recent trends in mineral exploration - minex - home on... · · 2011-11-21recent trends in...

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


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


TRENDS IN EXPLORATION EXPENDITURES

Spending on minerals exploration over the last 60 years

3


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


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


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


$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


RECENT DISCOVERIES AROUND THE WORLD

Current “Hot Spots” for mineral exploration

8


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


Significant mineral deposits: World Discovered since 2000

10

Base

Metals Gold Other

Major Giant

Supergiant

N = 223







Significant mineral deposits: World Tier 1 deposits discovered since 2000

11

N = 14


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)



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







TRENDS IN DISCOVERY COSTS

Estimated unit finding costs for various metals

13


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


Assume ~$30/oz

for next decade


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)


Assume ~$4/lb U3O8

for next decade

Source: MinEx Consulting © Sept 2010


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)


Source: MinEx Consulting © Sept 2009


TRENDS IN CONVERSION RATES

How many discoveries turn into mines, and how long does it take?

17


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


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


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


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


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



IMPACT OF CUT-OFF GRADE

Much of the recent growth in resources is due to lower cut-off grades

23


• 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


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


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


ARE WE FINDING ENOUGH METAL ?

Trends in the finding and mining rates for selected metals

27


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


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


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


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


Is based on discoveries > 0.1 Moz

Sources: MinEx Consulting Nov 2011.



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


Is based on discoveries > 0.5 kt U3O8

Sources: MinEx Consulting Sept 2010.



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.



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



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)


SUMMARY/CONCLUSIONS

The future for Exploration

36


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


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

mailto:[email protected]

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