Development Stage Mining: The Sweet Spot for Resource Investors Seeking Growth & Value

• Dan Wilton (CEO of First Mining Gold) and Hayden Locke (President & CEO of Marimaca Copper) discuss their development stage mining projects in Canada and Chile respectively.
• Both companies are in the final stages of environmental permitting for their projects.
• They emphasize the importance of de-risking projects and creating value for all stakeholders.
• The current high gold and copper prices are seen as positive, but not the sole focus for development.
• Both CEOs stress the importance of thorough preparation and understanding project risks during the development phase.

Development-stage mining companies represent a unique opportunity for investors seeking natural resource exposure. These companies, positioned between early-stage exploration and full-scale production, offer a compelling risk-reward profile that can potentially yield significant returns. This article explores the investment case for development-stage mining companies, drawing insights from industry experts Dan Wilton of First Mining Gold and Hayden Locke of Marimaca Copper.

The Value Proposition of Development-Stage Mining Companies

Development-stage mining companies occupy a critical position in the mining lifecycle. They have typically identified a mineral resource and are working towards bringing it into production. This phase involves activities such as feasibility studies, permitting, and project financing. The value proposition for investors lies in the potential for substantial share price appreciation as these companies de-risk their projects and move closer to production.

Dan Wilton of First Mining Gold highlights this potential:

"We've always said since 2019, when I started as CEO here, we want to have these projects ready for when the industry needs them the most. And turns out our timing is going to be pretty good."

This statement underscores the strategic positioning of development-stage companies to capitalize on favorable market conditions.

An Interview with First Mining Gold & Marimaca Copper

Risk Mitigation & Project De-risking

One of the key advantages of investing in development stage mining companies is the reduced risk profile compared to early-stage exploration. These companies have typically already identified a resource, mitigating the risk of exploration failure. The focus then shifts to de-risking the project through technical studies, permitting, and community engagement.

Hayden Locke of Marimaca Copper emphasizes this point:

"In terms of there being very few small copper projects. There are almost no copper projects other than ours, really, that are below a billion dollars of CapEx and the vast majority of multi-billion dollars of CapEx."

This statement highlights the unique position of development-stage companies in offering exposure to potentially lower-cost, more manageable projects.

The Importance of Thorough Preparation

Both Wilton and Locke stress the importance of thorough preparation in the development stage. This includes comprehensive technical studies, community engagement, and environmental assessments. Such preparation de-risks the project and makes it more attractive to potential partners or acquirers.

Wilton notes: "I'm a big believer that luck favors the prepared. So you can be lucky and hope to time a market. That's not really a strategy." This project development approach can give investors confidence in the company's ability to execute its plans and navigate challenges.

Leverage to Commodity Prices

Development-stage mining companies often offer significant leverage to commodity prices. As projects move closer to production, their value becomes increasingly tied to the underlying commodity price, providing investors with amplified exposure to positive price movements.

Wilton illustrates this point: "I'm talking about US$250 million after-tax net present value increase for every hundred dollars in the gold price." Such leverage can potentially lead to outsized returns for investors if commodity prices move favorably.

The Role of Management & Execution

Investing in development-stage mining companies requires careful consideration of management quality and execution ability. The success of these companies often hinges on their ability to navigate complex permitting processes, secure financing, and ultimately bring projects into production.

Locke emphasizes the importance of execution: "Once we get into the development phase, my biggest concern is very much around the team that we're going to build out for the execution purposes." This focus on execution capability is crucial for investors to consider when evaluating development-stage mining companies.

Environmental, Social, & Governance (ESG) Considerations

ESG factors are increasingly important in the mining sector, and development-stage companies are well-positioned to incorporate best practices from the outset. This can include community engagement, environmental stewardship, and sustainable mining practices.

Wilton highlights the importance of community relations:

"Working with Indigenous communities is a huge part of that environmental assessment and ultimately your social license of a project."

Companies that effectively manage these relationships can potentially reduce project risks and enhance long-term value.

Potential for Strategic Partnerships or Acquisitions

Development-stage mining companies can be attractive targets for larger mining companies looking to replenish their project pipelines. This can provide an additional avenue for value realization for investors.

Locke notes: "There are almost no financial partners or, you know, mid-tier strategic partners who are willing to risk their balance sheet for a project of that scale. And so you need a BHP, Rio, Glencore Anglo-American or one of those big players to partner with you." This potential for partnerships or acquisitions can provide investors with additional upside potential.

Market Timing & Cyclicality

The mining sector is cyclical, and timing can be crucial in investment returns. Development-stage companies that can advance their projects during market downturns may be well-positioned to capitalize on the next upturn.

Wilton comments on this cyclicality:

"It hasn't translated into investment interest and investment flows into the development sector, but it has to come. So it's a very exciting time."

The Investment Thesis for Marimaca Copper

• Unique development-stage copper asset with lower capital requirements compared to peers
• Recent strategic investment allows for accelerated project development
• Positioned to capitalize on favorable long-term copper market fundamentals
• Management focused on de-risking and understanding full project value
• Potential for both organic growth through exploration and attracting strategic partners

The Investment Thesis for First Mining Gold

• Two of the 10 largest gold development projects in Canada in the portfolio
• Major catalysts expected over the next 18 months, including environmental assessment approvals
• Significant leverage to gold price movements
• Potential for staged development approach at Du Parquet project
• Exploration upside at existing projects

Investing in development-stage mining companies offers a unique opportunity to gain exposure to the natural resources sector with potentially attractive risk-reward profiles. Having already identified mineral resources, these companies focus on de-risking and advancing projects towards production. Success in this space requires thorough due diligence on management quality, project economics, and execution capability. As Dan Wilton and Hayden Locke highlighted, thorough preparation, strong execution, and a focus on creating value for all stakeholders are crucial elements for success in development-stage mining. Investors should carefully consider the potential for significant returns balanced against the risks inherent in bringing mining projects to production.

Macro Thematic Analysis

The development stage mining sector is currently positioned at a critical juncture, influenced by several macro trends that create both opportunities and challenges for investors.

Firstly, the global push towards decarbonization and electrification is driving increased demand for metals such as copper, nickel, and lithium. This trend is likely to support long-term demand and pricing for these commodities, potentially benefiting development stage companies in these spaces.

Secondly, the ongoing global economic uncertainty, inflationary pressures, and geopolitical tensions are contributing to a favorable environment for precious metals, particularly gold. This backdrop could provide support for gold-focused development companies as they advance their projects.

However, these same economic factors are also creating challenges. Inflation has led to increased costs for labor, equipment, and materials, potentially impacting project economics. Additionally, the tighter monetary policy environment has made capital raising more challenging for many companies in the sector.

The increasing focus on Environmental, Social, and Governance (ESG) factors is also shaping the landscape. Development stage companies that can demonstrate strong ESG credentials may find themselves at an advantage in terms of permitting, community relations, and access to capital.

Lastly, the cyclical nature of the mining industry means that companies advancing projects during the current period of subdued investor interest could be well-positioned to capitalize on the next upturn in the cycle.

Dan Wilton's quote encapsulates the opportunity in the development stage mining sector:

"It's the investors' opportunity to front-run what is going to be like a super cycle size trade."

This statement highlights the potential for significant returns for investors who can identify and invest in well-positioned development stage companies ahead of a potential upturn in the mining cycle.