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Joint Ventures, Strategic Partnerships Provide Junior Miners Long-term Potential

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(Kitco News) - Investors can expect to see more strategic partnerships and joint ventures in the mining sector as smaller companies look for sustainable capital flows, according to one mining executive.

Photo courtesy of Golden Arrow Resources

In late May, Golden Arrow Resources (TSX.V: GRG) announced that it had completed a joint venture agreement with Silver Standard (TSX: SSO) to develop the Chinchilla Silver project in Argentina.  As part of the agreement, Golden Arrow will receive a 25% stake in the mine, while Silver Standard operates the mine with a 75% stake.

The agreement also provides Golden Arrow with a 25% stake in Silver Standard’s Pirquitas mine.

Joseph Grosso, president and CEO of Golden Arrow, said in a recent interview with Kitco News that this venture provides major benefits for both companies. He explained that his company is getting about $1 million a month from this agreement and Silver Standard is able to expand its Argentine mining operations for at least another 8 years once the Chinchilla project is in production, which is expected to be in mid-2018.

“We are geologists not mining engineers or builders so it makes sense to partner with a company that has this expertise,” he said. “We are excited to be able to work with a company like Silver Standard to get Chinchilla in production.”

Grosso added that this agreement is an example of what he sees is a growing trend in the industry. He added that joint ventures allow exploration companies to leverage their expertise in finding deposits, leaving the development of the mine to more experienced players.

Grosso isn’t the only person who is seeing a growing trend of majors developing strategic partnerships with junior companies.

In a recent report, mining analysts at CIBC noted that so far this year, more 50% of the equity raised by junior gold companies listed on the Toronto Stock Exchange has come from direct investment from major companies.

“No previous year has exceeded 20%,” the analysts noted. “The increased activity of senior gold stocks investing in junior stocks may be motivated by the forecast gold production decline beyond the next five years. Larger gold companies need to plan now to address the future forecast production decline for the industry.”

Grosso noted that there is even more urgency in the silver sector, which saw its first drop in production in 2016 -- the first decline in 14 years. Because of low prices, companies have been sluggish in bringing new projects online, preferring instead to wait for when prices start to rise.

Grosso said that he remains optimistic on silver prices as there is a growing divide in the marketplace as demand continues to pick up and mine supply shrinks.

With the growing demand for silver, Grosso said that he is committed to further exploration of Argentina, which he described as an untapped mineral resource.

“We have 200,000 hectares of land to explore in Argentina, a land package we have accumulated over 20 years,” he said. “We think there is potential to find more major deposits.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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