MinEx Consulting Strategic advice on mineral economics & exploration
Recent trends in mineral exploration - are we finding enough ?
Richard Schodde Managing Director, MinEx Consulting
Adjunct Professor, University of Western Australia
RMG 8th Annual Mining and Exploration Investment Conference 15th - 16th November Stockholm
MinEx Consulting Strategic advice on mineral economics & exploration
Overview
• Trends in Exploration Expenditures
- Level of expenditure and key drivers
• Current “Hot Spots” for Exploration
• Trend in Discovery Rates
- Metal found, Unit Discovery Costs for Au, Cu and U3O8
• Trends in conversion rates (from Discovery > Development)
- Not all discoveries get mined, and those that do may take many years
• Impact of changes in cut-off grade on available resources
- Resources can significantly grow with lower cut-off grades ...needs economies
of scale, innovation in technology and higher prices to happen
• Are we finding enough metal ?
– Implications on long run commodity prices
• Conclusions
2
MinEx Consulting Strategic advice on mineral economics & exploration
TRENDS IN EXPLORATION EXPENDITURES
Spending on minerals exploration over the last 60 years
3
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration Expenditures: Western World
$0
$4,000
$8,000
$12,000
$16,000
1950 1960 1970 1980 1990 2000 2010
Other
Bulks
Uranium
Base Metals
Gold
4
June 2011 US$m
Gold is still the
“main game” !
Sources: MinEx Consulting estimates, based on data from
ABS, NRCan, Tilton (1988), Wallace (1992,93)
and Metal Economics Group © 2010
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration Expenditures: Western World
0%
20%
40%
60%
80%
100%
1950 1960 1970 1980 1990 2000 2010
5
Base Metals
Uranium
Gold
Other Bulks
Sources: MinEx Consulting estimates, based on data from
ABS, NRCan, Tilton (1988), Wallace (1992,93)
and Metal Economics Group © 2010
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures are driven by commodity prices Gold price versus exploration on gold in the Western World : 1950-2010
$0
$300
$600
$900
$1,200
$1,500
$1,800
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
1950 1960 1970 1980 1990 2000 2010
Exploration Spend
Gold Price
6
Exploration Expenditures
(June 2011 US$m) In recent years there
has been a strong
correlation between
price and spend
Gold Price
(June 2011 US$/oz)
Sources: MinEx Consulting estimates. Post 1992 expenditure
data from Metal Economics Group © 2010
MinEx Consulting Strategic advice on mineral economics & exploration
$0
$50
$100
$150
$200
$250
$0
$500
$1,000
$1,500
$2,000
$2,500
1950 1960 1970 1980 1990 2000 2010
Exploration Spend
Uranium Price
7
Exploration Expenditures
(June 2011 US$m) Uranium Price
(June 2011 US$/lb U3O8)
Sources: MinEx Consulting estimates Sept 2011,
based on OECD Red Book
Exploration expenditures are driven by commodity prices U3O8 price versus exploration on uranium in the Western World : 1950-2010
In recent years there
has been a strong
correlation between
price and spend
MinEx Consulting Strategic advice on mineral economics & exploration
RECENT DISCOVERIES AROUND THE WORLD
Current “Hot Spots” for mineral exploration
8
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits: World All years
9
Significant discoveries
have been made on
all continents
Note: Excludes bulk mineral deposits
Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv
Giant >6Moz Au, >1Mt Ni, >5Mt Cu equiv
Major >1Moz Au, > 100Kt Ni, >1Mt Cu equiv
Base
Metals Gold Other
Major Giant
Supergiant
N = 2280
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits: World Discovered since 2000
10
Base
Metals Gold Other
Major Giant
Supergiant
N = 223
Note: Excludes bulk mineral deposits
Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv
Giant >6Moz Au, >1Mt Ni, >5Mt Cu equiv
Major >1Moz Au, > 100Kt Ni, >1Mt Cu equiv
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits: World Tier 1 deposits discovered since 2000
11
N = 14
Note: Excludes bulk mineral deposits
Pebble
(CuAu : 2002)
Oyu Tolgoi
(CuAu : 2002)
Lagunas Norte
(Au : 2001)
Cortez Hills
(Au : 2002
Eucla
(Min Sands : 2004)
Fruta del Norte
(Au : 2004)
Detour Lake
(Au: 2005)
La Colosa
(Au : 2006)
Moto
(Au : 2004)
Los Sulfatos
(CuMo : 2007)
Golpu Deeps
(CuAu : 2009)
Cote Lake
(Au: 2010)
Vogue
(Au : 2010)
Tasiast Extension
(Au : 2010)
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits: World Discovered since 2000
12
Gold Other
Major Giant
Supergiant
Alaska/Yukon Northern Ontario
Latin America West Africa Central Africa
China
Current
“Hot Spots”
Base
Metals
Note: Excludes bulk mineral deposits
Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv
Giant >6Moz Au, >1Mt Ni, >5Mt Cu equiv
Major >1Moz Au, > 100Kt Ni, >1Mt Cu equiv
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
TRENDS IN DISCOVERY COSTS
Estimated unit finding costs for various metals
13
MinEx Consulting Strategic advice on mineral economics & exploration
Discovery costs for gold are rising Primary gold in Western World: 1950-2010
14
$0
$10
$20
$30
$40
$50
1950 1960 1970 1980 1990 2000 2010
Weighted Average cost
1990-99
$21/oz
Estimate
Discovery Cost (June 2011 US$/oz)
3 Year rolling average
1980-89
$16/oz
2000-09
$25/oz
1970-79
$9/oz 1970-79
$6/oz
1970-79
$2/oz
Source: MinEx Consulting © Nov 2011
Assume ~$30/oz
for next decade
MinEx Consulting Strategic advice on mineral economics & exploration
Discovery costs for uranium are rising Uranium in Western World: 1950-2010
$0
$2
$4
$6
$8
1950 1960 1970 1980 1990 2000 2010
Estimate
Note: Based on all primary uranium deposits >0.5 kt U3O8.
