Flow-through is driving Quebec’s mining boom

Exploration expenditures in Quebec grew by 58% in 1986, soaring to an unprecedented $263.1 million. More than 87% of this investment was earmarked for the off-site exploration for which the spending rose by an impressive 67%. Nevertheless, on-property expenses remained relatively steady at $32.5 millione The share of exploration expenditures in the precious metals sector, more particularly in gold, continued to increase. These expenditures now represent 83% of the total spending, compared with 77% in 1985.

This unparalleled performance is obviously the result of economic factors such as the upturn in the price of gold, which began in late 1985, and the importance of certain recent discoveries. But it is especially attributable to the huge success of public financing mechanisms based on tax incentives. A study of the changes recorded in exploration expenses and of their sources of financing leaves no doubt that these expenditures have increasingly been financed by way of tax shelters, particularly since 1983. Financing of junior companies partnership units for Quebec totalled $280.0 million in 1986, compared to $157.4 million in 1985. These d amounts include part of the funds raised by large limited partnerships (of t the investment funds type) inasmuch as these funds are presumed to be h invested in Quebec by the participating companies. If one is to judge by the number of prospectuses deposited at the Commission des valeurs mobilieres du e Quebec since early 1987, the public will still be strongly invited to invest i in the mining sector.7

In effect, the amounts raised over the first five months of the year total f approximately $170 million, compared with $125 million for the same period in 1986. It should be noted that these estimates do not include the funds known or presumed to be invested outside Quebec, but raised in Quebec.

It should be pointed out that on Jan 1, 1986, the additional allowance of introduced in April, 1980, was maintained exclusively for junior exploration companies. This additional allowance for exploration costs incurred in Quebec by an individual was later repealed on Dec 11, 1986. However, the participants can take advantage of the earned depletion allowance of 33 1/2%, which was extended on April 19, 1983, from resource income to all sources of h income both at the federal and provincial levels. The minister responsible n for mines, Raymond Savoie, has also set up a task force to monitor the situation.

In 1986, there was a record number of new registrations at the junior listing of the Montreal Exchange. Most of them were junior exploration i companies having benefited from the tax incentives provided for exploration. Of the 45 new listings — compared with 16 in 1985 — 39 were junior exploration companies. The list of small resource companies listed at the Montreal Exchange numbered 105 in late 1986, compared with about 30 when the junior listing opened in January, 1981. The progress is remarkable. So far this year, the number of new listings is encouraging. Changing role

Since the early 1980s, the role of junior exploration companies in the Quebec mineral industry has changed considerably. Traditionally known for their important contribution in the discovery of new mining properties, the juniors have progressively become involved in activities extending beyond grass- roots exploration, namely development, and, eventually, mining operations.

Obviously, the easy access that mining promoters have to financing, and the advantageous tax writeoffs are to a large extent at the root of this situation. Nevertheless, the important contribution of this new type of entrepreneur in the juniors, expert in management and finance, should not be overlooked.

However, this trend has been less evident with respect to the direction of flow-through financing observed over the past few years. In effect, junior companies, which were almost exclusively involved in development work in 1984, increasingly had to redirect their flow-through financing to grass- roots exploration work.

According to our estimates, these activities received 30% and 55% of the financing in 1985 and 1986, respectively. This situation is explained, on the one hand, by the sluggishness of exploration on former mine sites and known showings and, on the other, by the rise of numerous junior companies.

Over the past few years, there has been an increasing tendency on the part of the so-called major mining companies to associate with junior companies. This they do by granting options on their properties to the juniorsin exchange for sums the latter spend on exploration. This situation is due to, notably in 1986, and also by the tax situation of the majors that makes it more n advantageous for them to do business with the juniors. Projects on the goe

Although some of them are also interested in other commodities such as the platinum group metals and the base metals, most junior companies are geared toward gold exploration. Consequently, they operate mainly in s Abitibi-Temiscamingue (northwestern Quebec) because of the high gold potential of the region. However, important projects are currently under way in other areas, especially in Nouveau- Quebec, Estrie and the Chibougamau region.

The projects vary from grass- roots exploration to development, with some properties likely to begin production soon. The following are typical projects of junior companies involved in exploration activities in Quebec.

Audrey Resources has just acquired a 50% share of the Mobrun property from Minnova Inc. (formerly Corporation Falconbridge Copper). This share could reach 70% should the company invest $8 million in additional exploration work before June 30, 1987. In the wake of metallurgical tests caried out at the Norbec mill, Kilborn assesses the probable undiluted reserves at 1,356,000 tonnes grading 0.81% copper, 3.39% zinc, 34.03 silver per tonne and 2.81 g gold per tonne.

In October of 1985, Rouyn Mining Resources signed an agreement with Lac Minerals, which gives it the option of acquiring 50% of the Francoeur property on the condition that it spend $3.5 million in exploration and development work by the fall of 1988. In 1986, the shaft was dewatered to the 1,450-ft level and surface infrastructures were built. Moreover, a bulk , sample was sent to Lakefield Research for metallurgical tests. The company, which has just raised $11.2 million, also works on other properties, particularly on those of Wasamac and Lac Fortune.

