John-Mark Staude
President and CEO
Riverside Resources
/
Insight

Mining Health Threatened By Regulatory Inefficiency

Wed, 10/18/2017 - 14:56

Since its inception in 2007 with its acquisition of the Chapalota property in Sinaloa, Riverside Resources has been a company dedicated to mineral exploration in Mexico and its President and CEO John-Mark Staude is vocal about his love of the country. “My father is Mexican and I feel a real responsibility to the Mexican people – I want to make a difference for us,” he says.

Riverside’s business model is relatively simple: it generates alliances where majors contribute the money and Riverside offers the technical expertise. The company differentiates itself from other prospect generators in that it has been able to produce a profit from its JVs, alliances and sales of its projects, meaning over the last decade it has kept a tight share structure with only 44 million shares and US$5 million in cash.

But according to Staude, the number of hurdles companies face in Mexico now is threatening the future of the sector. So much so that Riverside itself – a company that sees Mexico as its base in the Americas – is seriously considering diversifying to other jurisdictions like Brazil and has already expanded to the US and Canada. “We are driven by passion but sometimes the challenges feel insurmountable,” he says. “Ejidos and security are two serious issues and tax regimes make it difficult for mines to develop or operating mines to continue to produce.”

For Staude, the main problem is the lack of liberation of claims and the sheer amount of time taken for the government to do so. He feels there has been an outflow of foreign capital from Mexico and, as a result, Riverside has lost two-thirds of its partners and over US$20 million in potential JV money in the last four years. “Without the titles, exploration is simply impossible,” he says. “We had the money lined up and the commitment in place but the pace of permitting, granting titles and making liberations meant that, as the market decelerated, the money went elsewhere, namely to Canada.”

Staude cites Newmont Mining as an example. In 2014, Newmont cashed out of Mexico by selling its 44 percent stake in its Penmont JV, which included the Herradura, Soledad-Dipolos and Noche Buena properties, to Fresnillo for US$450 million. On March 8, 2017, Newmont confirmed a US$39.5 million deal for an earn-in agreement at the Plateau property in the Yukon in Canada.

“Mexico is losing and the money is going to Serbia, Colombia, Finland and Ecuador,” says Staude. “We have the expertise but it has been very difficult to attract partners. We cannot compete if the money is going to more favorable jurisdictions.”

Although he admits that the government is understaffed and overwhelmed by the mammoth task of liberating the concessions, he is adamant this must be prioritized to ensure the future health of the sector. “The potential taxes on these properties would be millions of dollars,” he says. “With the US$20 million that Riverside could have brought in alone, a lot of civil servants could have been recruited.”

The first thing that needs to be done, says Staude, is to accelerate all cancellations and liberations of claims. “To do this, the government does not even need the staff, it can be outsourced to experienced contractors,” he suggests. “Or a governmental decree could be made to officially cancel dormant claims.” He compares the system to Quebec, where the claim release date is scheduled and on that date at 00:01 it becomes liberated and companies can stake the claim. Some explorers in Canada own 5,000 claim properties and make rapid deals, which is impossible under the current Mexican system.

Without any sign of new claims freeing up in 2017, Riverside’s attention will be focused on its priority Glor project with JV partner Centerra Gold. It also plans to advance with the early exploration of Cecilia and hopefully find a partner.

“We are still very interested in acquiring new properties in Mexico because the company has focused for many years on the country, particularly in Sonora,” says Staude. “But if the process continues to be drawn out, we have to explore options of moving to other jurisdictions.”