PAUL MCBETH: Digging for minerals can be a risky business

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He’s owned shares of NZX since January 2024, and travelled to the West Coast in January courtesy of Taiko Critical Minerals.

Amid the hustle and bustle of earnings season, mining explorer Rua Gold rang the bell down at NZX’s Auckland office on Monday, celebrating the first listing of what should be a good year for the stock exchange.

But enough investors noticed to give the would-be miner a healthy debut with a 16% spike on a healthy volume, and Rua held on to most of those gains to end its first week up 9.8% with $1.1 million of shares changing hands.

Hot on the heels of the new golden admirer came the confirmation of Taiko Critical Minerals’ listing on March 5, giving us a time and price since the rare earths prospector foreshadowed its public push late last year.

The first two listings of the year have carried on a growing trend on the NZX of attracting those extractive industries of which loquacious resources minister Shane Jones is such an ardent fanboy.

Since Santana Minerals added a New Zealand listing in 2024 to its ASX home, we’ve seen gold and silver miner Manuka Resources and Minerals Exploration taking up secondary listings on the NZX during a relatively quiet period for initial public offerings both here and around the world.

Bringing shelter from the rain

It might have come out of the blue, but Jones’s global flag-bearing of New Zealand’s increasingly permissive regulatory approach to extractive industries has coincided with Australian states bureaucrats getting a taste for rolling out the red tape.

At the same time, the NZX’s philosophy of recognising compliance like-minded jurisdictions for foreign-exempt listings has made life super-easy – and cheap – for those potential candidates.

The rise of the resources sector on the NZX is a welcome trend for an exchange that’s traditionally seen as fairly defensive given the strong representation of reliable dividend-paying utilities and commercial landlords.

Sure, the likes of minnow New Talisman Gold Mines have been loitering around the bottom of the bourse for years now, but it’s been some time since the owner of the Macraes gold mine in Otago, OceanaGold, decided it didn’t need a local listing anymore.

And for those who remember OceanaGold’s triple-listed days, the new generation of resources companies are a different kettle of fish to the mature miner churning out plenty of the shiny stuff from its goldfields.

A heart of gold

Take Rua and Taiko for instance. They might well be prospective mining companies, but they have very different investment profiles that people need to be aware of.

Rua has permits to go exploring for gold and antimony in the historical Reefton Goldfield on the West Coast and hunt for gold and silver in the Hauraki Goldfields in the Coromandel.

So far, Rua’s drilling has found inferred resources, which means the geological evidence implies there’s gold in them there Reefton hills, but not yet with enough weight to verify for sure. More drilling is on the cards to firm up those suspicions of a big find and, all things going well, a consent application could be in the hands of the regulators by the end of the year.

The Hauraki site near Whangamatā has only received some initial exploration work, with the prospector waiting for the Department of Conservation to give it the all-clear for a maiden drilling programme.

Taiko, meanwhile, already has consent to start dredging the Barrytown Flats near Punakaiki on the West Coast in its quest for garnet, ilmenite and zircon – materials with plenty of industrial uses.

Saving all the overtime

The critical minerals explorer’s drilling programme has measured resources – the magical code word in the geological world that there is, indeed, stones in the ground worth digging up – and indicated resources, which are a probable as opposed to an inferred resource’s possible presence.

Taiko has another consent application in train to extend out its footprint, and is eyeing up actual mining operations from 2028 once it buys all the kit it needs and builds a mineral separation facility next year.

Those are two very different propositions for a would-be investor to think about when weighing up which, if any, junior miners to spend some time trying to understand and potentially throw a few shekels into.

And one thing that we probably need to be clear about is that mining exploration is a highly speculative business. A balanced portfolio isn’t going to load up on explorers with the potential to leave you high and dry, rather it might be something more akin to a couple of percent.

A complicated land

Because there’s no guarantee they’ll actually find the minerals they’re looking for and they typically need to go back to investors to raise more money to fund not only their search, but also to set up a mining project if they’re confident to start digging – which doesn’t guarantee they’re digging in the right spot. Cue the usual warnings of getting your stake diluted when the smart money comes to play in future discounted offers.

The earlier a firm is in the process, the bigger risk there is of its golden dreams turning to pyrite.

That means the eventual payout, which often comes in the form of a bigger miner snapping up a derisked project, should compensate that heightened risk of failure – think the 30%-plus style returns sought by venture capital gurus more enamoured of the virtual world rather than the blood and sweat of real life.

Let’s not get ahead of ourselves.

There’s a lot of water to go under the bridge before any of these explorers manage to transform into cash-generating ventures.

Which probably isn’t a bad time to brush up on the whys and wherefores of the mining sector if you want to add something shiny to your increasingly diversified investment portfolio.

Image from Curious News.