what’s the future for mineral exploration in...
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MinEx Consulting Strategic advice on mineral economics & exploration
What’s the future for MineralExploration in Australia?
…. and why we need smart geoscientists now !
Richard SchoddeManaging Director, MinEx Consulting
Adjunct Professor, University of Western Australia
The Geological Society of Australia – Victoria Division25th October , Clayton
MinEx Consulting Strategic advice on mineral economics & exploration
Overview• Trends in Exploration Expenditures
- Changes in expenditures by commodity
- What drives exploration spend?
• Trends in Discovery
- Number, size, type, location and quality of deposits discovered
- What type of companies are making the discoveries?
• Current “Hot Spots” for Exploration
- Where are the big discoveries being made?
• Trends in Discovery rates versus Mining rates
- Is industry finding enough metal to replace what it mines?
• Special Challenges facing Australia
- What can we do about it?- Why we need new geoscientists with fresh ideas
• Conclusions
2
MinEx Consulting Strategic advice on mineral economics & exploration
TRENDS IN EXPLORATIONEXPENDITURES
Spending on mineral exploration in the World and Australia
3
MinEx Consulting Strategic advice on mineral economics & exploration
World exploration expendituresExploration expenditures by Region: 1996-2011
$0
$5,000
$10,000
$15,000
$20,000
1996 1998 2000 2002 2004 2006 2008 2010
Rest of World
Africa
Pacific/SE Asia
Latin America
USA
Canada
Australia
4
Total Expenditures (2012 US$m)
Note: Excludes exploration on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium Source: © Metals Economics Group,Corporate Exploration Strategies 2011
MinExestimatesfor 1996
MinEx Consulting Strategic advice on mineral economics & exploration
World exploration expendituresExploration expenditures by Region: 1996-2011
0%
20%
40%
60%
80%
100%
1996 1998 2000 2002 2004 2006 2008 2010
12%
14%
21%
18%
5
Australia
Canada
USA
Latin America
Pac/ SE Asia
AfricaRest of the World
Percentage of Total Spend
Note: Excludes exploration on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium Source: © Metals Economics Group,Corporate Exploration Strategies 2011
Between 1996-2011Australia’s share
dropped from 21% to12%, and Canada’s
rose from 14% to 18%
Between 1996-2011Australia’s share
dropped from 21% to12%, and Canada’s
rose from 14% to 18%
MinExestimatesfor 1996
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures in Australia: 1990-2012
$0
$1,000
$2,000
$3,000
$4,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Other - Bulk
Iron Ore
Coal
Uranium
Other - Non Bulk
Diamonds
Gold
Base Metals
6
June 2012 A$M
Source: ABS Cat No. 8412.0
MinExestimates
A$3860m
Major shift to Bulksin recent years
Major shift to Bulksin recent years
A$2850m
Year-ending December
Expenditureson non-bulks
have plateaued
Expenditureson non-bulks
have plateaued
Note: Includes exploration on Bulk Minerals (and Uranium
MinEx Consulting Strategic advice on mineral economics & exploration
0%
20%
40%
60%
80%
100%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Other - Bulk
Iron Ore
Coal
Uranium
Other - Non Bulk
Diamonds
Gold
Base Metals
52%Bulks
48%Non Bulks
Increased focus on exploring for bulk mineralsExploration expenditures by commodity type in Australia
7
Source: ABS Cat No. 8412.0
MinExestimates
Year-ending December
9% Bulks
91%Non Bulks
Percentage of Total Spend
Base Metals
Uranium
Gold
Other
Iron OreDiamonds
Coal
Most of theexpenditureswere in Bulks
Most of theexpenditureswere in Bulks
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration Expenditures: Western World
0%
20%
40%
60%
80%
100%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Bulks
Uranium
Other - Non Bulk
Diamonds
Gold
Base Metals
8
Sources: MinEx Consulting estimates, based on data fromABS, NRCan, Tilton (1988), Wallace (1992,93),OECD and Metal Economics Group © 2011
Percentage of the total
Base Metals
Uranium
Gold
Other
Bulks
Diamonds
Most of theexpenditures
continue to beon Gold
Most of theexpenditures
continue to beon Gold
MinEx Consulting Strategic advice on mineral economics & exploration
FACTORS DRIVING THE LEVEL OFEXPLORATION SPEND
Main driver is commodity prices
9
MinEx Consulting Strategic advice on mineral economics & exploration
Key Drivers for exploration
10
• The main driver is the commodity price
• Secondary drivers include :– New discoveries … such as Voisey Bay and Ekati, and failures like Bre-X
– New geological concepts and search techniques… such as the copper porphyry model, airborne GeoPx systems
– New processing technologies, which make lower grade ore bodieseconomic … such as Au CIP in 1970s, Cu SXEW in the 1980s, PAL NiLat
in the 1990s and Sulphide Biox Heap Leaching in 2010s ?
