It's a challenging market out there for junior mining companies. Traditional routes of raising capital are becoming less reliable as investors, looking for a quick return, seek out companies that are already cash-flow positive.
"What I see in the junior resource sector is that you've got to be nimble and recognize opportunities that present themselves," said Edward Kelly, president and CEO of Inca One Resources Corp. (TSX-V:IO). Opportunity for Kelly presented itself last spring when the Peruvian government passed a law designed to eradicate illegal and informal mining within two years.
With a 100% interest in the Las Huaquillas gold property already in place in the country, the company acquired an option to earn 100% interest in the Corizona Gold Project, approximately 85 kilometres from the capital city of Lima, on February 7, 2013.
By taking advantage of the new law and setting its sights on an existing operation, Kelly feels that Inca One was able to avoid some of the challenges in raising capital that other small mining ventures face. With some work and sampling on the mine already completed on the Corizona Project, less time and money will need to be invested and the mine can become productive quickly. In fact, Inca One is only seeking to raise $1 million.
On February 20, 2013, the company announced plans to issue up to 10 million units in non-brokered private placement at a price of $0.10 per unit.
"We've done our own sampling that confirmed the sampling done by the previous owners," said Kelly. "I believe we'll be able to start bulk sampling of 50 tonnes per day within the next 90 days. But that's just what we can easily handle with existing infrastructure and what we have budgeted to do. We're doing construction in the mine now and, once that's done, it's permitted to produce up to 350 tonnes per day."
Based on modelling, after metallurgy and dilution, 9.4 grams per tonne will be recoverable from at least seven veins, 1.2 kilometres each, that are currently identified and working. Modelling shows a cost of production, with taxes and all other factors included, of around $800 per ounce.
With the price of gold currently at over $1,600 per ounce, investors could see a return relatively quickly.
Inca One has more plans in store for the future. It's currently looking to either buy or build a plant to process its ore. Kelly would also like to acquire three or four more ventures in Peru. And the possibility exists for expanding to other precious metals.
"We found some silver and some copper [at the Corizona Project], but haven't decided what we're doing with that yet. We're running studies to find out how much there is and what grade it is," said Kelly.
While financing is always a critical issue, Inca One has reduced the amount of financing it needs, as compared with other small mining ventures, by acquiring existing properties rather than focusing on exploration and building mines from scratch.
"The most significant issue facing small mining ventures right now that they are facing challenges raising capital in the equity market, and they're having to seek out alternate sources of financing," according to Kathleen Keilty, partner at Blake, Cassels & Graydon LLP.
"The significant value add that we can do right now is to help them navigate their way through what are sometimes novel [financing] options for these [small mining] companies," said Keilty.
"Where the terms are complex, we can assist them with understanding the potential consequences of those terms and trying to help them negotiate terms that are as favourable as possible under those circumstances."
Bruce Sprague, Canadian mining and metals leader at Ernst & Young, helps junior mining companies at all stages of their projects, from assisting with the initial public offering to providing audit-related services and providing tax expertise.
He said that "a trend that's starting to evolve is one where a [global diversified mining company] might come along and look at a junior and, if the property looks good, decide to support the junior's undertaking. But rather than perhaps acquiring the junior outright, they take proportionate or minority interest."
Today's small resource companies are facing changes and need to adapt. But, with the right legal and financial help, as well as an ability to find opportunity, adapting to change is a goal that is well within reach.
