5 Challenges and Risks Facing Indigenous Participation in Exploration What, then, are the key challenges and risks that may prevent Indigenous participation in mineral exploration? The following section summarizes the external and internal challenges that can shape a community’s ability to participate meaningfully in mineral exploration from an economic development perspective. MANAGING RISK ACROSS THE EXPLORATION SEQUENCE – MANAGING GROWTH Indigenous development corporations should as much as possible try to avoid being overburdened by fixed costs in the event of a prolonged down cycle in the sector. One of the ways to do this is to resist the temptation to grow too fast, and, if possible, make sure that the company does not acquire major fixed assets, such as aircraft and heavy equipment unless they are expected to generate long-term revenues. Community owned businesses, especially those in communities with high unemployment and few key industries driving economic growth, are often eager to participate in exploration and mining when the opportunity arises. These businesses may be tempted to invest in expensive and / or highly specialized machinery to enable them to more successfully bid on contracts and attract joint venture partners. However, unless the level of exploration and mining activity in a region justifies the investment, and the capacity of an Indigenous business is at a level where it can make good, sustained use of new assets, businesses should use what leverage they have, to pass those costs onto more experienced joint venture partners who, at the end of the contract, will be able to make better use of the asset.
PROJECT RISK
The exploration phase of the mineral development sequence is highly dependent on availability of financing and fluctuating global commodity prices, not to mention uncertainty surrounding the value of the deposit being explored. Therefore, the development of businesses solely dependent on this sector is fraught with risk. Indigenous businesses that invest in new equipment and training in order to participate in projects can lose that investment when a project, or group of projects, disappears or is substantially delayed. Projects may be delayed or cancelled because a company depletes its exploration funding or the price of the underlying commodity does not justify continued investment. The fact that junior exploration firms tend to raise exploration dollars annually also makes it difficult for them to commit to long-term contracts. Consequently, impacted communities are often provided with short-term opportunities, which makes equipment financing difficult.
Depending on the commodity, its application and market may also not be fully understood, and end users may not be determined (this is more likely to be the case with rare earth or platinum-group minerals than with gold or base metals with well-known industrial applications). Finally, like any other business, exploration projects can suffer from mismanagement. The negative effects of failures at the corporate level can affect the businesses that provide services to projects. Indigenous businesses can also be exposed to the fortunes of their joint venture partners. Communities should be mindful of potential liability they take on as a result of business initiatives they pursue.
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