– Government Policies … such as flow-through tax credits in Canada.Conversely the introduction of new Royalties or Carbon Taxes may makesome mines uneconomic
– Changes in business risk … such as the opening up / closing down ofthe Developing World
– Competing use of funds … Shares in gold companies have done poorlysince the introduction of Gold-based Exchange Traded Funds (ETF’s)
MinEx Consulting Strategic advice on mineral economics & exploration
Key drivers for Exploration: Case Study on GoldGold price versus exploration expenditures in Australia: 1970-2012
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$0
$200
$400
$600
$800
$1,000
$1,200
1970 1980 1990 2000 2010
11
Exploration Expenditures(June 2012 A$m)
Gold Price(June 2012 A$/oz)
Sources: ABS and LME
Step changein the gold
price
Step changein the gold
price
Development ofCIP/CIL processing
technology
Development ofCIP/CIL processing
technology
New geochem toolsand low costanalyticals
New geochem toolsand low costanalyticals
Gold Price(RHS>) Explorn Sepnd
(<LHS)
Staking rush aroundold gold camps
Staking rush aroundold gold camps
String of Majordiscoveries
String of Majordiscoveries
MinEx Consulting Strategic advice on mineral economics & exploration
The Key Driver is the Commodity PriceGold exploration expenditures in Australia versus gold price
2000-2012 with one year lag for spend
y = 0.29x + 284.21R² = 0.80
$400
$500
$600
$700
$800
$900
$1,000
$400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000
12
Exploration Expenditures in following year(June 2012 A$m)
Gold Price (June 2012 A$/oz)
2012
Sources: ABS and LME
2000
2008
Note: “2012” refers to expenditures in 2012 based on the gold price in 2011
MinEx Consulting Strategic advice on mineral economics & exploration
Iron Ore exploration expenditures versus iron ore priceAustralia: 2000-2012 with one year lag for spend
y = 8.84x - 197.59R² = 0.86
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$0 $50 $100 $150 $200
13
Exploration Expenditures in following year(June 2012 A$m)
Iron Ore Price – High Grade Fines (June 2012 A$/t FOB Port Hedland )
2012
Sources: ABS and BREE
2000
2008
Note: “2012” refers to expenditures in 2012 based on the iron ore price in 2011
CAUTION: “What goesup must come down !”CAUTION: “What goesup must come down !”
MinEx Consulting Strategic advice on mineral economics & exploration14
Exploration spend is also driven by discoveryNiS discoveries and exploration expenditures in the Yilgarn: 1960-2004
Source: Hronsky & Schodde, 2006Economic Geology, Special Publication 13
ExplorationExpenditures
Discoveries
Western Australia’s“Nickel Boom” ran
from 1966-71
Western Australia’s“Nickel Boom” ran
from 1966-71
In Jan 1966 WMCdiscovered the Lunnon
Shoot at Kambalda
In Jan 1966 WMCdiscovered the Lunnon
Shoot at Kambalda
$0
$50
$100
$150
$200
$250
$300
0
1
2
3
4
5
6
1960 1970 1980 1990 2000 2010
Discovery Year
Expenditures(June 2012 A$ Million)Ni Discovered (Mt)
MinEx Consulting Strategic advice on mineral economics & exploration
CAUTION !!
15
Success should be measured in terms of outputs (ie number of economicdiscoveries) rather than inputs (such as expenditures).
