Richard Kern and Herb Duerr are playing the mining industry’s version of gin rummy these days — discarding weak cards from their hands, watching closely to see if someone else at the table discards something that might prove valuable.
Their goal: Ensuring that their Reno-based MinQuest Inc. has the strongest possible hand of mining prospects to put into play once the exploration business rebounds.
Privately held MinQuest, which operates out of Kern’s west-Reno home, is among the low-profile companies that play a key role in the exploration work that’s the mining industry’s version of research and development.
Kern and Duerr, geologists with long experience in the exploration business, assemble packages of mining claims that they then shop around to the junior mining companies that begin exploration programs.
The junior mining companies, most of them funded by investors through Canadian exchanges, hope in turn to prove up a claim that they can sell to one of the big producers such as Barrick Gold or Newmont Mining.
Minquest these days carries an inventory of about 40 properties either available for option or currently under option by exploration companies.
But these are difficult days for exploration companies — investors lost interest in financing projects as gold prices declined — and they’re scaling back their plans.
And some of them are walking away from claims, rather than pay the costs of fees and work requirements. On federal lands, the Bureau of Land Management levies an annual fee of $140 per claim (a claim is roughly 20 acres).
That may not seem like much, but the land holdings of even a smallish exploration company may require hundreds of thousands of dollars a year just to hold properties.
That’s putting a lot of properties in play.
“There are some incredible bargains out there,” says Kern. “This is an ideal time to be looking for claims.”
On the other hand, MinQuest also faces the costs of carrying its own inventory of about 2,900 unpatented mining claims, so Duerr and Kern are taking a close look at their portfolio to make sure that properties can carry their weight.
It’s an exercise that involves some educated guesses about the future course of gold prices as well as the willingness of investors to finance exploration.
Kern is confident that gold prices will rebound, largely because he believes that inflation is inevitable after the world’s central banks pumped billions of dollars of cash into markets since the start of the financial crisis.
“That has to come to roost,” Kern says. “It just has to.”
On the other hand, he acknowledges that attempts to time the gold market are a fool’s game.
“You have to be ready for anything,” he says.
With years of experience in the business even before they launched MinQuest in 1998, Duerr and Kern are able to take a long view.
Both had worked for major companies, both had participated in major discoveries, and both had figured out that even a successful track record created neither wealth nor security for an employee of a big mining company.
“We’ve been on a lot of ground in the western U.S.,” says Kern.
The approach of MinQuest is heavily data-driven — “You want every spec of data you can get on project geology,” says Kern — and its founders are far more likely these days to be found in front of a computer rather than tromping around the Nevada outback.
From the start, Kern and Duerr hoped to build a royalties company, one that would generate most of its revenues from small interests in working mines.
In the meantime, they retained the earnings of MinQuest and sought opportunities to prepare technical reports for mining companies. MinQuest also manages exploration projects such as the work that found an indicated resource of 1.65 million ounces of gold at the Klondex Mine Ltd. Fire Creek property in Lander County.
A quarter of century after they launched MinQuest, Kern and Duerr expect to begin collecting the company’s first royalty checks from the Moss Mine, a project near Bullhead City, Ariz., that Northern Vertex is bringing into production.
The MinQuest founders have hopes as well for the Bruner property in Nye County that the company optioned to Patriot Gold, the same outfit that got things rolling at the Moss Mine.
Canamex Resources, which is exploring the Bruner property in a joint venture with Patriot, said results of exploration drilling this summer were promising.
Those results, Kern says, support the MinQuest’s data-crunching approach to finding the prospects that it continues to hold in its inventory even when times are tough.
“It’s easy to find gold in very small amounts. It’s hard to find a mine,” he says. “You’ve got to have people who have found ore deposits and know how to do it.”