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Make no mistake, mineral exploration is high risk. It can be a volatile experience for shareholders of junior mineral exploration companies, but high returns can be made.

With global consumption of commodities increasing, due largely to population growth, mineral exploration isn’t going away any time soon. Operating mines will continue to deplete, and new mines will be needed if we are going to maintain global production rates. Even more new mines will be required if we are to grow production to keep pace with growing demand.

During a boom for commodities, a need to replace ‘mineral reserves’ (to use mining sector jargon) often leads major mining companies to undertake misguided M&A transactions at the peak of the mining cycle, paying too much for these new reserves and ultimately destroying value for shareholders. (I’ve written previously about a common mistake made by major mining companies) Take a look, for example, at this headline from August 2010, when gold prices were on the rise and major gold producer Kinross bought a successful exploration junior called Red Back for US$7.1billion:

‘Kinross and Red Back combination creates high-growth gold producer in US$7.1billion friendly transaction.’

Following a peak in gold prices in July 2011, Kinross recorded an impairment charge of US$2.49 billion relating to Red Back in their FY 2011 results and then recorded a further US$3.40 billion impairment relating to the acquisition, in their FY 2012. Approximately US$6 billion worth of value evaporating into thin air!

But while Kinross shareholders were left scratching their heads, Red Back shareholders who sold-out, walked into the sunset, rewarded handsomely for their support of Red Back management. After all, these transactions are a zero-sum game. If one party overpays, the other party over-receives.

The Lassonde Curve

Canadian businessman Pierre Lassonde understands the nature of junior mining exploration more than most. In 1982, Lassonde co-founded Franco-Nevada, the first publicly listed gold royalty company. Today, Franco Nevada has a market-capitalisation of C$35billion. It has been, and remains, a remarkably successful business.

During the 1980’s Pierre Lassonde presented his view of the typical lifecycle of a junior mining company, which has become known as the Lassonde Curve.

VR Resources: Lassonde Curve

During the early stages, a junior explorer must come up with a geological concept of where to explore and why. Pre-drilling activities like soil-sampling, rock-chip sampling, trenching, and geo-physical surveys are used to either progress a geological concept or kill it. If a compelling enough case can be made to drill a potential orebody, then a company might be able to raise the finances necessary to drill. Even then, junior explorers are mostly ignored by the general market.

Should a discovery hole be announced, exponential returns can be made by early investors.

Lassonde’s main insight was describing the ‘orphan period’ that is often experienced post-discovery. Many junior explorers don’t have any income, but large financing is still needed to fund the extensive feasibility studies required to determine if a discovery is ‘economically viable’. The discovery of an orebody is one thing, but an economically viable mine is quite another. This takes both time AND money and many early investors who have done well from the discovery will often sell up and do something else with their money instead.

The Lassonde Curve suggests two key areas of interest: The end of the Pre-Discovery phase (just before Discovery) and the end of the Feasibility study phase (once construction financing has been secured).

If you’re going to invest in a junior explorer pre-discovery, then the skill and decision-making of the chief geologist is, to state the obvious, all that really matters. It’s this work that either leads to a discovery or doesn’t. The thing is, many of the easier-to-find mineral deposits (i.e., exposed at surface or near surface) that are near-infrastructure and in stable mining jurisdictions, have already been found. The search for new mines is getting harder and requires smarter geologists.

J. David Lowell

Now consider this: Many exploration geologists never make a discovery in their entire career, but some seem able to find deposit after deposit. Take the geologist J. David Lowell (1928-2020). In his remarkable career, he found 17 mineral deposits, including the largest copper mine in production today, La Escondida in Chile. La Escondida generated revenue of approximately US$9billion last year and produces approximately 5% of the world’s supply of copper.

One of Lowell’s discoveries, Warintza, is today proving to be another formidable orebody. Lowell came across the project in Ecuador, back in 2000. However, the project, owned now by Solaris Resources, lay dormant for two decades due to community issues. Finally in 2020, a strategic alliance was struck with local communities and the first drill hole in 20 years was announced in August 2020. The initial drill result was staggering, which led Solaris President & CEO Dan Earle to comment at the time, ‘With this result, we have begun to write a fitting epilogue to David Lowell’s legendary career.’ Since then, the share price of Solaris has quadrupled. David Lowell, it seems, has done it again!

