Flagging small Canadian miners hope for a boost

Cannabis plants that will soon be harvested grow at Northwest Patient Resource Center in Seattle, Washington in this January 27, 2012 file photo. (REUTERS/Cliff DesPeaux/Files)

VANCOUVER - Looking for ways to boost their flagging fortunes, a handful of tiny Canadian mining exploration companies are considering swapping their hard hats and shovels for bongs and baggies.

In the past couple of months, nearly a dozen of these so-called junior miners, hard hit by a downturn in the mining industry, have announced they might branch out into Canada's budding medical marijuana industry.

The announcements from Satori Resources Inc, which owns a moribund gold project in Manitoba, and Victory Ventures Inc, which has staked mineral claims in British Columbia, have propelled these rock-bottom penny stocks updward.

The buzz is being created by new Canadian rules that are due to take effect on April 1 that allow cannabis for medical use to be cultivated commercially by licensed growers. Until now, the medical marijuana industry has consisted mostly of small-scale home-grown operations.

Most of the miners' plans to enter the legal pot industry are at the investigative stage, leading to questions about whether they will actually make the move, or are just looking for a pop in share prices that have been pummeled by weak metal prices and a financing freeze.

Canada's junior mining industry has a history of seeking to ride the coattails of major investment fads, evident in the stampede from mining into technology during the 1990s tech boom and then back to mining once the bubble burst.

Those looking at the pot business "are generally juniors that have projects that are no longer viable," said Mickey Fulp, publisher of MercenaryGeologist.com, a junior resource industry newsletter.

"They all probably have good intentions, but the good intentions are to boost their stock prices and get something going outside of the exploration and mining sector," he said.

Health Canada estimates revenues from commercial pot could reach C$1.3 billion over the next 10 years and draw in an estimated 450,000 users of medical marijuana.

But some in the industry as well as risk-loving investors believe that is just the beginning, especially if marijuana is legalized for recreational use as is the case in two U.S. states.

"It has absolutely blue sky potential because no one really knows. At this stage, you want at least to have some exposure to it in case this is the next biggest thing," said James Nelson, a director of Terra Firma Resources Inc, a mining exploration company with graphite and precious metals properties in Canada, according to its website.

The shares of Supreme Pharmaceuticals Inc, which changed its name from Supreme Resources Ltd, have surged 700 percent this month, albeit to just 6 Canadian cents. The company's plans are more advanced than most, announcing this week that it is in talks to buy a producing medical marijuana business.

Satori Resources' shares have doubled to 9 Canadian cents in the past month, and Thelon Capital Ltd's is up nearly the same amount to 12 Canadian cents.

The risks of speculating were evident this week when the shares of several mining-to-pot companies plunged after a Canadian federal court judge issued an injunction against government plans to end the practice of grow-your-own medical marijuana on April 1. The ruling could reduce longer-term demand for commercial pot.

Competition is already fierce with several small biotech and pharmaceutical companies much further down the road with their medical cannabis plans.

"There is lot of stigma attached to junior resources shares," Jennifer Boyle, chief executive officer of Satori Resources, said in an interview.

"If we are getting into this space, then I want to make sure there is no real stigma attached and that what we may or may not do would be absolutely legitimate and a sound business."