The first thing to know about Dolly Varden (TSXV:DV) is that it has what is billed the “richest silver mine in the British Empire”. It is located in the Golden Triangle of British Columbia, 25 kilometers up a valley from a deep-water port with roads, rail, and grid power nearby. Dolly Varden drilled about 15,000 meters in 2017 for $4.5 million, which comes in at $300 per meter for drilling – on par with Rockhaven's (TSXV:RK) drilling costs in the Yukon. Exploration at a project like this is expensive but can be very rewarding. You sure want to have an experienced team in charge that has connections and capacity to manage the work.
The Belcarra Group has what it takes. There's a couple ways to come at the story of Dolly Varden, both of which are full of important information. You can either unpack the history of Dolly Varden itself as a junior mining company or you can tell the story of the Belcarra Group. Up until now they've been largely separate stories, but are now deeply intertwined.
Will Dolly Varden become the next exploration story in the Belcarra Group?
If you're like me, you might have some passing familiarity with Dolly Varden through the activities of Judson Cutler, who did a good job pounding the pavement in 2017 telling the company’s story. We all have to be careful about controlling what we pay attention to and I've probably given Dolly Varden less attention than they deserved, but I've been blown away by what I've seen as I dug into the story.
At a particularly bleak moment in the bear market, Dolly Varden navigated a tough situation with an unsolicited takeover bid from their partner, Hecla Mining. The story revolves around debt and corporate control, but Sprott Lending stepped in as a white knight for Dolly Varden in the toughest times to lead a recapitalization effort that brings the company to where it is today. Hecla decried the dilution at the time, saying that the takeover they were offering was a much better deal for Dolly Varden shareholders, but dilution is the solution for juniors.
After that period, the Belcarra Group came into the picture and the success of the 2017 exploration program is a testament to the fact that things are now on the right track.
Who is the Belcarra Group?
Again, I wasn't particularly familiar with them, but their track record goes deep and serves as a good example of successful empire-building in the mineral exploration business. At the heart of these groups there is typically a large, successful exploration story that resulted in a liquidity event that provided a foundation for future ventures.
In the case of Belcarra, the big win was La Preciosa.
Listen to Gary Coper, CEO of Dolly Varden, discuss the approach of the Belcarra Group with Ellis Martin in a recent interview, saying "Our model is to look at exploration projects that we think can get to a size that will attract one of the major miners."
Gary Cope led the group to delineate a massive silver deposit at La Preciosa and successfully navigate a bidding war in 2013. The deposit has not been developed, but was a big win for the Belcarra Group and other Orko Silver shareholders with a takeover worth $350 million including $100M in cash.
That transaction gave the Belcarra Group the funding and relationships necessary to build a legacy.
The group had another company at the time, called Orex Minerals (TSXV:REX), which has a produced good results since then including the spinout of Barsele Minerals (TSXV:BME) with an asset in Sweden that was optioned to Agnico Eagle in 2015. Barsele now supports a $75 million valuation and things could get interesting there again soon as the three-year window for Agnico Eagle to spend $7 million expires in June 2018. What does the future hold for Barsele?
“Pursuant to the Transaction, Agnico Eagle acquired a 55% interest in the corporate entity which owns the Project in consideration of an initial payment to Orex of US $6 million, with an additional US $2 million payable by Agnico Eagle in cash or shares at Agnico Eagle's election to Orex on each of the first and second anniversaries of the closing. As part of the Transaction, Agnico Eagle has committed to spend US $7 million on Project expenditures over three years and will earn an additional 15% interest in the corporate entity which owns the Project if it completes a pre-feasibility study. Pursuant to the Transaction, Orex was also granted a 2% net smelter royalty on production from the Project which may be repurchased by Agnico at any time for US $5 million. Agnico will have a majority of board seats and will be the operator of the Project for customary compensation.” Source: Orex and Agnico Eagle Complete Joint Venture Transaction on Orex's Barsele Project, 11-Jun-15.
Whatever happens to Barsele, it is a single-asset, development-stage company in a joint venture with a major. That is very different from what the Belcarra Group focuses on, which is exploration.