It’s fair to say that Lowell knew what he was doing when it came to mineral exploration. But luckily, there are other talented geologists out there. Identifying this rare breed of geologist is important if you want to reduce risk in the high-risk, high-reward world of mineral exploration. Especially if you plan to invest in an exploration company pre-discovery.

VR Resources

Dr Michael Gunning (CEO of VR Resources) is in my opinion, a very talented geologist. He is a third-generation geologist with 30 years of industry experience under his belt, and a track record of success. In 2012, as CEO of Hathor Exploration, he led the sale of Hathor to Rio Tinto for C$654 million. This followed a bidding war between Rio Tinto and Cameco. Both companies coveted Hathor’s Rough Rider uranium deposit.

Soon after, Gunning established a private company whose objective was ‘to seek out early-stage exploration opportunities with potential for district scale discoveries’ in copper and gold. In 2017, after four years as a private company, Gunning took the company public via a reverse takeover, continuing with the same objective.

Today, VR resources has a collection of seven exploration projects in Nevada and Ontario. Three of these projects have finally made it through the ‘geological concept’ and ‘pre-discovery’ stages and have reached the drilling phase. The slide below from VR Resources, relates their progress to the Lassonde Curve. Shareholders arriving now, by-pass an eight year wait!

VR Resources: Progress Chart

  • Hecla Kilmer (Ontario) – Copper & Gold
  • Big Ten (Nevada) – Gold & Silver
  • Reveille (Nevada) – Silver & Copper

In my opinion, all three of these projects have strong geological merit with the potential to be company-makers. But for this article, I want to look closer at the Hecla Kilmer project. Progress over the last few months has increased my interest and VR Resources is planning, what is likely to be, decisive drilling in September 2021.


The geology of the area is unusual and has attracted attention from geologists before. In fact, in 1970, five shallow diamond drill-holes were completed by a previous explorer who was looking for base metals. But these holes, all less than 150 metres deep, were as far as they got. Importantly, none of the holes were ever assayed! Note: assaying involves sending rocks to a laboratory to check their content scientifically.

Many years later, as VR Resources describe it, ‘Drill core rubble was retrieved from the bush by the property vendors in 2012, 2014 and 2019, cleaned and studied at the Microlithics Lab in Thunder Bay.’ (Core storage techniques, it seems, were pretty relaxed back in 1970!) VR Resources reviewed the core and historic data and quickly purchased the property. The image below shows some of the old drill core rubble on the left. The image on the right, shows gold grains obtained in a pan concentrate from unsorted drill core rubble.

VR Resources: Gold

Gunning realised that something had been missed here. In geological speak, he saw the potential for a copper-gold hydrothermal breccia deposit, sometimes described as an IOCG (Iron Oxide Copper Gold) deposit.

It’s important to understand that back in 1970, the world of geology had only recently made progress understanding a copper deposit known as a ‘porphyry’. This was thanks to JD Lowell and JM Guilbert (yes, the same David Lowell!), who together in July 1970 published an article in Economic Geology describing the anatomy of these types of deposits. Lowell and Guilbert’s porphyry model is still the foundation of geological thinking on ‘porphyries’ today. An academic understanding of IOCGs, on the other hand, only gathered pace following the discovery of the gigantic Olympic Dam IOCG deposit in Australia in 1975. This was long after those initial drill holes at Hecla Kilmer. IOCGs simply weren’t a ‘thing’ back in 1970! So, it’s perhaps not a complete surprise that those earlier explorers were not intrigued with the rocks they saw in those shallow drill holes. And never assayed them!

Gunning, however, was intrigued and arranged a four-hole drill program that got underway in September 2020. The image below shows a ‘magnetic’ survey of Hecla Kilmer in plan-view (looking down). The purple and red (or hotter colours) represent areas of magnetic rocks and the blue and green (or colder colours) represent areas of non-magnetic rocks. Magnetic surveys are a common geological tool to help map the boundaries of extensive rock units. The drill collars of the holes can be seen in the image below in white. Gunning targeted the magnetic lows (blue) and the contact zones.

VR Resoures: Carbonatite Map

Drill results were announced in December 2020. Holes 1 and 3 (both drilled from the same drill collar) didn’t find much but holes 2 and 4 found evidence of the hydrothermal breccia system that Gunning, and his team were looking for. In geological terms, this meant there was a mechanism in place that could have carried mineralised fluids through the rocks. This was great progress. And the system appears big, with hydrothermal brecciation observed in core over a vertical extent of 600m. Results also showed high concentrations of rare-earth minerals, a characteristic of other known IOCG deposits like Olympic Dam, Prominent Hill and Palabora. The geological theory was gathering pace!

