the impact of commodity prices and other factors on the
TRANSCRIPT
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MinEx Consulting Strategic advice on mineral economics & exploration
The impact of commodity prices andother factors on the level of exploration
Richard SchoddeManaging Director, MinEx Consulting
Adjunct Professor, University of Western Australia
CET Seminar SeriesCentre of Exploration Targeting, University of Western Australia28th November 2013, Perth
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MinEx Consulting Strategic advice on mineral economics & exploration
Introduction
1. Trends in exploration spend
2. Significant discoveries in the last decade
3. Discovery performance
4. What drives exploration spend?Rising demand for metal
Commodity prices
Availability of funds
New exploration ideas & discoveries
Changes in Country Risk
5. Special challenges for Australia – depth of cover
6. Future Exploration spend
7. Summary / Conclusions
2
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MinEx Consulting Strategic advice on mineral economics & exploration
1. TRENDS IN EXPLORATION SPEND
Exploration expenditures reached an all-time high in 2012
3
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MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures: Worldby Region : 1975-2012
$0
$5
$10
$15
$20
$25
$30
1975 1980 1985 1990 1995 2000 2005 2010
Rest of World
FSU + E Europe
China
Western Europe
Africa
Pacific / SE Asia
Latin America
USA
Canada
Australia
4
2012 US$ billion
Note: “Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)
Sources: MinExConsulting estimates © Oct 2013, based ondata from ABS, NRCan, MLR (China), OECD and SNL MEG
$30Bin 2012
$2.9Bin 2002
Spend is at anall-time high
Spend is at anall-time high
10x real increasein the last decade
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MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures: Worldby Region : 1975-2012
$0
$5
$10
$15
$20
$25
$30
1975 1980 1985 1990 1995 2000 2005 2010
Rest of World
FSU + E Europe
China
Western Europe
Africa
Pacific / SE Asia
Latin America
USA
Canada
Australia
5
2012 US$ billion
Note: “Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)
Sources: MinExConsulting estimates © Oct 2013, based ondata from ABS, NRCan, MLR (China), OECD and SNL MEG
$30Bin 2012
1988 to 1993down 51%
1997 to 2002down 62%
2008 to 2009down 27%
1980 to 1985down 41%
The industry ishighly cyclicalThe industry ishighly cyclical
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MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures: Worldby Region : 1975-2012
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010
Rest of World
FSU + E Europe
China
Western Europe
Africa
Pacific / SE Asia
Latin America
USA
Canada
Australia
6
Note: Includes spend on Bulk Minerals“Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)
Percentage of total spend
13%
13%
7%
21%
6%
15%
2%
14%
6%
3%
China spends moreon exploration thanany other country in
the World
China spends moreon exploration thanany other country in
the World
Can+USA+Ausmarket share has
halved in the last 2decades
Can+USA+Ausmarket share has
halved in the last 2decades
Sources: MinExConsulting estimates © Oct 2013, based ondata from ABS, NRCan, MLR (China), OECD and SNL MEG
24%
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MinEx Consulting Strategic advice on mineral economics & exploration
$0
$1
$2
$3
$4
$5
Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-15
Exploration spend in AustraliaAll Commodities: March 1990-June 2013
7
Total Expenditures (June 2013 Australian $B)
Source: ABS Cat No. 8412.0Note: Data reported on an annualised basisIncludes exploration expenditures on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium
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MinEx Consulting Strategic advice on mineral economics & exploration
Most of the increase in exploration spend in recentyears was associated with Bulk Minerals
Level of exploration by Commodity in Australia: March 1990-June 2013
$0
$1
$2
$3
$4
$5
Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-15
Other - Bulk
Coal
Iron Ore
Other - Non Bulk
Diamonds
Uranium
Base Metals
Gold
8
Total Expenditures (June 2013 A$B)
Source: ABS Cat No. 8412.0Note: Data reported on an annualised basis
Excluding Bulk Minerals,exploration in Australia
has been subdued
Excluding Bulk Minerals,exploration in Australia
has been subdued
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MinEx Consulting Strategic advice on mineral economics & exploration
Bulk Minerals now makes half of total spendLevel of exploration by Commodity in Australia: March 1990-June 2013
0%
20%
40%
60%
80%
100%
Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-15
Other - Bulk
Coal
Iron Ore
Other - Non Bulk
Diamonds
Uranium
Base Metals
Gold
9
Percentage of Total Expenditures
Source: ABS Cat No. 8412.0Note: Data reported on an annualised basisIncludes exploration expenditures on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium
10%
54%
There has been a dramatic shiftto Bulk Minerals in Australia
There has been a dramatic shiftto Bulk Minerals in Australia
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MinEx Consulting Strategic advice on mineral economics & exploration
2. SIGNIFICANT DISCOVERIES INTHE LAST DECADE
Where were the discoveries made?