For Yorbeau Resources, Zone Aw of the Astoria deposit attracted the most attention in 1986. The latest intersection obtained results that are encouraging; for instance, 27.5 gold extending over four m, 7.9 g over 1 m and 11.3 g over 4 m, all in the same drill hole.

In Beauchastel Twp., Augmitto Explorations continued, in 1986, to drive a ramp, drifts and cross cuts. A total of 15,250 m was drilled from the surface. It should be noted that a calculation of reserves carried out in 1985 by A. C. A. Howe International UK indicated probable reserves of 1,500,000 tonnes grading 5.49 g gold; this calculation takes into account 15% dilution factor.i

In Duverny Twp., Exploration Sphinx obtained very promising results based on drilling and bulk sampling of 3,600 tonnes. The grades range from 1.7 to 29.0 g gold over widths varying between 3 and 4 m. The bulk sample yielded 7.5 g gold.o

In 1986, Aur Resources undertook underground exploration work on its First Canadian and Norlartic properties. The company recently decided to assign additional funds to its First Canadian program, where reserves indicated by surface drilling are assessed at 635,000 tonnes grading 6.86 g gold. Aur is also working on its Orenada property.0

Maufort Resources and Cambior Inc. signed an agreement entitling Cambior to acquire a 50% share in the property of the former Siscoe mine. Exploration activities, which began in December, 1986, are directed toward Zone K where reserves stand at 450,000 tonnes grading 11.6 g gold.

In Dubuisson Twp., the Societe d’exploration Aumine carried out for its partners, Su
llivan Mines and Goldstack Resources, an exploration program that led to the discovery of a new gold-bearing zone on the property of theformer onnes M grading 6.1 g gold. The known reserves of the property prior to this discovery stood at 788,000 tonnes grading 6.1 g gold.

St. Genevieve Resources and Standard Gold Mines are setting up an underground exploration program on the Goldvue property. The possible reserves known to date stand at 380,000 tonnes grading 6.1 gold. In 1986, the shaft was dewatered and a headframe built.

At the end of the summer of 1986, Placer Development signed an agreement with MSV Resources, which entitles the latter to acquire a 49% share in the Eastmain River property northwest of the Otish mountains by spending $8 million over the next two years. During the winter of 1987, 25 holes totalling 2,937 m were drilled to test the variability of the grades, the thickness of lens A as well as the possible extensions of the three zones already known. Thus, it is expected that possible reserves of 1,013,000 tonnes grading 15.3 g gold, 15.1 g silver and 0.7% copper will be obtained. The company will begin to drive a ramp in the summer of 1987.

Societe d’exploration miniere Vior and Societe d`exploration miniere Mazarin were hard at work at their Scheffor project 45 km west of Schefferville, on the west edge of the Labrador Trough. At the end of the summer of 1986, 29 gold showings grading from 1-15 g per tonne were discovered. The Lac Lilois showing yielded grades up to 10 g gold. In 1987, the Vior-Mazarin group expects to spend at least $1 million in this sector.

La Fosse Platinum Group and its partner, Louvicourt Mining Management, acquired 19 exploration permits and staked 120 claims covering an over-all area of nearly 1,300 sq km in the Labrador Trough. At Lake Retty, 65 km northeast of Schefferville, the La Fosse Group sampled most of the sulphide bearing outcrops as well as the abandoned drill cores. This work revealed the presence of important platinum anomalies. Of the 26 drill cores sampled, 14 yielded significant concentration including an intersection of 2.7 metres grading 27.4 g platinum, 41.1 g palladium and up to 4% copper. The sectors of Lakes Bleu, Chance, Mistamisk, Aulneau and Gerido were also prospected by the company.

In the Ungava Trough, Oasis Resources concluded an agreement in June, 1986, with Falconbridge Ltd. concerning the exploration of the Delta property. Oasis will be entitled to a 40% share in the property by investing $1.75 million between now and February, 1988. Over 3,000 samples were taken. The first analyses yielded concentration up to 3.6 g platinum. Additional drilling is expected for the summer of 1987.

The junior companies are directly or indirectly involved in many other projects, among which are D’Or Val Mines on the Beacon II property, Perron , Gold Mines on the Sleeping Giant property, Aunore Resources on the former Peel Elder mine, Golden Knight Resources in the Golden Pond project, Flanagan McAdam Resources on its newly discovered deposit in McKenzie Twp. at Chibougamau, Noramco Explorations on a number of properties in Abitibi, etc. The list and a detailed description of exploration work carried out in each of Quebec’s mining districts are reviewed in a publication by the Ministere de l’Energie et des Ressources entitled “Rapport des representants regionaux — 1986”, which will be available shortly. (This article was provided through the assistance of the government of Quebec.)i