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Analysis

Advantages of the Prospect Generator Business Model

Mon, 10/21/2013 - 17:36

Evrim Resources is a mineral exploration company operating under the prospect generator business model. “This model works by allowing Evrim to focus on early stage exploration projects and then attract partner companies to explore those projects with us,” explains Stewart Harris, Vice President of Exploration at Evrim Resources. Through this method the company invites those partners to earn a majority interest in the project by conducting the more capital intensive phases of exploration. The goal is to make an economic discovery and create value for the company’s shareholders, while keeping the company financially healthy and sustainable over the long term.

Rob Duncan, Vice President of Business Development at Evrim Resources, explains that when being involved in exploration projects, the chances of making an economic discovery are slim. The prospect generator model increases the chances of success and lowers the risk of failure, since more projects can be explored at a lower cost. “If you work as an exploration company, trying to do everything on your own increases your risk and expenses, resulting in a lot of share dilution, as you need new capital to finance your activities,” he details. “We are happier to allow our partner companies to earn a majority interest in each individual project and have Evrim retain a minority interest if we make a discovery.” With this model, the key advantage for partner companies and possible future partners is that they earn a majority interest in the project in exchange for taking on larger exploration risk. Another advantage is that they can get a chance to test a good quality exploration target without going through the expenses and time of generating their own. Duncan also comments that a key consideration is the qualified human resources necessary to achieve those exploration targets: “The mining industry  as a whole is facing a shortage in human talent that results in a lack of capacity to undertake this challenge, and Evrim can offer that capacity.”

Evrim Resources is focused mostly on copper, gold and silver projects. Harris emphasizes that the company’s business model allows them to pursue any commodity it has expertise in, as long as they can find a partner. The most advanced project it currently has is Suaqui Verde, located in Sonora, a porphyry copper project that is optioned to First Quantum Minerals. “Our exploration program there has consisted of geophysics and diamond drilling. It was very successful finding long areas with copper mineralization; it was sufficiently encouraging to start a second phase program that is already underway testing more targets. The goal there is to find a more than 500 million tonne porphyry copper deposit,” adds Harris. Currently, all of the company’s projects are located in Mexico, because Evrim Resources originated when it purchased exploration assets in the country from Kiska Metals Corporation. The company sees many opportunities remaining in Mexico, especially because it is significantly underexplored, but that is not preventing them from looking for other opportunities globally.