Exploration Strategies for a Challenging Market

Q: What is the role that ProDeMin’s services have played in the mining industry since the company was founded in 2009?

A: Companies come to us for our expertise in running exploration projects, this is our biggest asset. The company is made up of about 20 geologists, most of whom come from San Luis Potosi, Guerrero, Chihuahua and Sonora. The best way to convince clients that they need to invest in our services is by showing them results. These companies are usually ready to invest in improving their work at the exploration stage because they understand that it is an essential part of their operations, and therefore a necessary expenditure. They have to know what they have if they expect to sell, enter into a joint venture, as well as decide which of these options is preferable.We offer services across all areas of geological services, including infrastructure, logistics, administrative services, land work, camp management, and environmental work. ProDeMin usually withdraws when the property moves into the development phase. If the client wants to sell the property, we can also act as a turnkey service provider in that process. In that situation, we can stay on and work for the new owners as long as they want.

Q: What are the most promising states in Mexico for exploration at the moment?

A: Guerrero is one of the best new developing districts in Mexico; it has world class deposits and is becoming a world-class location for mining. Unfortunately, the state is also a hot bed for some of the country’s security problems. It has not really affected us, but one of our neighbors there had to shut down a project for two months, though it is back up and running now.

Q: What are your experiences in Oaxaca, where there are fewer mining operations, partly because of problems with land access?

A: In Oaxaca we have not seen much anti-mining sentiment as such, but negotiating land access is more difficult there because of the importance that the land holds for indigenous people. In our experience, people have preferred to turn down money in order to maintain control over their land. Negotiation is more sensitive in those situations. The San José mine is in production close to where we are exploring and they have had a lot of problems with the community, but we can go in and say that we are separate from them and are doing things differently.

Q: What is your approach to determining whether a viable mining project can be developed?

A: You have to look at the surface characteristics, and all of the data that is available. If you are lucky the land will have had previous work done on it, so you can access and review all of the data that is available relatively quickly to better understand the composition of the land. We tend to use older exploration methods, and we still do things on paper. We will probably make an investment in computers with specialized equipment for data collection in the field later this year in order to keep up with the competition. Everybody wants the latest methods, but walking on the ground, collecting data and understanding it, is still the most important thing. Technology by itself is not what is going to find an ore deposit - you need experienced personnel on the ground. Once you have found an ore deposit, or are close to it, that is when to start using technology to find more in the same area. Walking the ground and taking samples is still the most reliable technique for finding deposits.

Ideally we start working on a big plot and narrow it down to the best areas. You might drop an area which another company later makes a discovery on, but a company has to make those tough decisions in order to be successful. You do not want to go broke trying to keep everything going, when focusing on one part of the land could make the company. You need to explain that to clients, and this is where our technical expertise comes in; we tell our clients when they need to drop something. Dropping land once you have staked it is one of the hardest things to do – people can feel like they are married to their properties sometimes, but there comes a moment when you have to focus on the best areas.

Q: What is your advice to junior companies, in terms of employing an exploration strategy that allows them to survive difficult times?

A: Exploration is the base of everything going forward, and companies have to keep drilling because they will not find anything without doing so. We keep our clients’ costs down by helping them to drill the best holes possible. Our expertise lies in setting up a good drilling program in advance to test the geological concept. It is nerve-wracking going to a property for the first time and setting up new drill holes because you never know what you are going to hit, but usually we hit what we are looking for. I do not know how many service companies have had the autonomy that we have had on some projects; this only comes based on confidence gained through mutual respect. We were successful in finding a good deposit for our client Newstrike Capital, and that is a good feeling for us.

Q: What are the characteristics of the Mexican mining industry that will allow it to survive the challenges it is currently facing?

A: We are in a strange situation because metal prices are still relatively high, but there is an adversity to risk-based financing at the moment. There is little money available for financing juniors, which is mostly a problem of perception. The same thing happened in 2008, when many juniors disappeared. This time it will be worse, because it seems to be a larger trend and it is said that as many as 50% of juniors will go under if things do not change relatively quickly. It is actually a good time for companies that have cash flow from operating mines, or do not have to raise money in the financial markets for other reasons. As a result of the market’s recent behavior, there will be a lot more consolidation. Many early-stage projects will be acquired by other companies, probably at fairly good prices. We are looking for and evaluating projects for clients that may want to acquire projects or companies that are struggling to find financing. The bigger companies will increasingly get involved in currently devalued projects.