As in the title of Norm Keevil's biography, “Never Rest on Your Ores”, I suspect that the Belcarra Group is keen to secure another exploration company before things heat up out there again and Dolly Varden could prove to be that company. Dolly Varden stands to benefit greatly from the relationship with this exploration group on many levels, such as sharing the general & administrative costs and the network of contacts associated with the Belcarra Group. After rebuffing Hecla's acquisition offer, Dolly Varden might have looked a bit like an orphan but it now looks well-positioned with a strong group at the helm. The key public people in the Belcarra Group that I can identify are Gary Cope and Ben Whiting.
Mr. Cope, Mr. Whiting, and others from the group worked together on La Preciosa and gained valuable experience across the life cycle of exploration companies – from the first drill holes through a takeover, with the added benefit of being subject to a bidding war.
Gary Cope has already provided a strong leadership to Dolly Varden, as described in the 2018 letter to shareholders. They made four separate discoveries on the Dolly Varden property, which reflects a well-designed and executed program in this relatively remote area. In fact, they noted that they were the first group to start drilling in the triangle in 2017 and sustained a long season through October. Their successful 2017 program reflects the Belcarra Group’s ability to raise capital and do the work.
Ben Whiting brings a very strong capacity for work, as documented by his extensive research articles available online. Going all the way back to Whiting’s master’s thesis at UBC in 1989, I see some neat ideas that are still relevant such as his visual depiction of correlations in the mineralogy at the mine he was studying. He also had some strong things to say about apparent problems at the mine, writing "In conclusion, the drop in the grade of gold of ore trammed at depth of mining is not purely a result of geological factors. A reduction in mining control is considered to be the major factor influencing gold values in the lower levels of the mine."
In 1993, Mr. Whiting helped edit a large book on “Giant Ore Deposits” for the Society of Economic Geologists that had some compelling ideas in it:
“Beyond the defining characteristics of grade and tonnage, the issue of what characterizes giant ore deposits has received very little attention in ·the geological literature. The conventional assumption is that ore deposit characteristics are independent of scale. We considered that there was sufficient evidence to challenge this assumption for some deposit types. We also felt that the issue was of relevant current interest and that it would be worth examining the available evidence for a variety of ore deposit types.” Society of Economic Geologists, Giant Ore Deposits
This focus on “giant deposits” has been borne out in Mr. Whiting’s professional activities since then with La Preciosa and others. Could they be onto another one with Dolly Varden?
Check out an abstract written by Ben Whiting and Rob van Egmond, Chief Geologist for Dolly Varden, for a conference in June 2018 that was just published on March 20, 2018 that emphasizes the potential of brownfield mining districts. The fact that these two geologists both worked at Orex Minerals gives further evidence that the Belcarra Group is putting the band back together!
In addition to Ben Whiting’s focus on “giant deposits”, I think they also like high-grade silver deposits. Not all of their assets fit that description, but their biggest successes sure do!
The Belcarra Group clearly has capable geologists, but they also have people who understand the markets. Spinning Barsele out of Orex was a great example of that. The academics can debate the irrelevance of capital structure, but I think it’s clear that the two companies would have a smaller valuation and following in the markets if they were still joined as one. Spinning out exploration assets can make for increased G&A expenses, but it can be worthwhile if a large development-stage asset would otherwise overwhelm the valuation of other exploration assets. And the administrative costs can be reduced anyway by virtue of something like the Belcarra Group.
Considering all these different pieces on the board as they stand, things look well organized and well thought out, but what might be coming next? This group is surely capable of conducting effective programs at the Dolly Varden property, but their passion is exploration. Will they find other projects that are too good to pass up?
Listen to this interview with Gary Cope by Al Korelin from 2012 for some discussion about how the Belcarra Grop originally secured the Barsele asset in Sweden. They have the ability to be in the right place at the right time in the property markets! With weakness across broad swathes of the primary and secondary markets for juniors in 2018, the Belcarra Group may have good opportunities to add even more excitement to their companies. What’s more, they may surprise with some kind of strategic transactions with a major for the existing assets in Dolly Varden! They've clearly demonstrated an aptitude for that kind of deal-making in the past.
It’s often said that people are a key factor for success in the exploration business, but I think it’s really groups of people that matter most. Successful groups like this are more powerful than any one person, and the most successful people seem to build these kinds of groups anyway. Watch for continued success from the Belcarrra Group and for other groups to rise up as we move forward through the many phases of the many market cycles all around us.
I was not compensated to write this material This is not investment advice.
