What is a Prospect Generator?
A prospect generator is a junior exploration company that acquires prospective ground that they consider to have significant mineral potential. The mineral rights are obtained either by staking and/or through third party agreements. Typically the objective is to acquire 100% of the opportunity, and to ultimately option 51-70% of the property to a third party in return for some multiple of the generator's expenditure to date.
Once a jurisdiction (country, state, etc.) is targeted, the underlying geology of the proposed project area must first be permissive for the deposit types targeted and the regional context should demonstrate that potential. The generator then systematically and cost effectively, through a combination of geological mapping, prospecting, geophysics and geochemistry, evaluates the project area to identify targets that support the deposit model. The generator then compiles the information and seeks to form a joint venture partnership with a company who will finance the more costly next phases of exploration to test the targets and advance the property. In return for assuming the risk, the partner acquires an interest in the project. The generator can then turn its attention to new acquisitions and new partnerships. In this way, the generator's business can grow without it having to frequently go to the market to raise funds for continued exploration, including pricey drill programs.
Why the model works
The prospect generator model makes prudent business sense. Since exploration is a risky business, this business model mitigates some of that risk. The project generator typically owns 100% of the property and options a portion of the property (in the 51-70% range) to a partner who will generally spend multiples of the acquisition and early exploration costs incurred by the prospect generator before attracting their partner. While some argue that this model dilutes the generator's ownership in the property, the model works because it mitigates the risk inherent in exploration. Statistically, only 1/3000 to 1/5000 exploration projects become economically viable. Also, the generator minimizes dilution over time, the common result of a company's need for successive equity offerings in order to solely fund its own exploration. Further, the model allows the generator to acquire more opportunities over time to statistically increase its chances to make an economically viable discovery.
By restricting its exploration efforts to reconnaissance and detailed surface studies, the generator limits its exploration budget. The prospect generator can then generate, advance and successfully joint venture its projects without having to raise significant capital often and thereby dilute its share structure (i.e. increase its number of issued and outstanding shares). Most companies solely fund their exploration. They raise money by issuing shares and commit those funds to cover 100% of their exploration programs, including drilling. Many drill campaigns are often necessary before a company can either prove that the project is economically feasible or decide that it is not feasible (e.g. Hemlo, discovered on hole 71; Veladero discovered on hole 76; Quimsacocha discovered on hole 122). Commonly, discoveries are not advanced to feasibility until several companies have attempted but failed for one reason or another. Thus the vast majority of companies have to return to the market to raise more cash to continue their exploration efforts. The prospect generator, however, retains the property and can seek another. Adherence to this business model can give the generator a longer life and ultimately increase its chances of finding a world-class deposit -- with less risk, less cost and less dilution.
For further insight into the prospect generator model, Aurion encourages you to conduct your own research.