recent trends in copper exploration

MinEx Consulting Strategic advice on mineral economics & exploration

Recent trends in copper exploration- are we finding enough ?

Richard SchoddeManaging Director, MinEx Consulting

Adjunct Professor, University of Western Australia

34th International Geological Congress5th - 10th August 2012, Brisbane


Overview

• Trends in Exploration Expenditures

• Current “Hot Spots” for Exploration- Half of all recent discoveries were in “High Risk” countries

• Trend in Discovery Rates & Costs- Was 1 - 1.5 c/lb, now running at 2.5 c.lb Cu-eq of Resource

• Trends in conversion rates (from Discovery >Development)

- Not all Resources get converted into Reserves

- Not all discoveries get mined, and those that do may take many years

• Are we finding enough metal ?- Need to find > 2x mine production

• Conclusions

2


TRENDS IN EXPLORATIONEXPENDITURES

Spending on copper exploration over the last 60 years

3


Base Metal Exploration ExpendituresWestern World: 1950-2011

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1950 1960 1970 1980 1990 2000 2010

Lead/Zinc

Nickel

Copper

4

June 2011 US$m

Copper is still the“main game” for

Base Metals!

Copper is still the“main game” for

Base Metals!

Source: Estimates by MinEx Consulting © August 2012


RECENT COPPER DISCOVERIESAROUND THE WORLD

World map and current “Hot Spots” for copper exploration

5


Location of major copper deposits

6

Source: MinEx Consulting © August 2012

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu


Copper discoveries: 1950-59

7

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu




8

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu




9

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu




10

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu




11

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu



Copper discoveries: Since 2000

12

By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu



Copper discoveries: Since 2000

13

Deposits > 5 Mt Cu

Tujuh Bukit (7 Mt)

Golpu Deeps (9 Mt)

Oyu Tolgoi (39 Mt)

Pebble (33 Mt)

Yulong (7 Mt)

El Tesoro (8 Mt)

Telegrafo (10 Mt)

Haquira (6 Mt)

Los Sulfatos (18 Mt)

Los Azules (6 Mt)

Sentinel (6 Mt)

Los Calatos (9 Mt)

San Enrique Monolito (7 Mt)

Caracoles (5 Mt)

In the last decade 14 deposits >5 Mt Cuhave been found.

These contain 170 Mt Cu … which is halfof all copper found during this period.

In the last decade 14 deposits >5 Mt Cuhave been found.

These contain 170 Mt Cu … which is halfof all copper found during this period.


By-ProductCopper

PrimaryCopper

50100

200

101

Mt Cu

Current“HOT SPOTS”

Current“HOT SPOTS”


TRENDS IN LOCATION AND SIZEOF COPPER DISCOVERIES

Much of the value is tied up in a handful of giant discoveries

14


Number of copper deposits found in the WorldPrimary Copper deposits >0.5 Mt Cu found : 1950-2011

15

0

5

10

15

20

1950 1960 1970 1980 1990 2000 2010

China + FSU + Eastern Europe

Western World

Number

N = 419

Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database

Caution:Incomplete data


~80% of discoveries were inthe Western World

~80% of discoveries were inthe Western World


Discovery: Most of the metal found is tied up in a handful of depositsCopper Resources for deposits >0.1 Mt Cu found in the World: 1950-2011

16

0

30

60

90

120

150

180

1950 1960 1970 1980 1990 2000 2010

By-Product Cu

Sar Cheshmeh(21 Mt)

Note: Chart include minor adjustment for deposits missing from the database

Mt Cu

Andina(120 Mt)

Olympic Dam(81 Mt)

Escondida(127 Mt)

Grasberg(56 Mt)

Lubin(59 Mt)

Collahuasi(64 Mt)

Pebble(33 Mt)

Oyu Tolgoi(39 Mt)

Los Pelambres(37 Mt)

Los Bronces(33 Mt)

Reko Diq(24 Mt)

Resolution(24 Mt)Talnakh

(43 Mt)

In the last 60 years 14 deposits >20 Mt Cuhave been discovered. They account for 37%

of all copper found

In the last 60 years 14 deposits >20 Mt Cuhave been discovered. They account for 37%

of all copper found


8% of all copper found wasby-product metal in Au, Ni

and Zn/Pb deposits

8% of all copper found wasby-product metal in Au, Ni

and Zn/Pb deposits


Amount of copper & by-products found in the WorldPrimary copper deposits >0.1 Mt Cu found : 1950-2011

