10baggers

Originally posted by eastwest101 ↑

This may warrant its own thread itself but I noticed that this was recently published by Richard Schodde, there is a really interesting discussion happening underneath the article which is also well worth a read.

Link here is:

https://www.linkedin.com/pulse/stat...te-alex-atkins?trk=hp-feed-article-title-like

Extract to get the conversation going is:

With regard to discovery rates, a good way to get a handle on the likelihood of success can be inferred form the following chart (slide 25 from http://www.minexconsulting.com/publications/nov2015.html ) which shows that it currently costs around A$75-150m per discovery. Assuming that the average Junior company in Australia only spends around $2m pa on exploration, the likelihood of finding a deposit in a given year is (75 to 150 / 2 =) one chance in 38 to 75. That’s pretty depressing odds.
In terms of the delay between discovery and development, one first needs to recognise that not all discoveries turn into mines (depending on the commodity, and the project quality, only 20-60% do) … and of those that do get built, the average delay to production is around 10-15 years. More detailed info (albeit on a global scale) can be found in slides 5 and 13 from the following presentation: http://www.minexconsulting.com/publications/mar2014.html.

The important thing for us to note here in this forum - is that some of this data dosen't capture the 'Icarus Effect' - of a large share price rise on the discovery hole when some investors may take their profits, but the project/company may never realize the full economic effect of going through to profitable production.

The other interesting thing is - look at the dates of data in the first table - from 1994 to 2014 - look how 'value destructive' Lead Zinc exploration has been in those years, I would be really interested to see that data update up to the end of 2016, I suspect it may be a different story now!

Before everyone jumps to the conclusion that we should be investing in mineral sands exploration - consider how "easy" it is to discover a mineral sands deposit compared to say finding an economic gold mine or diamond mine.

So there must be a relationship between "ease of discovery" and value of the commodity right?

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"Exploration Cost" as used here is the total sunk cost taken from the balance sheet of those companies. It would include, for example, acquisition costs as well. And of course the head office costs of BHP and Rio which are allocated out to their projects through Technical Services. The only number that really matters is "Discovery Cost". Because that's when the value is created and the investor has maximum leverage. Estimating Discovery Cost is much more difficult than estimating Exploration Cost. But one thing is certain -- its a LOT less than the so-called Exploration Cost.