province does not have a policy on uranium mining but will likely develop one in order to balance environmental concerns and investor interest.

But disposal of nuclear waste remains a "huge concern" for government and industry, adds Neufeld.

(Monte Stewart can be reached at monte@businessedge.ca)