17

0

20

40

60

80

100

120

140

160

1950 1960 1970 1980 1990 2000 2010

By-Product Credits

Copper

Mt Cu-eq


179 Mt

Note: Estimate includes adjustments for deposits with no discovery year and deposits missing from the databaseBy-Product credits calculated on basis of 1% Cu = 3.26% Zn = 4.76% Pb = 0.30% Ni = 0.25% Mo = 0.43% Co= 0.94 lb U3O8 = 0.44 tonnes Magnetite = 3.0 g/t Au = 156 g/t Ag


By-Product Credits accountfor 16% of the total “value”

of copper discoveries

By-Product Credits accountfor 16% of the total “value”

of copper discoveries


COPPER TONNES & GRADE

Quality of recent discoveries

18


Tonnes & Grade for recent discoveriesCopper Deposits >0.5 Mt Cu found 1999-2011

0.1%

1.0%

10.0%

10 100 1000 10000

19

Grade (% Cu)

Pre-Mined Resource (Mt of Ore)


Weighted Average Size

625 Mt @ 0.58% Cu = 3.65 Mt Cu

Weighted Average Size

625 Mt @ 0.58% Cu = 3.65 Mt Cu


BUSINESS RISK

Over half of recent discoveries were made in risky countries

20


0

20

40

60

80

100

Honduras

Guatem

ala

Bolivia

Venezuela

India

Philippines

Kyrgyzstan

Ecuador

IndonesiaV

ietnam

Guinea

Panam

aK

azakhstan

Rom

aniaLaos

Mongolia

Egypt

DR

CC

ongo

JujuyZ

imbabw

e

Mendoza

Surinam

eR

ussia

Chubut

Rio

Negro

Niger

Dom

inicanR

epP

NG

Santa

Cruz

Colom

bia

Tanzania

San

JuanC

atamarca

Turkey

Madagascar

China

Brazil

Peru

Salta

South

Africa

Guyana

Mauritania

California

Zam

biaM

issouriN

WT

erritories

Bulgaria

Poland

Nam

ibiaV

ictoriaM

ali

Ghana

New

Mexico

Montana

Washington

Burkina

Faso

Spain

Nunavut

Mexico

Morocco

Colorado

New

South

Wales

British

Colum

biaT

asmania

Queensland

Arizona

New

Zealand

IdahoA

laska

Norw

ayM

ichigan

Minnesota

Utah

Manitoba

South

Australia

Chile

Botsw

anaN

FD

&Labrador

Nova

Scotia

Greenland

Ontario

Western

Australia

Northern

Territory

Yukon

IrelandN

evadaS

weden

Saskatchew

anQ

uebec

Wyom

ingA

lbertaF

inland

New

Brunsw

ick

Business risk ratings for major Cu-production countriesPolicy Potential Index (Measures the “ability to do business” there)