Useful key performance indicators (KPI) for exploration include:
• Drilling activity (metres drilled)• $ spent per discovery• cents/lb of metal found
• $ spent per Tier 1 & 2 Discovery
Measure ofEfficiencyMeasure ofEfficiency
Measure ofEffectiveness
Measure ofEffectiveness
Industry commentatorstend to focus on this
Industry commentatorstend to focus on this
MinEx Consulting Strategic advice on mineral economics & exploration
RECENT DISCOVERIES IN AUSTRALIA- SIZE
Number of Major and Giant discoveries 1975-2011
16
MinEx Consulting Strategic advice on mineral economics & exploration
Discoveries & Expenditures : Australia
$0
$1,000
$2,000
$3,000
0
10
20
30
1975 1980 1985 1990 1995 2000 2005 2010
Moderate
Major
Giant
Exploration $
17
Sources: ABS and MinEx Consulting © August 2012
Number ofDiscoveries
Caution:Incompletedata
“Moderate” >100Koz Au, >10Kt Ni, >100Kt Cu equiv, >5 kt U3O8
“Major” >1moz Au, >100Kt Ni, >1mt Cu equiv, >25 kt U3O8
“Giant” >6moz Au, >1 mt Ni, >5mt Cu equiv, >125 kt U3O8
Exploration Expenditures(June 2012 A$m)
Discoveries and expenditures exclude Bulk Minerals (such as coal, iron ore and bauxite)
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for larger deposits
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for larger deposits
MinEx Consulting Strategic advice on mineral economics & exploration
RECENT DISCOVERIES IN AUSTRALIA- QUALITY
Number of Tier 1, 2 and 3 discoveries 1975-2011
18
MinEx Consulting Strategic advice on mineral economics & exploration
Discoveries & Expenditures : Australia
$0
$1,000
$2,000
$3,000
0
10
20
30
1975 1980 1985 1990 1995 2000 2005 2010
Tier 3
Tier 2
Tier 1
Exploration $
19
Sources: ABS and MinEx Consulting © August 2012
Number ofDiscoveries
Caution:Incompletedata
Exploration Expenditures(June 2012 A$m)
Discoveries and expenditures exclude Bulk Minerals (such as coal, iron ore and bauxite)
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for Tier 1 deposits
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for Tier 1 deposits
Olympic DamSt Ives
Argyle
Boddington Granny SmithCannington
CadiaCallie Eucla
MinEx Consulting Strategic advice on mineral economics & exploration
DISCOVERY PERFORMANCE OF AUSTRALIAVERSUS THE REST OF THE WORLD
Number of Major discoveries 1975-2011
20
MinEx Consulting Strategic advice on mineral economics & exploration
Discoveries: Australia versus the World
0
20
40
60
80
1975 1980 1985 1990 1995 2000 2005 2010
21
Source: MinEx Consulting © May 2012
Number ofDiscoveries
Caution:Incomplete
data
Based on discoveries “Moderate” in size or larger,ie >100 koz Au, >10 kt Ni, >100 kt Cu equiv, >5 kt U3O8
Australia
FSU + E Europe +China
Western World (excluding Australia)
Excludes Bulk Mineral discoveries
On average, 40-60 discoveries aremade each year in the world, of which
5-10 are in Australia
On average, 40-60 discoveries aremade each year in the world, of which
5-10 are in Australia
N = 1968
MinEx Consulting Strategic advice on mineral economics & exploration
Discoveries: Australia versus the World
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010
22
Based on discoveries “Moderate” in size or larger,ie >100 koz Au, >10 kt Ni, >100 kt Cu equiv, >5 kt U3O8
Australia
FSU + E Europe +China
Excludes Bulk Mineral discoveries
Over the period 1975-2010 Australia’s share ofthe Western World’s discoveries averaged 20%. Over
same period its share of total spend was 16%
Over the period 1975-2010 Australia’s share ofthe Western World’s discoveries averaged 20%. Over
same period its share of total spend was 16%
Western World (excluding Australia)
Percentage of Total Discoveries
Source: MinEx Consulting © May 2012
MinEx Consulting Strategic advice on mineral economics & exploration
Discovery Rates and Costs by SizeAustralia versus the Rest of the Western World
Period No ofDiscoveries
in Aust / WW
Australia’sshare of
Discoveries
Australia’sshare of WWExplorationExpenditure
Cost per Discovery(US$2011m)
Australia Rest of WW
Moderate Discoveries #
1980-89 125 / 520 24% 17% $55m $85m
1990-99 116 / 559 21% 19% $70m $79m
2000-10 73 / 412 18% 13% $126m $189m
Major Discoveries #
1980-89 65 / 260 25% 17% $106m $171m
1990-99 49 / 313 16% 19% $165m $133m
2000-10 25 / 220 11% 13% $367m $329m
Giant Discoveries
1980-89 10 / 55 18% 17% $688m $742m
1990-99 13 / 87 15% 19% $622m $475m
2000-10 3 / 44 7% 13% $3056m $1564m
23
# Note: Includes discoveries from the larger size range.Excludes Bulk Mineral exploration and discoveries
MinEx Consulting Strategic advice on mineral economics & exploration
WHAT TYPES OF COMPANIES AREEXPLORING IN AUSTRALIA ?
