Millrock Resources Inc.
Despite tough economic times for the industry, Millrock Resources Inc. rode high gold prices to what executives call a banner year in 2012.
This year, Millrock is spending about $11 million on mineral exploration—all but $1 million of it coming from major mining partners, such as Teck American Inc., Kinross Gold Corp. and Vale. Teck and Kinross are global mining companies active in Alaska. Vale is a giant, diversified miner headquartered in Brazil.
Formed in 2007, Millrock brings two strengths to the state’s gold rush: a devotion to the project generative-joint venture business model and an experienced team of Alaskans who decided to headquarter in Anchorage and leverage capital from around the world rather than set up shop in Canada like most junior mining companies.
“We started the company with the belief in the strong geological potential of Alaska and the fact it’s underexplored compared to other geological jurisdictions,” says Sarah Whicker, Millrock’s chief operating officer. “We’re looking for those massive, world-class deposits that aren’t as easy to find elsewhere in the world now.”
Millrock also likes Alaska’s relatively safe investment climate, Whicker says.
Most junior mining companies rely on selling stock to raise venture capital for the purpose of handling the costly, high-risk exploration phase of mining. This dilutes share price. Millrock is also publicly traded, but its project generative-joint venture strategy lowers that kind of fiscal risk since its major investors become big mining companies.
Millrock puts its geological know-how to work on large packages of land to explore for deposits of copper-gold porphyries and pluton-related gold ore bodies. Typically, the company stakes claims on state lands. The company has accessed mineral rights through agreements with Alaska Native Corporations.
Millrock identifies prospects with potential early. Then it farms out the cost of front-end exploration to capital-rich mining companies that meet funding obligations in option-to-joint-venture agreements.
The upside: Millrock is off the hook for the millions of dollars needed to advance the project in its early stages. The downside: Millrock gives up a majority interest in the project once a partner exercises its option to joint venture and—if a major deposit is discovered—Millrock must share production revenues.
Bering Straits Native Corp. and Millrock made an exploration agreement on three separate blocks of land totaling nearly 250 square miles in 2008. Millrock is targeting gold in source rocks for placer deposits mined since the early 1900s.
“I like their business plan, I like their model—the project generator model. It’s a good one for a junior to be involved in,” says Matt Ganley, Bering Straits’ vice president for resources and government affairs. “The big selling point—I’ll be honest with you—is the personalities involved.”
Two venerable Alaska geologists formed Millrock Resources Inc. five years ago to plumb the state’s underdeveloped mineral resources.
Greg Beischer and Phil St. George took Millrock public in 2007. The next year, subsidiary Millrock Exploration Corp., exploring only in Alaska and Arizona, was created.
Beischer, the company’s president and chief executive officer, spent seven years working for Bristol Bay Native Corp. on oil, gas and mineral resources. He came to Alaska in 1995 with Inco Ltd. but stayed when Inco left.
St. George, the company’s chief exploration officer, has been working in Alaska since his 20’s when he discovered the Pebble deposit as a geologist for what was then Teck-Cominco; the Pebble Project is now jointly owned by Northern Dynasty Minerals and Anglo American. As exploration vice president with NovaGold Resources Alaska Inc., he was involved in major discoveries at the Donlin Creek deposit, now known as Donlin Gold.
The pair brought in Whicker in 2008. Whicker grew up in rural villages in Southeast and Southwest Alaska and has an environmental background. She served as a business and sustainable development consultant for junior mining companies in Vancouver, British Columbia. She also was the president and business development manager of Kirkness Diamond Drilling in Nevada.
In an unprecedented move for a junior mining company, Millrock hired an Anchorage-based chief financial officer, Larry Cooper, about a year ago. He spent 27 years with National Bank of Alaska and Wells Fargo Bank as a senior vice president and manager of commercial banking before becoming a consultant to Millrock and other companies, including several Alaska Native Corporations.
Today, Millrock executives say they pride themselves on a commitment to responsible resource development. The company emphasizes its ability to infuse funds into rural communities through a goal to obtain services locally and provide training.
“We like to take more of a local approach to make sure we’re maximizing opportunities in communities,” Whicker says.
For example, a longtime Alaska guide takes clients sheep hunting near one of Millrock’s projects, Beischer says. The company has developed a regional communication plan with the guide and other land users to ensure Millrock’s activities don’t disrupt the wilderness experience for others.
“You have to inform yourself and make sure you know those people are out there so you don’t get crosswise with them,” he says.
Millrock is working in 11 project areas throughout Alaska. As of September, state records show Millrock Alaska LLC had 3,650 active claims on 573,320 acres. Millrock also has 280 state claims on 17,920 acres under option from other claim owners. In addition to their state claims, Millrock has the exploration agreement with Bering Straits Native Corp. covering some 89,499 acres.