21

PPI Score Note: Higher the Score, the better

Source: Fraser Institute March 2012

ZambiaChina

Peru

ArizonaBritish

ColumbiaChile

Mongolia

New Mexico

Indonesia

DRC

Mexico

Poland

Kazakhstan

2012 Fraser Institute Survey highlighting major copper producing jurisdictions

Qld

South Australia

MinEx Consulting Strategic advice on mineral economics & exploration 22

PPI Score Note: Higher the Score, the better

Source: Fraser Institute March 2012

0

20

40

60

80

100

Honduras

Guatem

ala

Bolivia

Venezuela

India

Philippines

Kyrgyzstan

Ecuador

IndonesiaV

ietnam

Guinea

Panam

aK

azakhstan

Rom

aniaLaos

Mongolia

Egypt

DR

CC

ongo

JujuyZ

imbabw

e

Mendoza

Surinam

eR

ussia

Chubut

Rio

Negro

Niger

Dom

inicanR

epP

NG

Santa

Cruz

Colom

bia

Tanzania

San

JuanC

atamarca

Turkey

Madagascar

China

Brazil

Peru

Salta

South

Africa

Guyana

Mauritania

California

Zam

biaM

issouriN

WT

erritories

Bulgaria

Poland

Nam

ibiaV

ictoriaM

ali

Ghana

New

Mexico

Montana

Washington

Burkina

Faso

Spain

Nunavut

Mexico

Morocco

Colorado

New

South

Wales

British

Colum

biaT

asmania

Queensland

Arizona

New

Zealand

IdahoA

laska

Norw

ayM

ichigan

Minnesota

Utah

Manitoba

South

Australia

Chile

Botsw

anaN

FD

&Labrador

Nova

Scotia

Greenland

Ontario

Western

Australia

Northern

Territory

Yukon

IrelandN

evadaS

weden

Saskatchew

anQ

uebec

Wyom

ingA

lbertaF

inland

New

Brunsw

ick

4th Q

3rd Q

2nd Q

1st Q

ZambiaChina

Peru

ArizonaBritish

ColumbiaChile

South Australia

Mongolia

New Mexico

Indonesia

DRC

Mexico

Poland

Kazakhstan

2012 Fraser Institute Survey highlighting major copper producing jurisdictions

Qld

Business risk ratings for major Cu-production countriesPolicy Potential Index (Measures the “ability to do business” there)


Tonnes & Grade for recent Discoveries by Country RiskCopper Deposits >0.5 Mt Cu found 1999-2011

0.1%

1.0%

10.0%

10 100 1000 10000

Low Risk

Moderate Risk

High Risk

Very High Risk

23

Grade (% Cu)

Pre-Mined Resource (Mt of Ore)

Note: The Country risk rankings are based on the Policy Potential Index datafrom the latest Fraser Institute survey

30%

15%

32%

23%

Cu-metalfound

In the last decade over half of all copper foundwas in “High Risk” or “Very High Risk” jurisdictions

In the last decade over half of all copper foundwas in “High Risk” or “Very High Risk” jurisdictions

Sources: MinEx Consulting © August 2012based on Fraser Institute March 2012


TRENDS IN DISCOVERY COSTS

Cost per lb of Cu found in in the Western World 1950-2011

24


Exploration expenditures and number of deposits foundPrimary copper deposits >0.5 Mt Cu-eq found in Western World: 1950-2011

25

$0

$800

$1,600

$2,400

$3,200

$4,000

0

5

10

15

20

1950 1960 1970 1980 1990 2000 2010

Exploration Expenditures

Western World Discoveries

Number Exploration Expenditures (2011 US$m)

N = 342

Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database



Typically find 5-8 majorcopper deposits each year

Typically find 5-8 majorcopper deposits each year


Exploration expenditures and amount of metal foundPrimary copper deposits >0.5 Mt Cu-eq found in Western World: 1950-2011

26

$0

$800

$1,600

$2,400

$3,200

$4,000

0

20

40

60

80

100

120

140

160

1950 1960 1970 1980 1990 2000 2010

Exploration Expenditures

Estimate

Western World Discoveries

Mt Cu-eq Exploration Expenditures (2011 US$m)

Note: Estimate includes adjustments for deposits with no discovery yearand deposits missing from the database

176 Mt



0

2

4

6

8

10

1950 1960 1970 1980 1990 2000 2010

Discovery costs in the Western WorldUntil recently, discovery costs have been fairly steady at around 1-1.5 c/lb Cu-eq

27

Note: The reported costs include credits for by-product metal

US Cents per lb Cu-eq in 2011$

3 Year rolling average

Assume 2.5/c lb # Cu-eqgoing forward

Assume 2.5/c lb # Cu-eqgoing forward

Estimates

# Equal to 3.0 c/lb excludingby-product credits

Discovery costs spikedduring down-turns in

industry spend

Discovery costs spikedduring down-turns in

industry spend

This emphasises the importanceof steady funding through thebusiness cycle



Some Regions are better than othersCopper expenditures and discoveries: 1999-2010

0%

20%

40%

60%

80%

100%

28

No ofdeposits

found

ExplorationExpenditures

MetalfoundMt Cu

Metalfound

Mt Cu-eq

US$15.7 Bin 2011 $

76deposits

274Mt Cu

328Mt Cu-eq

Latin America

Rest of World

FSU + EE + China

Africa

North America

Pacific SE AsiaAustraliaW Europe

2.2

US c/lbCu-eq

WORLD

2.2

2.4

1.7

1.4

4.26.21.5

3.7

Sources: MinEx Consulting © March 2012Metals Economics Group © June 2011

Note: IncludesOyu Tolgoi


ARE WE FINDING ENOUGH METAL ?