Major versus Junior Companies 1996-2012
24
MinEx Consulting Strategic advice on mineral economics & exploration
Most exploration is now done by Junior CompaniesBase metal + gold + diamond exploration expenditures by All Companies in Australia
0%
20%
40%
60%
80%
100%
1996 1998 2000 2002 2004 2006 2008 2010 2012
25
Percentage of Total Spend
Note: Excludes exploration on Bulk Minerals and UraniumDetailed breakdown for 1996 & 2012 are MinEx estimates
Majors
Juniors
Intermediates
36%
MinExestimates
Over last decade the Juniorsshare of spend has risen from
36% to 53%
Over last decade the Juniorsshare of spend has risen from
36% to 53%
53%
22%
42%
15%
30%
Sources: ABS and © Metals Economics Group,
Corporate Exploration Strategies 2011
MinEx Consulting Strategic advice on mineral economics & exploration
RECENT DISCOVERIES AROUND THE WORLD
Global view of the exploration & mining industry
26
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral discoveries: All Years
27
Note: Excludes Bulk Mineral discoveries
Note: Supergiant >60 Moz Au, >125 kt U3O8, >10 Mt Ni, >25 Mt Cu equivGiant >6 Moz Au, >25 kt U3O8 , >1 Mt Ni, >5 Mt Cu equivMajor >1 Moz Au, 25 kt U3O8 , > 100 kt Ni, >1 Mt Cu equivModerate >0.1 Moz Au, 5 kt U3O8 , > 10 kt Ni, >0.1 Mt Cu equiv
Major discoveriesmade on all continents
Major discoveriesmade on all continents
BaseGold Metal U3O8 Other
Major
GiantSupergiant
Moderate
Source: MinEx Consulting © September 2012
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral discoveries: 2000-12
28
BaseGold Metal U3O8 Other
Major
GiantSupergiant
Moderate
Source: MinEx Consulting © September 2012Note: Excludes Bulk Mineral discoveries
Note: Supergiant >60 Moz Au, >125 kt U3O8, >10 Mt Ni, >25 Mt Cu equivGiant >6 Moz Au, >25 kt U3O8 , >1 Mt Ni, >5 Mt Cu equivMajor >1 Moz Au, 25 kt U3O8 , > 100 kt Ni, >1 Mt Cu equivModerate >0.1 Moz Au, 5 kt U3O8 , > 10 kt Ni, >0.1 Mt Cu equiv
MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral discoveries: 2000-12
29
BaseGold Metal U3O8 Other
Major
GiantSupergiant
Moderate
Source: MinEx Consulting © September 2012Note: Excludes Bulk Mineral discoveries
Note: Supergiant >60 Moz Au, >125 kt U3O8, >10 Mt Ni, >25 Mt Cu equivGiant >6 Moz Au, >25 kt U3O8 , >1 Mt Ni, >5 Mt Cu equivMajor >1 Moz Au, 25 kt U3O8 , > 100 kt Ni, >1 Mt Cu equivModerate >0.1 Moz Au, 5 kt U3O8 , > 10 kt Ni, >0.1 Mt Cu equiv
Alaska/Yukon NorthernOntario
Latin America
7 Current “Hot Spots”7 Current “Hot Spots”
West AfricaCentral Africa
China
West Australia
MinEx Consulting Strategic advice on mineral economics & exploration
Gold discoveries since 2000
30
Source: MinEx Consulting © September 2012
10 Moz
5 Moz1 Moz
0.1 Moz
PrimaryGold
By-ProductGold
MinEx Consulting Strategic advice on mineral economics & exploration
TREND IN DISCOVERY COSTS
Costs are rising
31
MinEx Consulting Strategic advice on mineral economics & exploration
2.5 c/lb
Discovery costs in the Western World - Copper
32
Note: The reported costs include credits for by-product metal
US Cents per lb Cu-eq in 2011$
3 Year rolling average
Estimates
Discovery costs spikedduring a down-turn in
industry activity
Discovery costs spikedduring a down-turn in
industry activity
Source: MinEx Consulting © August 2012
Copper discoverycosts have doubled
in recent years
Copper discoverycosts have doubled
in recent years
A similar trend occursfor other metals
MinEx Consulting Strategic advice on mineral economics & exploration
ARE WE FINDING ENOUGH METAL ?
