After this summer, Constantine Metal Resources will no longer have a majority interest in the Palmer Project. DOWA Metals and Mining, Constantine’s partner in the joint venture mine exploration project, will assume up to 56% interest after spending $8.8 million to fund the entirety of 2021 work.
While the shift is unlikely to change much about the Palmer Project’s day-to-day operations, it brings the project one step closer to fruition, according to long-time mining industry expert Jim Kuipers, a Montana-based consultant who was hired by Rivers Without Borders last year to analyze Constantine’s preliminary economic assessment (PEA) of the Palmer Project.
“It is a decision by an investor, already highly invested in the project, to put in additional money to further develop it and take control of the project,” Kuipers said. “Every year the project continues to get financed and ownership gets more consolidated, it does become more likely to happen.”
Kuipers said the next two to three years will likely be critical ones for determining the project’s feasibility.
Until this year, Constantine had clung to an increasingly slim majority of interest in the Palmer Project. By the end of January 2021, it owned 50.04% of the project.
It won’t be clear until the end of the year how much of the project DOWA owns, according to Constantine president Garfield MacVeigh. Constantine’s interest will be diluted to no less than 44%. DOWA will likely assume a controlling interest sometime in the next quarter.
MacVeigh said the decision to have DOWA fund 2021 operations came from a desire to keep momentum going on the project and avoid dilution of Constantine shares. The company’s share price as of Tuesday morning was 23 cents.
“With Constantine and its relatively low share price, we realized we probably weren’t going to be able to fund our share of the program we wanted to carry out in 2021, which led to DOWA’s decision to fund it,” MacVeigh said. “If we had gone out on the market and raised the money (by issuing new shares), to raise four million dollars, that’s a lot of share dilution for the company and its customers.”
He said DOWA, which has requested Constantine field questions from the media, was eager to see the project continue, so it agreed to cover Constantine’s portion of costs.
The dilution of Constantine’s majority interest in the Palmer Project is in keeping with broader trends, according to sources in the mining industry.
In a June 2020 interview, MacVeigh said it would be attractive for Constantine, a junior exploration company, to retain a 30% interest in the project, a sentiment he reiterated in an interview Monday.
“Often, discoveries in our business are made by the junior company and you bring in a bigger company to help advance the project,” he said.
It’s not surprising that DOWA has taken a majority interest in the project, Kuipers said.
“Ninety percent of projects developed by exploration companies are eventually purchased by major mining companies. Constantine’s goal was to sell the project, and they have always had DOWA as the primary interested party. Acquiring a controlling interest was most likely DOWA’s intent from the beginning,” he said.
The only anomalous aspect of the Palmer Project’s situation is that DOWA isn’t a major mining company, Kuipers said. It’s a Japanese smelting company.
According to the DOWA website, the company has been investing in overseas mines to secure sources of zinc and copper concentrates to feed its smelting operation.
“It’s really not that common for smelting companies to buy mines to feed their smelters,” Kuipers said. “But if they don’t keep feeding them, they die and go away, so that’s what makes this one interesting.”
Little will change in terms of day-to-day operations and long-term project goals once DOWA assumes a majority interest, according to MacVeigh.
“DOWA is happy to continue to have (Constantine) operate the project. A lot of major decisions are still required to have a unanimous vote, so we’re still involved in the decision-making process,” MacVeigh said.
The $8.8 million will fund 35-50 summer hires to support and conduct a range of drilling work. MacVeigh said this marks a return to pre-pandemic operation levels.
A portion of drilling will be dedicated to better defining the Palmer Project’s existing mineral deposit. A portion will be exploratory, seeking to identify other nearby deposits, and a portion will gather geotechnical and water quality information to inform environmental decisions.
MacVeigh said the hope is the information gathered this summer will give the companies a better sense of project feasibility, although an important piece in making this assessment will be the construction of a one-mile tunnel into the mountainside for year-round drilling and exploration.
Compared to last June, when Palmer Project exploration plans had been significantly scaled back, Constantine stock prices were hovering around 12 cents a share and the metal market was weak, the company’s economic outlook appears somewhat improved, but still precarious.
In 2019, Constantine took out an unsecured $630,000 loan at 12 percent interest from an investment group to pay for operating costs. It needs to be repaid or refinanced in five years.
MacVeigh said he thinks Constantine will be able to repay the loan within the timeframe based on the assumption that the company will see an increase in its share value.
Constantine has one other project in its portfolio, the Big Nugget Gold Project in the Porcupine Creek area. The company owns the project in full, and plans to conduct soil sampling and prospecting work this summer to help determine the scope of future drilling.
“We feel that we’re going to see significant value added to the Palmer Project, and we’re going to continue to do exploration on the Big Nugget project. If you make another discovery or put together assets that contribute to share value, then your ability to secure funding changes,” MacVeigh said.
As of Jan. 31, the company had a $815,019 working capital deficiency, according to its most recent quarterly report.
Constantine’s long-term economic viability remains dependent on the ability to “obtain necessary equity financing to continue operations and to determine the existence, discovery and successful exploitation of economically recoverable reserves in its resource properties,” the report reads.