Transition (V.XTM) CEO Scott McLean is very clear about the difference between a project generator and a junior explorer, “The big difference is that a traditional junior will raise money by diluting the shareholder’s equity to fund the advancement of one or two projects. Under the project generator business model, the Company holds multiple projects and the exploration is funded by a partner in return for a stake in a specific project. This model allows projects to be funded with minimal shareholder equity dilution. The approach leverages the investor’s exposure to the upside that can come from discovery in a manner that insulates the downside that can come from excessive shareholder dilution if results prove unfavourable”
What that means is that Transition Metals has a portfolio of projects which it identifies at the earliest stage. “We look for targets we can stake or acquire,” said McLean. It is a data driven process, “We combine available datasets – government, our own and other companies. We’re also open to acquiring properties directly from prospectors and we watch for claims that come open and are available for us to stake.”
“The quality of the team and our approach make a difference,” said McLean. “When we pick up a project we will model it on a 2D GIS platform and sometimes, as in Sudbury, in 3D. We invest our own money to enhance projects with geophysics and drilling as a means of making them more marketable to partners. The objective is to bring a project to the point where it will be attractive for a partner to advance it further. For example, earlier this year near Thunder Bay, timely acquisition of new geophysical data flown by the government was acquired, which identified a prospective looking magnetic anomaly that we staked earlier. We drilled one hole and hit 6.25 metres averaging 1.07g/t PGM’s including a higher grade section of 4.0 g/t PGM and 0.56% Cu over a core length of 0.30 metres near the interpreted base of a >200 metre thick sequence of early-rift intrusive rocks.”. This work resulted in the rare discovery of a new platinum mineralized intrusion that has since been called Saturday Night.”
“We’re involved in numerous projects but we don’t dilute our equity. We sell assets and we dilute our property interests,” said McLean. “We have a much better chance to be involved in a discovery and we reduce our risk by assigning the exploration to a partner. It’s an optimal blend of risk and reward in a sector where both can be extreme.”
“It is a sustainable model,” said McLean. “A project generator just keeps filling the pipeline.”
At the same time, Transition is not unwilling to spin projects out into subsidiary companies. “We look to run subsidiaries like traditional junior public companies where the shareholder’s equity is diluted to finance the exploration. An example of this is Sudbury Platinum which is partially owned by Transition Metals (36%) but raises funding on its own to explore for nickel, copper and platinum group metals in the Sudbury region. The company is exploring its key Aer-Kidd Property, an advanced exploration property located on the prospective Worthington Offset dyke, in the heart of the Sudbury mining camp and holds a significant interest in the Lockerby East project that contains about 10mT of resources.
Transition Metals recently announced another spin-out company called Canadian Gold Miner. This company is a focused gold explorer in the Abitibi Greenstone Belt and controls approximately 165 km2 of attractive properties. Recently the spin out announced a non-binding letter of intent had been struck with Osisko Mining whereby Osisko will become a 19.9% owner of Canadian Gold Miner by assigning two properties and providing $1M to the company. As a result Transitions Metals ownership will be reduced from 50% to 39%. In the release that announced the Osisko deal, McLean is quoted as saying, “The letter of intent outlining an arrangement between Osisko and our subsidiary validates the quality of the gold projects Canadian Gold Miner has assembled. Furthermore, it demonstrates the functionality of the project generator business model, where the spinning out of CGM has resulted in value added to XTM without direct equity dilution in the Company.”
This growth model, where Transition Metals puts together projects, brings its technical and geological talents to the table and then sells the project on while maintaining a stake, can and, if McLean has his way, will be repeated.
“We keep in touch with the players in the exploration sector and maintain our network ,” said McLean. “We’re looking for good projects and good partners that can provide the financial horsepower needed to be successful in a risky business.”
The key, however, is avoiding dilution of the shareholders’ equity in Transition Metals. By spinning projects out, either to subsidiaries or joining forces with strategic investors, Transition builds its own equity while reducing its shareholder’s exposure to risk.