A Multi-commodity Approach to Navigating Capital Markets
Because shareholders will not mind seeing returns in this environment
At the end of the day, it is the reality of capital markets that drives exploration efforts. Since the 1960s in Québec, explorers have mapped pegmatites and even walked over them, without markets showing economic interest. Despite James Bay’s abnormal endowment for spodumene-bearing lithium deposits, up until a few years ago, the Canadian market only wanted gold, nickel, and copper. With over 70 lithium-bearing pegmatite outcrops identified to date, Patriot Battery Metals’ Corvette property is one of the largest and highest-grade hard rock lithium projects in the world. But before the firm understood the size and grade of the pegmatites – and growing market interest in these – the project had been explored for gold. Today, Québec is the scene of a growing phenomenon: companies that built their investment case exploring one commodity are leveraging the polymetallic potential of their properties to answer emerging market trends.
Delivering immediate value to shareholders
With current markets being particularly difficult for junior explorers, shareholders certainly will not mind if management teams drive companies away from their initial focuses to pursue what the market wants. SIDEX, a government-supported investment fund that has the unique task of supporting high-risk early-stage projects in Québec, noticed a clear shift in companies that traditionally were focused on one commodity and had recently made a transition mostly towards lithium. Paul Carmel, president and CEO of SIDEX, detailed: “Many of the companies in SIDEX’s portfolio which had originally been focused on other commodities are now starting to look at lithium opportunities on their properties, and these companies’ stocks have moved up significantly because of that.”
Harfang Exploration is one of the companies benefiting from Québec’s unique institutional support, and that, in 2023, adapted its capital allocation strategy. Supported by FTQ, the Québec government, and SIDEX, Harfang Exploration is a pre-discovery firm that, up until 2022/2023, mostly focused on advancing its Serpent-Radisson flagship and Lake Ménarik gold properties. The company realized the potential of its Lemare lithium property in the Eeyou Istchee James Bay area, and as the summer field program progresses, CEO Ian Campbell touched upon the flexibility required as a junior to navigate capital markets, and how strategies change: “Our strategy has evolved from being mostly gold. We are probably spending 20% of capital on lithium, and that may rise to up to 50%. As a junior, you must adapt. We have solid institutional shareholders, and we know they are in favor of investment in lithium.”
With commodity prices underpinned by sudden changes in global dynamics (wars, economic downturns, crypto bulls) there is one long-term trend that all analysts agree on: the growing demand, and the insufficient supply, of minerals needed for the green transition. And with the lithium market being in its infancy, as opposed to established markets like copper, any discoveries backed by strong geology will make firms’ share price spike in this environment. In June, Orford Mining’s shares rose by 14% after the firm announced it had identified over 50 high-priority targets with pegmatite potential across its properties. Similarly, VIOR Inc, another traditionally gold-focused explorer, saw a good market response after it expanded its Belleterre lithium project in February: “VIOR saw a nice increase in its share price after we announced the consolidation of the Belleterre lithium project” recalled Mark Fedosiewich, president and CEO.
"As a junior exploration company, we adapt to market trends and explore opportunities with the lowest costs possible. While our gold assets are substantial, we also recognize the changing landscape of commodity prices, particularly for rare earths and the emerging boom in lithium in James Bay."
Ian Campbell, CEO, Harfang Exploration
Capital and structural shifts ahead?
As Québec companies increase their lithium land packages, questions will arise regarding best management practices for multi-commodity exploration in a single region. Without diving into the complex web of dealmaking options that may or may not take place in James Bay, where lithium contenders are almost stepping over each other’s claims, it appears clear that companies will have to make calls organically to determine if it is worth splitting entities, letting projects go, or continuing the multi-commodity approach. The years ahead could therefore see the emergence of new pure-play lithium firms that sprouted out of existing gold-focused companies.
Splitting companies into separate entities as they expand their portfolio toward new commodities is not new for mining firms. Gold remains a key part of the Orford story, with the firm having outlined a mineralized gold body in the South Gold Zone at its Joutel Eagle project. But in the rush to advance its Nunavik lithium project quickly to meet market expectations, and seeing the project’s potential, David Christie, president and CEO, is considering a split: “If we are successful with the lithium project, at some time, we will look at making the story simpler and create a critical minerals company and gold company separate from each other.”
Since the summer of 2022, Orford Mining has staked 455 km2 of ground prospective for lithium, all in the Nunavik area of Northern Québec. The company has a huge first-mover competitive advantage: while foreign and domestic companies continue to rush towards the pegmatite bonanza of James Bay, Orford mobilized its teams in Nunavik, ultimately now covering the most prospective lithium pegmatite targets in the region.
The next months will be key for multi-commodity companies to determine how to allocate cash. In a market preventing capital-expenditure blowouts, strong balance sheets and capital discipline are on the agenda. Diversifying portfolios with lithium assets will also allow these firms to decide if the shareholder value generated ought to be used to support more advanced gold exploration efforts, as many industry leaders expect a gold bull market around the corner.
Image by pierrick at Adobe Stock