Trends in the finding and mining rates for copper
33
MinEx Consulting Strategic advice on mineral economics & exploration
Amount of nickel metal found and mined in the WorldPrimary Nickel deposits >10 kt found : 1950-2011
34
0
5
10
15
20
25
1950 1960 1970 1980 1990 2000 2010
Ni Laterite discoveries
Ni Sulphide discoveries
Mine Production
Note: Chart includes an adjustment for deposits with unknown discovery date,and deposits not captured in the database
Mt Ni 24.8mt
Sources: MinEx Consulting March 2012Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Mining & Discovery rates for UraniumAmount 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 2545 kt U3O8
kt U3O8
Estimate
Note: Chart include minor adjustment for deposits missing from the databaseIs based on discoveries > 0.5 kt U3O8
Sources: MinEx Consulting © July 2012Production data from USGS
MinEx Consulting Strategic advice on mineral economics & exploration
Amount of copper found and mined in the WorldPrimary copper deposits >0.1 Mt Cu found : 1950-2011
36
0
20
40
60
80
100
120
140
160
1950 1960 1970 1980 1990 2000 2010
Discoveries - Estimated
Discoveries - By-Product
Discoveries - Primary
Mine Production
Mt Cu
Source: MinEx Consulting March 2012
Estimated
The copper industry finds more thanit mines … but only the high-quality
projects will go into production
The copper industry finds more thanit mines … but only the high-quality
projects will go into production
Source: MinEx Consulting © August 2012
MinEx Consulting Strategic advice on mineral economics & exploration
Are we finding enough metal ?
• Key drivers– Current discovery rates
– Importance of By-Product credits
– Conversion rate for Resources > Reserves
– Conversion rates (from discovery to operating mine)
– Lag between discovery and development
– Losses on mining
– Current and (more importantly) future demand for metal
37
Given the long delays to convert adiscovery into a mine, need toconsider size of market at that time
Given the long delays to convert adiscovery into a mine, need toconsider size of market at that time
MinEx Consulting Strategic advice on mineral economics & exploration
Not all copper projects get developed as mines
0%
20%
40%
60%
80%
100%1
950
-54
195
5-5
9
196
0-6
4
196
5-6
9
197
0-7
4
197
5-7
9
198
0-8
4
198
5-8
9
199
0-9
4
199
5-9
9
200
0-0
4
200
5-0
9
201
0+
Stalled
Advanced Exploration
Feasibility - New Project
Development Construction
Operating Mine
Care & Maintenance
Closed Mine
Analysis based on 384 copper deposits >0.5 Mt Cu found in the World 1950-2011
Discovery Year
Current Project Status
Source: MinEx Consulting © August 2012
Eventually ~60% of copperdiscoveries get developed.Caution: Rate varies withsize, grade and location
Eventually ~60% of copperdiscoveries get developed.Caution: Rate varies withsize, grade and location
MinEx Consulting Strategic advice on mineral economics & exploration
For those deposits that are developed into mines, ittakes on average 16 years from discovery to production
1950
1960
1970
1980
1990
2000
2010
1950 1960 1970 1980 1990 2000 2010
Greenfield
Brownfield
39
Discovery Year
Mine start-up Year 0 Years delay10 Years20 Years
18 Years
12 Years
Brownfield projects tend tobe quicker to develop
Brownfield projects tend tobe quicker to develop
WORLD : Cu only
MinEx Consulting Strategic advice on mineral economics & exploration
For those deposits that are developed into mines, ittakes on average 7 years from discovery to production
1950
1960
1970
1980
1990
2000
2010
1950 1960 1970 1980 1990 2000 2010
Greenfield
Brownfield
40
Discovery Year
Mine start-up Year 0 Years delay10 Years20 Years
8 Years
6 Years
Brownfield projects tend tobe quicker to develop
Brownfield projects tend tobe quicker to develop
AUSTRALIAall commodities
MinEx Consulting Strategic advice on mineral economics & exploration
Are we finding enough metal ?
• Key drivers– Current discovery rates ... is slowing down
– Importance of By-Product credits ... only a minor effect
– Conversion rate for Resources > Reserves ... Not all gets converted
– Conversion rates (from discovery to operating mine) ... only 60-80%
– Lag between discovery and development ... typically 12-18 years
– Losses on mining ... typically 10-15%
– Current and future demand for metal ... Demand doubling every 25 years
• 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
41
Given the feedback loops, is this an input or an output ??Given the feedback loops, is this an input or an output ??
MinEx Consulting Strategic advice on mineral economics & exploration
How much metal do we need to find ?