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MinEx Consulting Strategic advice on mineral economics & exploration
Significant discoveries in the world by Size: 2003-2012
11
Au BaseMetal
U3O8 Other
Major
Moderate
Giant
Alaska/Yukon NorthernOntario
Latin America
Ten current“Hot Spots”Ten current
“Hot Spots”
West AfricaCentral Africa
China
Australia
Far EastRussia
Saskatchewan(Uranium)
SW USA/ Mexico
Source: MinEx Consulting © November 2013
Note: “Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8
“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8
“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8
559 depositsfound in the last
decade
559 depositsfound in the last
decade
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MinEx Consulting Strategic advice on mineral economics & exploration
Tier 1, 2 & 3 discoveries in the world by Quality: 2000-13
12
Au BaseMetal
U3O8 Other
Tier 2
Tier 3
Tier 1
Source: MinEx Consulting © November 2013
15 Tier 1 ands 69 Tierdeposits found in the
last decade
15 Tier 1 ands 69 Tierdeposits found in the
last decade
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3. DISCOVERY PERFORMANCE
Unit discovery costs have risen over the last decade
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MinEx Consulting Strategic advice on mineral economics & exploration
Discovery rate versus spendWestern World gold exploration spend and discoveries
14
$0
$2
$4
$6
$8
$10
0
20
40
60
80
100
1975 1980 1985 1990 1995 2000 2005 2010 2015
Number of Discoveries
Exploration Expenditures
Number of Discoveries
Note: Discoveries are for Primary gold deposits >0.1 Moz Au
2012 US$ Billion
Source: MinEx Consulting © October 2013
$1.1b
$8.9b
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MinEx Consulting Strategic advice on mineral economics & exploration
Discovery rate versus spendWestern World gold exploration spend and discoveries
15
$0
$2
$4
$6
$8
$10
0
20
40
60
80
100
1975 1980 1985 1990 1995 2000 2005 2010 2015
Estimated No of unreported discoveries
Number of Discoveries
Exploration Expenditures
Number of Discoveries
Note: Discoveries are for Primary gold deposits >0.1 Moz AuIncludes adjustment for unreported discoveries
2012 US$ Billion
Even after adjusting forunreported discoveries, inthe last 5 years a large gap
has opened up betweenexpenditures and the
number of deposits found
Even after adjusting forunreported discoveries, inthe last 5 years a large gap
has opened up betweenexpenditures and the
number of deposits found
Estimate
Source: MinEx Consulting © October 2013
$1.1b
$8.9b
… Gap is due to higherinput costs (labour,drilling and admin)
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MinEx Consulting Strategic advice on mineral economics & exploration
Trend in Unit Discovery costs: 1975-2012Western World Primary Gold Deposits > 0.1 Moz
16
$0
$50
$100
$150
$200
$250
1975 1980 1985 1990 1995 2000 2005 2010 2015
Average Cost per discovery(2012 US$m)
Note: Discoveries are for Primary gold deposits >0.1 Moz AuData from 2003 onwards have been adjusted for unreported deposits
Estimated
Source: MinEx Consulting © October 2013
Weighted Average for1998-2002 = $84m
Unit costs nowrunning at ~$150m
per discovery
Unit costs nowrunning at ~$150m
per discovery
Weighted Average for1978-1982 = $41m
