More on the realities of exploration and mining...more reliable work than the WGC, and a very ominous picture becoming clear...from schodde,2014
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The study reviewed ~3500 non-ferrous deposits found in the World between 1950-2013, with a special focus on copper and gold.
Key observations were:
Only 45% of all discoveries made since 1950 have turned into mines. In terms of contained metal the conversion rate is 57%. The rate is higher for gold and lower for nickel laterites.
In practice, due to time delays, the final conversion rates will be ~15% percentage points higher.
Bigger discoveries have better conversion rates.
For those deposits that were developed, there was an average delay of 12.4 years between discovery and mine start-up. The delay is getting longer over time.
The delay varies from 10.0 years for gold to 17.1 years for copper.
The delay period was not significantly affected by the size of the deposit or the depth of cover. Brownfield discoveries were quicker to develop for copper, but not significantly so for gold.
Country Risk was critically important. Projects in Low Risk countries are 30-40% quicker to develop.
The business cycle is critical. A project may require several cycles (and decades) to be developed. In terms of creating value for the explorer it is critical that you catch the first wave!
In the case of copper, over the last two years the development pipeline has been put on hold. The four main factors causing the delays are cost over-runs (23%), poor economics (21%), a general lack of supporting infrastructure (15%) and social issues (15%).
The next generation of mines will be progressively found under deeper cover in remote/more difficult areas with higher country risk. Such deposits also face challenging social and infrastructure issues.
Given the above, project conversion rates and the time delay between discovery and production are both set to deteriorate over the next decade. To help offset this, companies will continually need to improve their risk management practices.
Enlightened (and bold) companies should embrace the current situation and start developing projects to catch the next wave of the business cycle!.....
...........ENLIGHTENED AND BOLD.....HMMMM...THOSE WERE THE DAYS!
AND ANOTHER SUMMARY OF A SCHODDE ARTICLE...
Key observations are:
Global mineral exploration peaked in 2012 at US$30 billion.
Exploration expenditures are extremely cyclical. Over the last three decades there have been four major boom & bust cycles - with the average decline in spend being 45%. We are now entering our fifth down-cycle.
Using the latest available commodity price forecasts, regression analysis studies suggest that global exploration spend in 2020 will be ~28% below the 2012 peak. In practice, due to negative market sentiment and lack of funds, my feeling is that industry will overshoot this figure in the short term.
Over the last decade (2003-2012) over 559 significant deposits have been found in the World.
The rate of discovery historically moves in-line with the level of exploration spend. However (even after adjusting for the delay in reporting a discovery) in the last 5 years a large gap has opened up between the level spend and the number of discoveries made. This gap is largely due to higher cost of drilling, labour and administration.
An ongoing challenge is that most discoveries are too small / low grade to develop as an economic mine
The main drivers for exploration spend are 1) rising demand for metal, 2) commodity prices, 3) availability of funds, 4) new exploration ideas & discoveries and 5) changes in Country Risk
A special challenge for Australia (and other mature parts of the World) is the fact that we have to explore under increasing depth of cover. We are not very efficient or effective at doing this.
Over the last decade A$14.2 billion was spend on mineral exploration in Australia. Also a total of 64.4 million metres of drilling was carried out. All up, 116 deposits were found at an average cost of A$122m per discovery. Only 3 of these were giant discoveries. On this basis it took ~20 million metres (ie 20,000 km) of drilling to find a giant-sized deposit. That's equal to drilling a hole horizontally between Adelaide and Perth nine times. That's very inefficient! Industry certainly needs to improve its drilling performance.
VERY INEFFICIENT AND IT IS NOT GOING TO GET ANY BETTER, IN FACT MY BET IS IT WILL GET A LOT WORSE !!!!
