Pacific Empire Minerals – A New Prospect Generator In BC With A Low Burn Rate
We don’t typically cover prospect generators at the KE Report for two main reasons. The first being that burn rates can get out of hand and quickly turn the Company into a lifestyle Company. And the second factor being an inability to control news flow. That is why I am introducing a new prospect generator that has a plan to do the opposite. Pacific Empire Minerals (TSX.V:PEMC) had its IPO in March and is focused on controlling costs and generating news with its fully owned RC drill rig. Focused in BC with 13 properties in its portfolio I will be watching closely how the story progresses.
I would really like to hear what all of your think of the strategy and over Company after listener to this interview. Please comment or better yet email me directly at Fleck@kereport.com.
Click download link to listen on this device: Download Show
Click here to visit the Pacific Empire website for more information.
Here is a nice summary of the Prospect Generator model from a solid company Riverside Resources:
* Prospect Generator Business Model
> What is a Prospect Generator?
“The term Prospect Generator is used to describe a junior mineral exploration company that employs a particular business model and de-risking exploration approach. A Prospect Generator will stake/acquire prospective ground that they believe has significant mineral potential. Typically, initial cost-effective exploration work is completed by the Prospect Generator (geologic mapping, geophysics, geochemistry, etc.) in order to establish drill targets and further outline the opportunity. The Prospect Generator will then work to secure joint-venture partnerships to fund drilling and further exploration work on the property by offering a majority interest (usually 50-70%) in the property in exchange for cash, shares and/or committed exploration expenditures. In other words, a successful Prospect Generator leverages its intellectual capital to bring in external (partner) capital to fund work on its own properties.”
> What are the benefits of the Prospect Generator Model?
“The business of mineral exploration is inherently risky. The Prospect Generator business model works to mitigate some of that risk by exposing shareholders to the upside of mineral discoveries, while conserving capital. This allows the Prospect Generator to limit share dilution (number of shares outstanding) and increases the company’s longevity. The odds of making an economically viable mineral discovery are low, and thus it makes prudent business sense to obtain partner funding for the higher-risk and higher-cost capital expenditure required to drill test prospective targets.”
http://www.rivres.com/index.php/investors-centre/prospect-generator-business-model
This passage said it all:
“The Prospect Generator business model works to mitigate some of that risk by exposing shareholders to the upside of mineral discoveries, while conserving capital. This allows the Prospect Generator to limit share dilution (number of shares outstanding) and increases the company’s longevity.”
What Is A Prospect Generator?
Feb. 3, 2016 – Matt Geiger
“There is another approach however and that is the prospect generator model. In short, prospect generators maintain a large portfolio of grassroots properties and then create joint venture partnerships with other firms. These 3rd party firms (who are usually larger and more established than the prospect generator) then spend their own money and time advancing the project in exchange for a majority ownership position. Below you will find the basic process that successful prospect generators follow:”
1. Stake prospective mineral licenses (or acquire early stage projects for pennies on the dollar, particularly in times like these).
2. Partake in early stage exploration work, sometimes without drilling a single hole (drilling is expensive after all).
3. Package/market your projects to larger players that may be interested in (1) the jurisdiction, (2) the target commodity, or (3) the geological story.
4. Sit back and watch the partner spend money on your behalf.
“In a best-case scenario, the project reaches production over the next 5-10 years and you get to keep a chunk of the proceeds to yourself.”
Prospect generator model gives investors bang for their buck
March 23, 2011 – by Mining Markets
“Exploring for minerals is a costly, risky business. For most juniors, it’s a constant game of raising money to drill, then hoping to hit some high grades so they can raise more money.”
“The cycle is full of uncertainty, it’s dilutive for shareholders, and does little to address the inherent risks of the mining industry. What it does offer is a big payoff if the company manages to hit the mother lode – but only if it’s able to sustain itself until then.”
A few exploration companies have, however, instead adopted what’s known as the “prospect generator” model to address some of the challenges of being an explorer in this uncertain business.”
“Put simply, a prospect generator assembles a number of properties through low-cost early exploration, then partners or joint ventures with a deeper-pocketed company – which, in exchange for a large chunk of the project, pays for the pricey drilling and exploration work.”
“What it does,” says Brent Cook of the newsletter Exploration Insights, “is it recognizes the real low odds of success on any individual prospect and vends that risk off to somebody with more money, or at least balls, to spend it and see if there’s something there.”
The geologist adds: “It keeps shareholder dilution to a minimum, and eventually what happens is when a company does make a discovery – if they do – as shareholders, we get a bigger lift in share price, although we don’t necessarily own all the deposit.”
“Mickey Fulp, a geologist and editor of The Mercenary Geologist, endorses and invests in prospect generator companies for similar reasons.”
“I like the prospect generator model because it gives a company exposure to a multitude of projects that someone else is spending their money to explore,” he says. “It allows a company to do relatively low-cost exploration, grassroots-style prospecting and reconnaissance exploration and preserve its capital without diluting.”
“In exchange for stability and a tight share structure, the prospect generator company loses a significant portion of the project, sometimes being reduced to just a royalty.”
“But the model also gives the prospect generator a longer life, and ultimately creates more opportunities to find that game-changing discovery.”
http://www.miningmarkets.ca/news/prospect-generator-model-gives-investors-bang-for-their-buck/
Rick Rule: The Prospect Generator Model
Investing News Network • June 21, 2016
“The prospect generator model has long been a favorite for Rick Rule, president and CEO of Sprott U.S. Holdings, who has been quite successful with his picks.”
“There are many reasons why Rule favors this approach for junior mining companies. For example, in a recent interview, he explained that these types of juniors generate multiple investment ideas while using other people’s money to do the “heavy lifting,” and that through joint venture partnerships, world class mining companies…”
If a prospect generator is well run then the JV partners foot most of the exploration bill, and the net smelter royalties bring in revenues to fund the holding costs and G&A costs, so they actually have some of the lowest burn rates.
Who has the high burn rates are exploration companies that do capital raise after capital raise after capital raise to keep drilling to infinity and beyond when they know early on that they don’t have an economic deposit or that it has a fatal flaw, but they dilute down the existing shareholders over and over and turn those into lifestyle companies.
Only 1 in 3000 deposits will become a mine so that means exploration companies, by their very nature, are going to raise a ton of money to drill mostly deposits that will never work out. A prospect generator company conserves capital by farming out projects to their JV partners, and by spreading the workload and funding out to many other companies they increase their odds of finding a good deposit, and reduce the risk to shareholders.