Hard-pressed juniors try new business ventures

The demise of flow-through financing has been particularly damning for junior resource companies that trade on the over-the- counter exchange in Ontario. In the past six months, several juniors have taken what’s left of their capital and jumped into ventures pushing everything from fast food to commercial hovercraft. “Everyone I know in the junior mining business is starting to look at other deals,” said Dominique Monardo, president of Comet Explorations (COATS). Disillusioned himself, Monardo has given up trying to raise money in the name of exploration, and has instead bought a 37.5% interest in a chicken-and-ribs fast food franchiser. Monardo attributes what he calls “the very high mortality rate in the mining industry” to a unique combination of high interest rates, low metal prices, and most importantly, the Ontario government’s decision to cancel tax incentives that made junior mining companies attractive to investors.

“The Ontario government has done away with a lot of good things,” said Monardo, an auditor by training. “Now, you can’t make any money.”

Atlantic Goldfields (COATS), a junior that has been active in the mining business since the early 1970s, waited until it had some money in the bank before bowing out of exploration altogether. Now Atlantic, under a new name, produces grinding media from iron and steel foundries owned by Norcast, the company it merged with in May. Atlantic’s decision to move out of mining was tied more to a dispute with Jascan Resources (TSE) than a financing problem said Chris Nowers, vice-President of Dexus, the company that grew out of the Atlantic-Norcast merger.

After the two companies sold their combined 45% interest in the huge Noxon silver-copper deposit in Montana for $20 million, they were unable to agree on a common future direction. So Atlantic sold its exploration portfolio to Jascan in favor of a new direction. “We don’t like mining,” said Nowers, who was originally part of the Norcast management. “It’s a little risky.”

“There has been a change in philosophy,” said Mike Shunock, a broker for W.D. Latimer who specializes in over-the-counter stocks. Mining prospects are looking so dismal, he said, that some companies are beginning to rethink their market direction.

But Shunock is glad to see the end of the flow-through tax days. He estimated that at least 20% of the stocks that relied on flow- through money to survive are now going under. Meanwhile, companies that can raise capital purely on the merit of their properties are managing to keep their heads above water.

One such company is CanQuest Resources (COATS), which is currently preparing for a listing on the Vancouver Stock Exchange. CanQuest says that several institutional investors have expressed interest in the company, and CanQuest Vice- President Ian Semple believes they will collectively commit about $1 million toward exploration on CanQuest ground. “These are the toughest times I can remember” for raising money Semple told The Northern Miner. But with an experienced and well- rounded management team, a promising portfolio of both gold and base metal properties, and a little bit of luck, Semple is confident the needed cash will materialize.

Semple and CanQuest President John Bissett, both geologists with experience as mining analysts, have managed to recruit Norman Anderson, former Cominco (TSE) chairman, to their 4-man executive. The company boasts two large tonnage base metal projects, a copper- molybdenum project 125 km north of Vancouver, B.C., and a stratiform lead-zinc property near Revelstoke, B.C. The favorable location of the company’s properties (all are easily accessible) also make the company attractive to investors, said Semple.

But the Vancouver company stands out as one of few potential success stories in a generally hostile environment for junior financing, an environment that has forced many to throw in the towel. Joining the ranks of over-the-counter companies that say they have turned their backs on the industry forever are Delbridge Mines (COATS), Flagship Resources (COATS) and Thunderhead Gold Mines (COATS).

Delbridge, now Hoverspace International, will try its luck at manufacturing recreational and commercial hovercraft. Thunderhead, after lying dormant for several years, has been reactivated in the communications sector. Flagship, which recently sold one of its gold properties near Geraldton, Ont., is still searching out manufacturing opportunities.