Property Acquisition 101: How it’s done in Practice
By Doug Hadfield, Resourcex.com
Since Yale Resources (TSX: V.YLL) began picking up exploration projects in Mexico in August 2006, the company has begun to take what is perhaps its most coherent form since its inception in 1989.
Urique was the first Mexican property to be picked up, followed closely by Zacatecas, both of which are joint venture projects in which Yale is not the operator but for which the company has financial obligations in return for up to 75% and 80% interest respectively. Yale also bought a 100% interest in the Carol property, which is now the company’s only wholly owned project.
In the months that followed, Yale has fulfilled its financial obligations, has seen favorable phase one exploration results, and in turn decided it was time to consider a serious round of fundraising.
That investors had begun to take note of Yale’s progress is clear from trading patterns. In 2005 daily trading averaged about 50,000 shares and the company’s share price ranged between $0.15 and $0.30 cents per share. By the time the company had announced its Mexican acquisitions in August 2006, more than 100,000 shares were trading hands on average. Trading volume has continued its bullish ascent and Yale’s stock price has mirrored its volume’s slow climb, rising to $0.40 cents per share, and finding a new floor at $0.30 cents, seemingly waiting for the company’s next move.
Yale’s President and CEO is Ian Foreman, an imposing figure at six feet three inches, but who in front of a microphone is clearly more cerebral than physical. In an interview with Resourcex, Foreman explained how sometimes the path to cash is through the correct acquisition.
“We’ve gone to the brokers to discuss it,” Forman said. “They’ve said, “Great, but why not find something with an asset that has potential to increase in volume and size, and that has had some work done on it, rather than a pure exploration play?”
So that’s what Foreman – in consultation with his board of directors – is doing.
“Every week, I get a couple things passed to me,” he says of the process of seeking out a new acquisition.
“You look at each and say—” He gestures with his hands, as if making two piles in front of him, one significantly larger than the other, “—crap… crap… crap… hmm, not bad… crap… crap… crap… interesting! Send me some more details on this one!”
If the reports and historical documents – which sometimes include detailed accounts of past exploration and mining activity, and sometimes do not – fulfill Foreman’s stringent requirements, he travels to the site for a thorough inspection.
“That’s the acid test,” he explains. “To actually be able to go into the field and say, “Ok, it’s here – or it isn’t here – and put the property into three dimensions.... As a geologist that’s my responsibility.”
In the last two months, Foreman has been to Mexico five times to inspect various candidate properties. This, he says, is the advanced stage of the acquisition game.
I asked him about historical data and other records. In response, he pointed to several large black binders on the desk in front of him. “This is all the data.”
The property – which he can’t identify until Yale has completed the required disclosure in a press release – is a copper-zinc property, with significant silver.
“It [the property] has been a past producer, there’s a small mill onsite, there’s a mill offsite. We’re going through the old data base and saying, “This is what was there.” Nobody’s worked on it since 2001. And since 2001 the value of the contained metals has increased 433 percent.”
He chuckles.
“It’s certainly more interesting now than it was in 2002!”
So what’s next in the process?
“We’ll put an offer in and if they like it we’ll sign the deal. We’ll announce it whenever it’s done.” Investors can expect to see a press release about an acquisition within the next couple weeks, he says.
According to Foreman, negotiating the price of the property comes second to the finding of a solid resource.
“There’s a great quote from Ian Telfer,” Foreman says, referring to the mining visionary who raised more than $450 million for Wheaton River and produced some of the lowest cost gold in modern mining for Goldcorp. “He says, “Don’t be afraid to pay a little too much for an asset – at least you get it.””
Involved in the property acquisition process are days of pouring over historical documentation, weeks of research and years of experience in the field. Still, after all the empirical work is complete, there is always an element of fatalism, too.
Here Foreman makes an analogy that reveals his Canuck-ness, “Look at the [Pavel] Bure for [Ed] Jovanovski trade. At the time it looked pretty expensive, but the Canucks got a much better deal out of it ultimately because Bure blew out his knee and played for a year and a half after that.”
In other words, “You pay your money, you takes your chances.”