Includes adjustment for deposits with no reported discovery year
Discovery Cost (June 2011 US$/lb U3O8)
5 Year rolling average
Assume ~$4/lb U3O8
for next decade
Source: MinEx Consulting © Sept 2010
MinEx Consulting Strategic advice on mineral economics & exploration
Until recently, discovery costs for copper have been fairly steady Copper in Western World: 1950-2010
16
Note: The reported costs exclude credits for by-product metal
Estimate
Assume 2c/lb Cu for
next decade
Between 1950-2000, the
discovery cost for copper
averaged 1 c/lb of resource
Discovery Cost (June 2009 US c/lb)
3 Year rolling average
Source: MinEx Consulting © Sept 2009
MinEx Consulting Strategic advice on mineral economics & exploration
TRENDS IN CONVERSION RATES
How many discoveries turn into mines, and how long does it take?
17
MinEx Consulting Strategic advice on mineral economics & exploration
Conversion factors for exploration
• Not all discoveries are developed into mines
– Historically only 50-70% are mined
– The conversion rate depends on project economics, business risk and social issues
• Even for those that do get developed, there is often a delay of 10-15 years between discovery and commencement of mining
18
Key factors on the likelihood and speed of conversion are;
the size, quality and location of the discovery
MinEx Consulting Strategic advice on mineral economics & exploration
Current status of gold deposits Primary gold deposits found in the World: 1950-2011
Discovery Year
Current Project Status
Analysis based on 1209 Primary gold deposits >0.1 Moz
On average only
60-70% of gold
deposits get developed
0%
20%
40%
60%
80%
100% 19
50-5
4
1955
-59
1960
-64
1965
-69
1970
-74
1975
-79
1980
-84
1985
-89
1990
-94
1995
-99
2000
-04
2005
-09
2010
+
Advanced Exploration
Feasibility
Stalled
Construction
Operating Mine
Closed Mine
Source: MinEx Consulting © Oct 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Current status of copper deposits Copper deposits found in low-risk countries: 1950-2011
0%
20%
40%
60%
80%
100% 19
50-5
4
1955
-59
1960
-64
1965
-69
1970
-74
1975
-79
1980
-84
1985
-89
1990
-94
1995
-99
2000
-04
2005
-09
2010
+
Advanced Exploration
Feasibility
Stalled
Construction
Operating Mine
Closed Mine
Analysis based on 556 copper deposits >0.1 Mt Cu found in Australia, North America, Western Europe and Chile
Discovery Year
Current Project Status
On average only
50-60% of copper
deposits get developed
Speculate that the lower
conversion rate is due to the
high infrastructure requirements
for base metal projects
Source: MinEx Consulting © July 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Development time for successful copper projects Copper projects in low risk countries: 1950-2011
0
10
20
30
40
50
60
70
1950 1960 1970 1980 1990 2000 2010
>5 mt Cu
1-5 mt Cu
0.1-1 mt Cu
<0.1 mt Cu
Time Frontier
Time Discovery and
Development (Years)
Analysis based on 556 copper deposits >0.1 Mt Cu found in Australia, North America, Western Europe and Chile
Bigger projects tend to take longer to
get into production.
The variation in development –time
with size is influenced by the amount
of pre-existing infrastructure available
and the amount of Government red-
tape involved. Many of the smaller
projects are near existing mining
operations (ie are brownfield projects).
