Cloud of debt hopefully leads to silver mining

Finally able to begin exploring his property after three years of paperwork and growing debt, a Canadian mining entrepreneur remains confident that he will strike silver in Peru.

Gavin Roy is the president and sole permanent employee of Black Tusk Minerals Inc. Based in Vancouver, the company is one of many Canadian companies that have purchased the right to drill in the mining-friendly South American country.

For 35 years, the land Black Tusk now owns produced silver along with gold, zinc and lead until violence from the Shining Path rebel movement forced it to stop in the early 90s. Reached by phone in Vancouver, Roy says there are still substantial silver deposits there. Since the original mine shut down, the price of silver has quintupled from around five dollars an ounce to more than 25.

Though the company began registering its claim on the Peruvian property in 2007, it was only on January 26th that it secured surface rights for the next ten years. Now that’s out of the way, Roy is planning to begin exploration by helicopter and satellite in April once the rainy season is over.

Mining is a risky business. Not only is Roy not sure of what he will find underneath the ground, he still needs to raise another 575 thousand dollars just to complete the exploration. The company has yet to bring in any revenue. It has about 330 thousand dollars worth of debt, according to its quarterly financial statement, released January 24th. The statement makes it repeatedly clear that the exploration money is not guaranteed. But as Roy points out, it’s normal for financial statements to point out risks in order not to mislead investors.

Roy is confident he will find a loan, perhaps from a pension fund.

The financial statement also warns about another risk: “our President’s inability or unwillingness to devote a sufficient amount of time to our business operations.” A professor of international business says that warning is a red flag. “I am not an expert in mining, but I have seen many prospectuses but never such language,” writes Ila Vertiginous, who teaches at UBC, in an email.

Roy says it’s just “a cautionary statement” put on the financial statements of most junior companies by lawyers. A proof of his commitment? Roy has invested 260 000 dollars of his own money in the company.

Roy speaks assuredly about the risk he is taking. His words flow quickly. A former investment adviser, he says he listened to many clients come and ask him for a loan to pursue mining ventures. Getting into the business himself “wasn’t a big leap.”

If he finds sufficient deposits to begin production, Roy anticipates that he might have to seek investment from a bigger mining company. He figures he might need anywhere from ten to 80 million dollars.

The pattern whereby small companies try to find a mineral deposit and then sell out to a larger player to swell their share price is a problem for local communities, says Marcelo Vega, an associate professor of mining engineering at UBC. These smaller communities have trouble being heard by large multinationals and often have to bear the environmental impact of the mining. He suggests producing smaller amounts of minerals, slower, which also requires less capital to begin with.

Roy says that remaining small and independent is a definite, even preferred, option. But he also says intense competition in the mining industry might prevent it from happening. “It’s a ruthless business,” he says. Big companies control a lot of the market. Once a small company has confirmed a mineral deposit, some big companies would “sit around and wait for it to go bankrupt” rather than allow it to produce independently.

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2 thoughts on “Cloud of debt hopefully leads to silver mining

  1. Good and interesting article. mining is indeed a promising business and very cruel, to run it must have a capital and experienced experts. Most large companies who always win the competition.

  2. wooowww. . It really is amazing, I love what you do, this is a very beneficial development of all, thank you for providing a very valuable information for us all.

    regards
    Clark Miners

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