42
To ensure no supply interruptions in the longer term the industryneeds to be finding 2-3x as much metal as it currently mines
To ensure no supply interruptions in the longer term the industryneeds to be finding 2-3x as much metal as it currently mines
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Discovery/Production ratios
Gold Copper Uranium
Unit discovery costs ~$30/oz ~3 c/lb ~$2.50/lb
World exploration spend rate(2011 US$m pa)
[A] = $3700m[P] = $8500m
[A] = $1670m[P] = $4000m
[A] = $650m[P] = $1190m
Expected amount of metal tobe found
[A] = 123 Moz[P] = 283 Moz
[A] = 27 Mt[P] = 65 Mt
[A] = 118 kt[P] = 215 kt
Mine Production(in 15 years time)
2011 = 84 Moz2026 = 95 Moz
2011 = 16 Mt2026 = 25 Mt
2011 = 64 kt2026 = 133 kt
Discovery/Production Ratios [A] [P] [A] [P] [A] [P]
At 2011 Production Rate 1.5x 3.4x 1.7x 4.0x 1.8x 3.4x
At 2026 Production Rate 1.3x 3.0x 1.1x 2.6x 0.9x 1.6x
43
[A] = Average exploration spending rate over last decade (2002-11)[P] = Peak exploration spending rate (in 2011)
Target is >2xTarget is >2x
Source: MinEx Consulting © Sept 2012
MinEx Consulting Strategic advice on mineral economics & exploration
SPECIAL CHALLENGES FACING AUSTRALIA
Brown field exploration, targets under deeper cover
44
MinEx Consulting Strategic advice on mineral economics & exploration
Special challenges facing Australia
• Discovery rates have stagnated
• Unit discovery costs are rising
• Our existing mines are maturing – and we need to replace them
• Drilling rates haven’t increased – if you don’t drill you won’t discover!
• Undue emphasis on brownfield exploration – biggest discoveries tendto be greenfield
• Discoveries are being made under progressively deeper cover
45
MinEx Consulting Strategic advice on mineral economics & exploration
Discoveries & Expenditures : Australia
$0
$1,000
$2,000
$3,000
0
10
20
30
1975 1980 1985 1990 1995 2000 2005 2010
Moderate
Major
Giant
Exploration $
46
Sources: ABS and MinEx Consulting © August 2012
Number ofDiscoveries
Caution:Incompletedata
“Moderate” >100Koz Au, >10Kt Ni, >100Kt Cu equiv, >5 kt U3O8
“Major” >1moz Au, >100Kt Ni, >1mt Cu equiv, >25 kt U3O8
“Giant” >6moz Au, >1 mt Ni, >5mt Cu equiv, >125 kt U3O8
Exploration Expenditures(June 2012 A$m)
Discoveries and expenditures exclude Bulk Minerals (such as coal, iron ore and bauxite)
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for larger deposits
In spite of higher expenditures,Australia’s discovery rate has
declined in recent years,especially for larger deposits
MinEx Consulting Strategic advice on mineral economics & exploration
Gold discovery costsAustralia versus Western World: 1975-2011
$0
$20
$40
$60
$80
$100
1975 1980 1985 1990 1995 2000 2005 2010
Australia
Western World
3 Year rolling average
47
2012 US$/oz
Source: MinEx Consulting © August 2012
Discovery costsare rising
Discovery costsare rising
MinEx Consulting Strategic advice on mineral economics & exploration
AUSTRALIA’SPERCIEVED BUSINESS RISK
What do exploration companies think of Australia’s policies forsupporting the mining industry ?
