Exploration funding tight;miners seek new strategies

Ron Parratt, the executive chairman of Reno-based Renaissance Gold Inc., has been around long enough that he remembers distinctly when the price of gold dipped below $300 an ounce in the 1980s.

In those days, he says with a rueful laugh, no one would have believed that the price someday would be well above $1,400 an ounce — and mining executives still would be having trouble convincing investors to open their wallets.

“It’s a terribly hard time to raise money,” says Parratt, whose company has a portfolio of two dozen prospects in Nevada ready for joint ventures.

The problem: The exploration-oriented junior mining companies with which Renaissance typically has struck joint venture deals have seen investor interest dry up as gold prices come off their peaks.

Unable to raise money at a reasonable price through public offerings or through private deals, exploration companies are cutting back on drilling, sampling and analysis of the properties they’re already working. They’re less than eager to take on new commitments.

And they’re walking away from some projects.

About a month ago, for instance, NuLegacy Gold Corp. of Reno decided to give up an exploration program on property in the promising Pequop region of eastern Elko County after so-so drilling results.

The decision saves NuLegacy $3.6 million it had committed to the exploration program, but it leaves Renaissance Gold in the search for a new partner to finance the search for gold.

While it’s difficult to find measures of exploration activity in anything close to real time, one yardstick is the number of bonds executed by the Nevada Division of Minerals to ensure that companies clean up after exploration.

In the first quarter of this year, the state didn’t execute a single bond. In 2012, it executed a total of 19 bonds — down sharply from 63 a year earlier.

“If they’re not bonding, they’re not drilling,” says Alan Coyner, administrator of the Division of Minerals. “And if they’re not drilling, it’s because they’re not raising money.”

That means that Parratt and other executives of Renaissance Gold increasingly have shifted their focus to gold-production companies — typically, big outfits such as Barrick or Newmont — in their search for partners to fund the search for gold.

Unlike exploration companies, which generally have no operating revenue but live on investors’ hopes for a big strike, the production companies have cash flow and a need to keep a steady flow of exploration projects in the pipeline to replace the gold they mine each year.

But Renaissance executives aren’t the only ones with the idea of pitching the big gold producers.

Parratt says Renaissance seeks to differentiate itself from its competitors — more than 200 exploration-oriented companies are at work in Nevada — by emphasizing the experience and track record of its team.

Most notably, Parratt and Richard Bedell Jr., the president and chief executive officer of Renaissance, led AuEx Ventures, the exploration company that discovered the giant Long Canyon deposit north of Wells that’s now under development by Newmont.

AuEx Ventures was acquired by Fronteer Gold in 2010, and Fronteer was purchased by Newmont a few months later. Renaissance was spun out of AuEx, starting life with about 20 former AuEx projects in its portfolio.

Unlike most exploration companies that issue a steady stream of stock to finance continued exploration — diluting earlier shareholders’ interests in the meantime — Renaissance gives up a portion of its interest in a prospect to partners who finance exploration.

In short, Renaissance brings the mineral claims, and its partners bring the money.

“If a partner spends $4 million or $5 million on a project, they’ve taken away some our risk,” Parratt says. Renaissance keeps at least a 30 percent interest in its projects.

But if fewer potential partners have the money to bring to deals with Renaissance, the Reno company itself is pressured to find money for the creation of the very early-stage projects that it shops to exploration partners.

The company budgets about $2.5 million a year to creation of what Parratt calls “generative ideas” — proposals that combine equal measures of geology, science and theory about the location of gold deposits.

While the company hopes to hold that activity on an even keel this year, Parratt says it’s possible that Renaissance will be forced to trim some of its inventory of prospects available for joint ventures.

But it’s not all dark for exploration companies.

One positive note, Parratt says, is declining cost and increasingly availability of drilling rigs as activity slows.

“We’re certainly seeing that this year,” he says. “Exploration companies are able to get a little better deal.”