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MinEx Consulting Strategic advice on mineral economics & exploration
Input costs for exploration have doubledin the last decade
2000nominal
2000real
2012real
% realincrease
$ of the Day 2012 $ 2012$
Average Diamond Drilling Cost (US$/metre)- Canada- Australia
$84$77
$112$102
$210$229
88%125%
Average salary for an Exploration Manager(US$ per annum)- Canada- Australia
$70,000$75,000
$93,000$100,000
$170,000$250,000
83%150%
Median Administration Cost for a JuniorExploration Company (US$m per annum)- Australia $0.34 $0.44 $1.19 170%
17
Source: MinEx Consulting © July 2013
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MinEx Consulting Strategic advice on mineral economics & exploration
3%
Most of the wealth created are inTier 1 and 2 discoveries
Estimated value of 559 discoveries found in the World between 2003-2012
0%
20%
40%
60%
80%
100%
Number ofDeposits
NPV
18
Tier 1
50%
35%
12%
29%
2%
32%
Note: NPV values refer to the Net Present Value at the Decision-to-Build stageEV = Expected Value, which is the weighted average value of the NPV rangeValues are based on long run commodity prices as prevailing at Jan 2013
Caution: Values are indicative / approximate-only
‘Tier 1 deposits’ are Company making" mines.They are large, long life and low cost. … ie >20Years ,>200 ktpa Cu or >250koz pa Au, andBottom Quartile costs. Have an NPV of>$1000m, and EV of ~$2000m
‘‘Tier 2 deposits’ are “Significant” deposits -but are not quite as large or long life or asprofitable as Tier 1 deposits . They have anNPV of $200-1000m and EV of ~$500m
‘Tier 3 deposits’ are small / marginal depositsWhile they can be profitable they often only getdeveloped at the top of the business cycle . Atthey don’t meet more than one of the Tier 1 or 2criteria. NPV of $0 to $200m, EV of ~$100m
Definitions
Example: Golpu [Coppper/Gold]
Example: Degrussa [Cu-Zn-Pb]
Example: Andy Well [Gold]
Tier 2
Tier 3
Unclassified
Tier 1
Tier 2
Tier 3
‘Unclassified deposits’ are small depositsthat are less than “Major “in size and/or ofminimal value. EV of (say) ~$10m
Example: Mt Unicorn [Moly]
37%
Unclassified
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How do the various Regions compare?Spend & performance by Region: 2003-12
Region ExplorationSpend (2012 $b)
No ofDiscoveries #
Tier 1+2Discoveries
Estimated Value(2012 $b)
Value /Spend
Australia $12 10% 84 15% 14 17% $13 14% 1.12
Canada $21 18% 74 13% 15 18% $15 16% 0.71
USA $9 8% 19 3% 6 7% $5 6% 0.60
Latin America $27 23% 133 24% 15 18% $23 24% 0.84
Pacific/SE Asia $6 5% 23 4% 2 2% $4 4% 0.63
Africa $16 14% 124 22% 20 24% $22 24% 1.38
W Europe $3 3% 24 4% 1 1% $1 2% 0.48
Rest of World $22 19% 78 14% 11 13% $10 11% 0.46
----- ------ ------ ------- ------ ------- ------- ------- -------
TOTAL $116 100% 559 100% 86 100% $94 100% 0.81
19
Note: Analysis excludes Bulk Minerals, and excludes satellite deposits found within existing campsDiscoveries refer to Moderate-, Major- and Giant-sized deposits.The Estimated Value is approximate only, and ignores the value of unreported discoveries Source: MinEx Consulting © November 2013
i.e. “Bang-per-Buck”i.e. “Bang-per-Buck”
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4. WHAT DRIVES EXPLORATION SPEND ?