48
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
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60
80
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Mex
ico
Mor
occo
Col
orad
o
New
Sou
thW
ales
Brit
ish
Col
umbi
a
Tas
man
ia
Que
ensl
and
Ariz
ona
New
Zea
land
Idah
o
Ala
ska
Nor
way
Mic
higa
n
Min
neso
ta
Uta
h
Man
itoba
Sou
thA
ustr
alia
Chi
le
Bot
swan
a
NF
D&
Labr
ador
Nov
aS
cotia
Gre
enla
nd
Ont
ario
Wes
tern
Aus
tralia
Nor
ther
nT
errit
ory
Yuk
on
Irel
and
Nev
ada
Sw
eden
Sas
katc
hew
an
Que
bec
Wyo
min
g
Alb
erta
Fin
land
New
Bru
nsw
ick
Australia is no longer viewed as a desirable mining jurisdictionPolicy Potential Index (Measures the “ability to do business” there)
49
Source: Fraser Institute March 2012
PPI Score Note: Higher the Score, the better
RANKINGS (out of 93)Northern Territory 11Western Australia 12South Australia 19Queensland 29Tasmania 30New South Wales 32Victoria 44
2012 Fraser Institute Survey
None of the Australian Statesmade it into the “Top 10” mining
jurisdictions in the World
None of the Australian Statesmade it into the “Top 10” mining
jurisdictions in the World
SA
WA
NSW
NT
TAS
VIC
QLD
MinEx Consulting Strategic advice on mineral economics & exploration
… and our relative ranking has slowly deteriorated over time
0
20
40
60
80
100
2000 2002 2004 2006 2008 2010 2012
50
Victoria
Source: MinEx Consulting analysis of Fraser Institute annual surveys
South Australia
Queensland
Northern Territory
NSW
Western Australia
Tasmania
PPI Score ( ie “ability to do business” there)
4th Quartile
3rd Quartile
2nd Quartile
1st Quartile
MinEx Consulting Strategic advice on mineral economics & exploration
Percentage of exploration budgets allocated to domesticexploration by location of corporate headquarters: 1996-2011
0%
20%
40%
60%
80%
100%
1996 1998 2000 2002 2004 2006 2008 2010 2012
Australia
Canada
51%
62%
36%
51
Percent of Total Available Funds
Note: Analysis excludes Bulk MineralsSource: © Metals Economics Group,
Corporate Exploration Strategies 2011
23%
MinEx Consulting Strategic advice on mineral economics & exploration
FORECAST EXPLORATIONEXPENDITURES FOR AUSTRALIA
The Boom is over (for bulk commodities)
52
MinEx Consulting Strategic advice on mineral economics & exploration
Forecast exploration expenditures for AustraliaExploration expenditures by commodity type in Australia
$0
$1,000
$2,000
$3,000
$4,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Other - Bulk
Iron Ore
Coal
Uranium
Other - Non Bulk
Diamonds
Gold
Base Metals
53
June 2012 A$M
Sources: 1990-2011 data from ABS Cat No. 8412.02012-2014 forecast by MinEx Consulting © Oct 2012
forecast
A$3860m
Major shift to Bulksin recent years
Major shift to Bulksin recent years
A$2850m
Year-ending December
Expenditureshave peakedExpenditureshave peaked
A$2520m
MinEx Consulting Strategic advice on mineral economics & exploration
INDUSTRY SUSTAINABILITYExploration is needed to replace the mines that close-down
54
MinEx Consulting Strategic advice on mineral economics & exploration
Estimated Remaining life for Major Australian Mines(based on all operations mining >1 Mt ore in 2010. Excludes Bulk Minerals)
55
2011 2015 2020 2025 2030 2035 2040
Closure Datebased on current
Reserves
Estimated Mine Lives are approximate only and are based on dividing the currentP&P Reserves and MI&I Resources by the production rate reported for 2011
Half of Australia’s existingmines could close down
within 7 to 18 years
Half of Australia’s existingmines could close down
within 7 to 18 years
Closure Date based oncurrent Resources
Source: MinEx Consulting © August 2012
MinEx Consulting Strategic advice on mineral economics & exploration
Drilling has not kept up with expendituresLevel of exploration in Australia: March 1990 - June 2012
0
5
10
15
20
25
$0
$1,000
$2,000
$3,000
$4,000
$5,000
Mar-90 Mar-95 Mar-00 Mar-05 Mar-10
Exploration Expenditures
Metres Drilled
56
Total Expenditures (2012 A$M) Total metres drilled (Million)
Source: ABS Cat No. 8412.0Note: Includes drilling and exploration expenditures on Bulk Minerals and UraniumData reported on an annualised basis
Over the last decade, expenditures(in real terms) have increased 4-fold,
but drilling has only doubled
Over the last decade, expenditures(in real terms) have increased 4-fold,
but drilling has only doubled
MinEx Consulting Strategic advice on mineral economics & exploration
The amount of drilling on new deposits hasflat-lined in recent years
Level of exploration drilling in Australia: Sept 2003 - June 2012
0
2
4
6
8
10
Mar-03 Mar-05 Mar-07 Mar-09 Mar-11
57
Total metres drilled (Million)
Source: ABS Cat No. 8412.0Note: Includes exploration expenditures on Bulk Minerals and UraniumABS only started the data series in September 2003Data reported on an annualised basis.