Interestingly, analysis of the drill core showed that higher concentrations of copper and rare earth mineralisation correlated with denser, heavier rock. If denser rock could be identified, then drilling could potentially be directed more accurately. So, in March 2021 VR commenced a gravity survey. The results announced in May 2021 were quite stunning. They showed a large and very dense body of rock immediately to the west of holes 2 and 4.

The image below shows the gravity survey (not to be confused with the magnetic survey shown above). The densest rock is denoted in pink, and the less dense rock is denoted in greens and blues. This image is also in plan-view (i.e. looking down). Holes 2 (HK20-002) and 4 (HK20-004), it appears, only scratched the side of this large dense body of rock. (Ignore the yellow arrows for now and see the white drill traces for hole 2 and 4 in the image below). This pink anomaly needs testing and future drilling can use the same permitted drill pads used for holes 2 and 4 and Gunning can simply redirect the drills westwards.

VR Resources: Bouguer Gravity

Another thing to note is that this gravity anomaly is unusually strong. Without getting too technical, the survey was conducted using a mean rock density of 2.9 g/cc and produced a reading of 3.5 mGal (milli-Gals) contrast to the surrounding rock. Gunning has said that in his career he’s never done a survey with a gravity anomaly this strong. And he’s done this job for a while. Also, intersections of the mineralised core from hole 2 and 4 have been scanned with an XRF device and have similar high-density profiles, providing a LINK between the gravity anomaly and the copper, gold and rare earth element mineralisation. The survey also suggests that the anomaly is one big solid lump with ‘no gaps.’

The yellow arrows, in the gravity image, represent the path of the upcoming drill holes that are intended to definitively test this strong gravity anomaly.

The yellow dots represent the location of those historic drill holes from 1970. VR Resources have stated that:

‘Importantly, with regard to the source of the core rubble, 2 of the drill holes were located on the northern and southern margin of the new gravity anomaly.’

Gunning went on to comment:

“Indeed, we believe that the gravity anomaly is the centre of the mineral system that produced the Rare Earth Elements (REE) and critical metal mineralization in those intersections, and further, is the source of the copper and gold retrieved from the pile of core rubble from the camp site of the cursory, historic drill program completed in 1970, before the discovery of Olympic Dam, and before the development of the IOCG mineral deposit model and exploration target for Proterozoic copper-gold-REE hydrothermal breccia systems. We believe we have the very heart of that target-type in front of us now at H-K, and we plan to test it in September.”

Only time will tell if this geological concept turns into a discovery but it’s a tantalising concept.

And it’s a large anomaly. The gravity high is 400m x 800m in plan-view and we know that hydrothermal mineralisation has already been encountered over 600m depth. At 2.6 specific gravity, that’s an anomaly of half a billion tonnes for the pink anomaly alone. With much of the wider geological complex still to explore.

In terms of scale, this could be comparable to the Palabora copper mine in South Africa. Palabora, formerly owned by Rio Tinto and Anglo American, has been in production since 1965 and remains in operation today. It’s a large-scale mine that has lasted decades. Just the type of operation that appeals to major mining companies.

In my opinion, Gunning and another key member of the geology team, Justin Daley, are at the top of their game. Mineral exploration is high risk, but they do everything right to reduce risk and test their geological concepts before drilling.

Their other key projects, Amsell at the Big Ten project and Reveille, both in Nevada, are equally as compelling. Both of these projects have also made it though to the drilling stage. Representing more high-quality geological work, where the team’s methodical approach appears to be reducing risks for shareholders.

Only time will tell if Hecla-Kilmer, Amsell or Reveille turn into company-making discoveries. But in my opinion, these guys know what they’re doing!

Note: Roger Breuer owns shares in VR Resources.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Roger Breuer

Roger Breuer

Roger Breuer currently works in finance positions with Fiske Plc and Duke Royalty Limited. He has previously worked as an Investment Analyst at a large UK-based asset management company and held the same position mostly recently at Arlington Group Asset Management, a boutique financial advisory.

He is a CFA charterholder and an ACCA-affiliate.

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