Discovery Year
For copper, it typically takes 5
to 25 years (average 12 years)
from discovery to mine start up
Source: MinEx Consulting © July 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Development time for successful gold projects Primary gold projects in the World: 1950-2011
0
10
20
30
40
50
60
70
1950 1960 1970 1980 1990 2000 2010
>10 Moz
5-10 Moz
1-5 Moz
<1 Moz
Time Frontier
Discovery Year
Analysis based on 571 Primary gold deposits >0.1 Moz
Time Discovery and
Development (Years)
For gold, it typically takes 5 to
20 years (average 10 years)
from discovery to mine start up
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
IMPACT OF CUT-OFF GRADE
Much of the recent growth in resources is due to lower cut-off grades
23
MinEx Consulting Strategic advice on mineral economics & exploration
• Most deposits have a “halo” of low grade ore
surrounding a high-grade core
• The reported size of the deposit will depend
on the cut-off grade used
– As a rule of thumb, lowering the cut-off grade by 50%, increases
the ore tonnes by 4-8x and the contained metal by 2-4x
– The cut-off grade is driven by economics .... which, in turn, are
driven by commodity prices, costs and level of business risk
Impact of using a lower cut-off grade
24
Costs are influenced, energy & labour-intensity, innovations
in mining and processing methods and economies of scale
The ratio varies with the type of deposit
MinEx Consulting Strategic advice on mineral economics & exploration
Impact of changes in grade on resource size (Example 1) Shahuindo Gold Deposit in Peru
25
0.0
0.5
1.0
1.5
0 50 100 150 200 250 300
Moz
Resource (Mt Ore)
Grade (g/t Au)
18 Mt @ 1.14 g/t
= 0.65 Moz
182 Mt @ 0.58 g/t
= 3.41 Moz
1
3
4
5
2
Moz - isobars Tonnes-Grade Curve
(June 2011)
0
1
2
3
4
0 5 10 15 20
Years after Discovery
0.65 Moz
3.41 Moz
Source: Company Reports
Estimate that 40% of the
growth in resources for this
discovery came from
lowering the cut-off grade
MinEx Consulting Strategic advice on mineral economics & exploration
Impact of changes in grade on resource size (Example 2) 12 giant porphyry deposits: 1929-2008
0
100
200
300
400
1929 . Adjusted 2008 2008
26
Mine to-date
136 mt Cu
Remaining
Resource
242 mt Cu
Total 378 mt Cu
(61,000 mt @ 0.62% Cu)
Total 60 mt Cu
(3880 mt @ 1.55% Cu)
Pre-Mined Resource at
higher cut-off grade
Mined to-date
10mt Cu
Remaining Reserve
Total 47 mt Cu
(3068 mt @ 1.55% Cu)
37mt Cu
Mt Cu Top 12 Porphyry Mines in 1929
Chuquicamata
Braden (El Teniente)
Morenci
Utah (Bingham Canyon)
Ray
Chino
Miami
Nevada (Ely/Robinson)
Inspiration
Andes (Potrerillos)
New Cornelia
Copper Queen
Estimated 2008 pre-mined resource
using a higher cut-off grade to
achieve a 1.55% Cu average grade
Sources: Parsons (1933) and MinEx Consulting March 2010
Estimated additional 13 Mt
Cu from technology
improvements + mine site
exploration 1930-2008
Estimate that ¾ of the
growth in resources (from 47
to 378 Mt Cu) in these
existing mines came from
lowering the cut-off grade
MinEx Consulting Strategic advice on mineral economics & exploration
ARE WE FINDING ENOUGH METAL ?
Trends in the finding and mining rates for selected metals
27
MinEx Consulting Strategic advice on mineral economics & exploration
Are we finding enough metal ?
• Key drivers
– Current discovery rates ... is slowing down
– Conversion rates (from discovery to operating mine) ... only 60-80%
– Lag between discovery and development ... typically 10-15 years
– Likely losses on mining ... typically 5-10%
– Current and (more importantly) future mining rates
• Modifying factors
– Current inventory of undeveloped projects (and their quality)
– Ability to increase resources through lowering the cut-off grade
– Long term costs
– Impact of environmental and social factors)
– Long term prices
28
Given the feedback loops, is this an input or an output ??
Given the long delays to convert a
discovery into a mine, need to
consider size of market at that time
MinEx Consulting Strategic advice on mineral economics & exploration
How much metal do we need to find ?
29
To ensure no supply interruptions in the longer term the industry
needs to be finding 2-3x as much metal as it currently mines
MinEx Consulting Strategic advice on mineral economics & exploration
Mining & Discovery rates for Copper Amount of copper mined and copper found in the World: 1950-2009
30
0
30
60
90
120
150
180
1950 1960 1970 1980 1990 2000 2010
Discoveries
World Production
CAUTION: Not all
discoveries get turned
into mines, and not all of
the metal is recovered
Note: Chart include minor adjustment for deposits missing from the database
Is based on discoveries > 0.1 Mt Cu
Estimate
Mt Cu
Sources: MinEx Consulting Feb 2010.
Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Mining & Discovery rates for Gold Amount of gold found and mined in the World: 1950-2010
31
0
100
200
300
400
1950 1960 1970 1980 1990 2000 2010
Discoveries
World Production
Estimate
Moz
Note: Chart include minor adjustment for deposits missing from the database
Is based on discoveries > 0.1 Moz
Sources: MinEx Consulting Nov 2011.
Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Mining & Discovery rates for Uranium Amount of Primary U3O8 found and mined in the World: 1950-2010
0
200
400
600
1950 1960 1970 1980 1990 2000 2010
Discoveries
World Production
Note: Chart excludes Olympic Dam (Cu-U-Au deposit) found in 1975 – contains 2517 kt U3O8
kt U3O8
Estimate
Note: Chart include minor adjustment for deposits missing from the database
Is based on discoveries > 0.5 kt U3O8
Sources: MinEx Consulting Sept 2010.
Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Mining & Discovery rates for Nickel Amount of nickel found and mined in the World: 1950-2009
33
0
5
10
15
20
1950 1960 1970 1980 1990 2000 2010
Ni Laterite Discoveries
Ni Sulphide Discoveries
Production
Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database
Caution:
Incomplete data
Mt Ni 23.2mt
Sources: MinEx Consulting Aug 2010.
Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Discovery/Production ratios Gold Copper Uranium
Unit discovery costs ~$30/oz ~2 c/lb ~$4/lb
World exploration spend rate
(2011 US$m pa)
[A] = $2800m
[P] = $5300m
[A] = $1400m
[P] = $2400m
[A] = $470m
[P] = $900m
Expected amount of metal to
be found
[A] = 93 Moz
[P] = 177 Moz
[A] = 32 Mt
[P] = 54 Mt
[A] = 53 kt
[P] = 102 kt
Mine Production
2010 = 78 Moz
2020 = 90 Moz
2010 = 16 Mt
2020 = 21 Mt
2010 = 60 kt
2020 = 90 kt
Discovery/Production Ratios [A] [P] [A] [P] [A] [P]
At 2010 Production Rate 1.2x 2.3x 2.0x 3.4x 0.9x 1.7x
At 2020 Production Rate 1.0x 2.0x 1.5x 2.6x 0.6x 1.1x
34
[A] = Average exploration spending rate over last decade (2001-10)
[P] = Peak exploration spending rate (in 2010)
Target is >2x
Source: MinEx Consulting © Nov 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Implications for the future
• In order to meet future needs for new mines:
– Need to maintain exploration spending at current high levels
(it can’t revert back to the10 year historic average)
– The Gold sector is tight – ironically saved by fact that expected
growth in production is “flat” #
– Expected strong growth in Uranium mining will put that sector
under a lot of stress
– To offset increasing unit discovery costs, the industry need to
find new ways and places to explore
35
# It could be argued that the current lack of good gold projects is the reason why the industry isn’t growing
Ultimately the supply/demand problem will be solved through higher prices and/or
improvements in mining & processing technologies (both of which allow the use
of lower cut-off grades, and allow marginal projects to be developed)
MinEx Consulting Strategic advice on mineral economics & exploration
SUMMARY/CONCLUSIONS
The future for Exploration
36
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions (1/2)
• Exploration Expenditures are cyclical
- Industry is currently spending ~$14 billion up from $8b pa over the last decade
• The current hot spots for exploration success are Latin America,
Yukon/Alaska, Northern Ontario, West Africa, East Africa and China
• Discovery Rates are rising for many commodities (especially gold)
- Over next decade the average rate is projected to be $30/oz Au,
2 c/lb Cu and $4/lb U3O8
• Not all discoveries turn into mines
– Conversion rates are only 60-80%, depending on the metal, size, quality and
location
• For the successful projects, there is a lag of 10-15 years between
discovery and development
• Even at current (high) exploration expenditure rates, many industry sectors
(particularly uranium) struggle to find sufficient deliver good projects
37
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions (2/2)
• In the longer term the market will “balance itself” through the
complex interplay between:
– Level of exploration spending
– Efficiency and effectiveness of exploration activities
– Speed of converting discoveries into mines
– The current inventory of undeveloped projects (quality & number)
– Proportion of new projects that are economically viable
– Innovations in technology (that make marginal projects viable)
– Changes in mining costs and business risk
– Change in cut-off grades (which can increase/decrease available resources)
– Growth in primary metal demand
– Commodity Prices
• Given the long delays between discovery and development , there
is a real risk that some industry sectors could face supply
constraints in the short term
38
This is both a challenge
and an opportunity !
MinEx Consulting Strategic advice on mineral economics & exploration 39
Contact details
Richard Schodde Managing Director MinEx Consulting Melbourne, Australia Email: [email protected] Website: MinExConsulting.com