Millrock Alaska LLC is a wholly owned U.S. subsidiary that holds mineral rights on behalf of Millrock Resources Inc., a Canadian company that can’t technically hold mineral rights. Millrock Exploration Corp. is a wholly owned U.S. subsidiary that operates exploration programs on behalf of Millrock Resources Inc. and Millrock Alaska LLC.
Millrock is one of the more active junior exploration companies in the state, according to the Alaska Department of Natural Resources. “As such, they are an important part of Alaska’s mineral industry, generating prospects and furthering property development toward possible future mining,” Bill Cole, with the Division of Mining, Land & Water, wrote in an email.
Many junior exploration companies follow the project generative-joint venture business model to a degree, Cole says. They pick up properties, do some amount of work on them, then try to bring in larger companies with more capital. Basically, that’s what Northern Dynasty did with the huge deposit at Pebble. The difference is whether a company diversifies its efforts over a large number of properties rather than focusing on one or two concentrated efforts.
Millrock executives say their strict adherence to the model, bringing in partners early, and maximization of its benefits is a distinguishing characteristic.
Millrock is one of about 1,800 junior exploration or mining companies listed publicly, according to Beischer. Of that number, probably 15 or so use the model exclusively. Of that, he says, only two operate in Alaska: Millrock and Vancouver, British Columbia-based Full Metal Minerals.
The model allows Millrock to get in with relatively little capital outlay, and also provides flexibility if the deposit doesn’t pan out.
“It gives us options,” Whicker says. “Once we reach the joint-venture stage, we don’t have to necessarily enter into it, which may be the best thing to do if the property hasn’t shown promise. Alternatively, we have a solid partner on a more advanced prospect. Sometimes, a partner may walk away from a perfectly good prospect they have advanced and we can market it to another company. All of these options are available to us.”
Plenty of companies might raise venture capital to explore. Millrock takes it one step further, Beischer says. The company takes revenues and generates numerous projects, then partners with majors to fund early-stage exploration work.
“It’s taking a small amount of venture capital and leveraging it to make more capital to invest in looking for these deposits,” he says. “This is a very high-risk business. It’s very often millions may be spent but companies won’t find anything.”
Returning to the Market
Financial markets in Canada are major centers for mining venture capital. Money flows in and out of those markets from around the world.
Simply put, what Millrock does is access that capital and spend it in Alaska searching for gold, copper and other valuable deposits, Beischer says.
“We realized you don’t have to be a resident in Canada or even headquartered in Canada to access those venture-capital markets,” he says, “so we started a company in Anchorage.”
Millrock is a public company, listed on the stock exchange in Canada and the over-the-counter OTCQX exchange in New York.
Despite a difficult economic climate for juniors, Millrock hasn’t gone to the stock market to raise significant capital since 2009, though they did a strategic financing sale in 2010 to get some “strong hands into the game”—influential investors likely to hold onto stock longer than the average investor because they believe in the company’s long-term goals and its ability to pull them off, Whicker says.
Now Millrock executives expect to go back to the market within six months. This year’s expenses are around $3 million against $1.82 million in income, mostly from management fees and option cash payments associated with various partnerships.
Millrock is trading at 30 cents a share, so selling stocks to generate cash dilutes existing shareholders. Beischer says Millrock tries to limit that as much as possible. Still, he says, Millrock “managed to stretch this out a long way. Normally companies like ours have to go back to the market almost every year. We do generate some revenue. With most exploration companies, cash only flows one way.”
Nature of the Business
The Bering Straits package is a good example of Millrock’s operations. Millrock makes annual cash payments to Bering Straits and payments in Millrock shares. It also makes donations to scholarship foundations. The Native corporation gets a net smelter royalty of up to 5 percent if any gold makes it to production.
The arrangement gives Millrock the option to lease the lands for mining. Millrock entered into an exploration agreement with Kinross on the Council project on the Seward Peninsula about 60 miles northeast of Nome. For the Council project, Millrock put together a multi-owner land package and made an agreement with Kinross for the whole package, including the Bering Straits land. A representative of Kinross wasn’t available for an interview.
The option agreement can continue from year to year.
“Sometimes partners elect not to go forward if we haven’t found encouraging results, but ultimately if we discover something of interest, the project will mature to a joint venture,” Beischer says. “It’s an option to form a joint venture with Millrock. Typically we give up the majority.”
A typical split, he says, is 60-40.
As far as prospects for the Bering Straits package, Millrock has drilled 25 shallow holes on Native-owned lands. The company knows there’s gold in the bedrock: those early placer mines are a clear sign. It’s just a question of how much, and how easy it would be to recover. Any gold is still a long way from being a proven economic resource.
The company’s agreement with the Native corporation ends this year, Ganley says. Bering Straits is waiting to see Millrock’s reports from this year. If exploration has yielded some results that need more defining, Millrock will probably renew the agreement, he says. If not, they’ll be done with this particular project.
“That’s the nature of the business,” Ganley says. “We like the business.”
Zaz Hollander is a journalist living in Palmer.