New Deposits
Existing Deposits
Increased emphasis onBrownfield ExplorationIncreased emphasis onBrownfield Exploration
MinEx Consulting Strategic advice on mineral economics & exploration
Existing Camps & Deposits do mature over timeCumulative production and remaining Resource at the Kambalda Nickel Camp: 1966-2011
0
500
1000
1500
2000
1960 1970 1980 1990 2000 2010
Remaining Resource
Cumulative Mill Losses
Cumulative Production
58
kt Ni
Source: MinEx Consulting © August 2012,based on Various Company Reports
Most of the pay-off from Brownfield Explorationoccurs in the first decade after mine start-up
Most of the pay-off from Brownfield Explorationoccurs in the first decade after mine start-up
MinEx Consulting Strategic advice on mineral economics & exploration
DEPTH OF COVERNew discoveries are progressively being made under deeper cover
59
MinEx Consulting Strategic advice on mineral economics & exploration
Depth of cover on discoveriesMineral discoveries in Australia : 1950-2012
60
Source: MinEx Consulting © August 2012Note: Analysis excludes Bulk minerals, and is limited to Moderate, Major and Giant deposits onlySatellite deposits supply ore to a central mill within an existing mining camp
MinEx Consulting Strategic advice on mineral economics & exploration
Note: Major defined as >1 moz Au, >1mt Cu, > 100kt Ni or equivalentExcludes Bulk Minerals such as Coal, Bauxite and Iron Ore
Major mineral deposits in AustraliaDepth of cover
61
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
Sources: MinEx Consulting August 2010Geoscience Australia
MinEx Consulting Strategic advice on mineral economics & exploration
Outcropping
1-50 m
51-200 m
>200 m
Note: Major defined as >1 moz Au, >1mt Cu, > 100kt Ni or equivalentExcludes Bulk Minerals such as Coal, Bauxite and Iron Ore
Major mineral deposits in AustraliaDepth of cover
62
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
Sources: MinEx Consulting August 2010Geoscience Australia
MinEx Consulting Strategic advice on mineral economics & exploration
Industry is progressively moving to deeper discoveriesAverage depth of cover for Greenfield and Brownfield Discoveries (in metres) in Australia: 1950-2012
1950-59 1960-69 1970-79 1980-89 1990-99 2000-12
Greenfield 5 35 45 52 27 64
Brownfield(including satellite deposits)
46 86 66 77 114 185
63
Note: Analysis is based on a sample of 587 mineral discoveries made in Australia between 1950-2012.Excludes Bulk Minerals, and is limited to Moderate, Major and Giant deposits onlySatellite deposits supply ore to a central mill within an existing mining camp
Source: MinEx Consulting © August 2012
MinEx Consulting Strategic advice on mineral economics & exploration
Even though giant gold deposits do exist at depth, to datemost exploration has been limited to <25 metres of cover
Primary gold discoveries (>0.1 Moz) found in the Western World: 1950-2009
Number Total Ounces (Moz)
64
Average Size (Moz)
De
pth
of
Co
ver
(Met
res)
Moz Moz
Most gold discoveries(by number & Ounces)
are under less than25 metres of cover
On average, the biggestdeposits were found
below 50 metres … Butthe industry doesn’t havegood tools to find them
N = 333
Source: MinEx Consulting © Jan 2010
MinEx Consulting Strategic advice on mineral economics & exploration
SUMMARY/CONCLUSIONSThe future for mineral exploration in Australia
65
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions
• Trends in Exploration Expenditures
- Exploration is a cyclical business. Spending is currently at an all-time high,driven by high commodity prices
• Trends in Discovery- In terms of expenditure and number of discoveries, gold continues to be the main
commodity of interest
• Current “Hot Spots” for Exploration- There are seven areas of current interest around the World.
• Trend in Discovery Costs
- Costs have doubled in the last decade
• Sustainability issues- Industry is struggling to replace the metal it mines
66
MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions
• Challenges facing Australia- Looks like the exploration boom has peaked (at A$3.9 Billion)
- Business Risks are rising
- Discovery rates have stagnated, and costs are up
- Need to find new camps to replace the existing mines – half of which could closedown in the next 7-18 years
- It takes on average 7 years to convert a discovery into a mine
- Next generation of major discoveries will be under deeper cover in new districts
- Need to do more drilling and more greenfields exploration
- It can be achieved, but spending need to continue at current (high) rates. Industryneed to be more efficient and effective at how and where it explores
67
… to do this requires energetic and smart new geoscientists !!
MinEx Consulting Strategic advice on mineral economics & exploration 68
Contact details
Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia
Email: [email protected]: MinExConsulting.com
Copies of similar presentations canbe downloaded from my website
Copies of similar presentations canbe downloaded from my website