Trends in the finding and mining rates for copper

29


Amount of copper found and mined in the WorldPrimary copper deposits >0.1 Mt Cu found : 1950-2011

30

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



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

31

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


Not all copper projects get developed as mines

0%

20%

40%

60%

80%

100%

195

0-5

4

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


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


For those deposits that are developed into mines, ittakes on average 16 years from discovery to production

-10

0

10

20

30

40

50

60

70

1950 1960 1970 1980 1990 2000 2010

Greenfield

Brownfield

Years Delay

Note: Bubble size refers to the pre-mined ResourceAnalysis based on 233 primary copper deposits >0.1 Mt Cu found in the World

Discovery Year

18 Years

12 Years

Brownfield project tend to bequicker to develop

Brownfield project tend to bequicker to develop


Question – do all Reserves (and Resources) get Mined ?

0.01

0.1

1

10

100

0.01 0.1 1 10 100

Operating Mine

Closed Mine

34

Total Ore Mined +Current Remaining Reserves (Mt Cu)

Reserves at Time of Start-up (Mt Cu)

Analysis of 32 coppermines developed inthe Western Worldbetween 1970-90

400% 100% Conversion of “Reserves” into “Ore”

25%

Note: Analysis covers ~40% of allmines built in that period

0 2 4 6 8 10 12

>250%

176-250%

126-175%

75-125%

50-74%

25-49%

<25%

Median = 110%Average = 134%(excluding top/bottom2 outliers)

On “average” YES, especially for bigger depositsOn “average” YES, especially for bigger deposits



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

35

Given the feedback loops, is this an input or an output ??Given the feedback loops, is this an input or an output ??


How much metal do we need to find ?

36

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


Estimated Discovery/Production ratios

Copper Comments

Unit discovery costs ~ 3 US c/lb Cu Excludes credits for By-Products

World exploration spend rate(2011 US$m pa)

[A] = $1670m[P] = $4000m

Includes FSU + China

Expected amount of metal tobe found

[A] = 27 Mt[P] = 65 Mt

Includes 8% adjustment for Cu associatedwith Au, Ni and Pb/Zn exploration

Mine Production 2011 = 16.1 Mt2026 = 25.0 Mt

Assumes 3% pa growthover next 15 years

Discovery/Production Ratios [A] [P]

At 2011 Production Rate 1.7x 4.1x

At 2026 Production Rate 1.1x 2.6x Target is > 2x

37

[A] = Average exploration spending rate over last decade (1999-2010)[P] = Peak exploration spending rate (in 2011)

Industry will besustainable in the

longer term …but only if spendingstays at high levels

Industry will besustainable in the

longer term …but only if spendingstays at high levels



SUMMARY/CONCLUSIONSThe future for copper exploration

38


Summary / Conclusions (1/2)

• Exploration Expenditures are cyclical

- Industry is currently spending ~$4 billion on Cu up from $1b pa 20 years ago

• The current hot spots for exploration success are Latin America, PNG,Central Africa, South Australia and China

• The industry is getting riskier

- Over half of the copper found in last decade was in “High Risk” countries

• Discovery rates are rising for copper

- Over last two decades has increased from 1 - 1.5 c/lb to 2.5 c/lb Cu-eq. Thisis equal to ~3.0 c/lb for Cu-only

• Not all discoveries turn into mines

- Conversion rates are only 60%, depending on the size, quality and location

• For the successful projects, there is a lag of 16 years between discoveryand development

• To be sustainable the industry needs to find ~2x what it finds

- The ratio is projected to be ~1.1-2.6x of the 2026 copper mining rate

39


Summary / Conclusions (2/2)

• In the longer term the market will “balance itself” through thecomplex 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 isa real risk that the industry sector could face supply constraints in theshort term …. As always, there is a shortage of quality projects !

40

MinEx Consulting Strategic advice on mineral economics & exploration 41

Contact details

Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia

Email: [email protected]: MinExConsulting.com

Copies of this and other similarpresentations can be downloaded

from my website

Copies of this and other similarpresentations can be downloaded

from my website

recent trends in copper exploration

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