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MinEx Consulting Strategic advice on mineral economics & exploration
Key Drivers for Exploration spend
The main drivers are :
• Commodity price
• Availability of funds (to Junior Companies)
• Long term growth in metal demand
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Key Drivers for Exploration spend
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, development of airborne GeoPxsystems
• New processing technologies, which make lower grade orebodies economic … such as Au CIP in 1970s, Cu SXEW in the 1980s,
PAL NiLat in the 1990s and bio heap leaching for base metals in the 2010s?
• Government Policies … such as flow-through tax credits in Canada.Conversely the introduction of new royalties or Carbon Taxes may makesome mines uneconomic or scare away investors (like in Australia)
• Changes in business risk … such as the opening up of the DevelopingWorld or, conversely, the threat of nationalism in Venezuela
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4.1 RISING DEMAND FOR METAL
Why we need more exploration
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World’s metal production doubles every 20-25 yearsPrimary copper production: 1900-2040
24
Mt pa Cu
Source: Historical data fromUSGS Jan 2013
Cumulative copperproduction for all history
(1000BC to 2012 AD)= 611 Mt Cu
Cumulative copperproduction for all history
(1000BC to 2012 AD)= 611 Mt Cu
Forecast cumulativedemand over next 25 years
(2013-2037)= 638 Mt Cu
Forecast cumulativedemand over next 25 years
(2013-2037)= 638 Mt Cu
Forecast DemandBased on 3% pa growth
Historic DemandAverage growth rate of3.0% pa over last 20 years
17.0 Mt pain 2012
35.6 Mt pain 2037
Need to discover anddevelop new mines
Need to discover anddevelop new mines
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The challenge is that most discoveries are toosmall / low grade to develop as an economic mine
Tonnes & Grade of all primary copper deposits in the world containing >500kt Cu
25
Grade (% Cu-equivalent)
Pre-Mined Resource (million tonnes)
Source: MinEx Consulting Sept 2010
Envelope foreconomic mines
Envelope forundeveloped projects
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4.2 COMMODITY PRICES
Exploration spend is strongly driven by price
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Exploration spend vs Commodity Price: Australia 1997-2012
27
GOLD
R2 = 0.59
BASE METALS
R2 = 0.87
URANIUM
R2 = 0.77
IRON ORE
R2 = 0.91
COAL
R2 = 0.86
OTHER MINERALS
R2 = 0.88
Source: MinEx Consulting© October 2013
Note: Includes 1 year lag in spend
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Exploration spend is closely linked to commodity pricesWorld gold exploration expenditures versus gold price
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$0
$2
$4
$6
$8
$10
$12
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
28
Exploration Expenditures(June 2012 US$ billion)
Gold Price(June 2012 US$/oz)
Gold Price(RHS>)
ActualExplorationSpend
Source: MinEx Consulting © October 2013, LME
$10.0Bin 2012
$1.2Bin 2002
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Exploration spend versus gold priceWorld: 1975-2012
$0
$2
$4
$6
$8
$10
$12
$0 $500 $1,000 $1,500 $2,000
29
Gold Price (June 2012 US$/oz)
Exploration Expenditures(June 2012 US$ billion)
2012
1997
Source: MinEx Consulting © October 2013
1985
1975
1980
Since the mid-1980sexploration spend has
moved in-line withgold prices
Since the mid-1980sexploration spend has
moved in-line withgold prices
With adjustments for otherfactors (such as thegeneral growth in metaldemand and theavailability of risk capital),this can be used as a toolfor predicting futureexploration spend
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Why were the 1970s different for gold?
Exploration spend lagged the gold price because of:
• Inertia (it took time for the industry to respond to the higher prices)
• Innovations (in 1980s new processing methods were developed(CIP/ HL), new exploration techniques (AA Spectrometry enabledgeochem sampling) and new financing methods (gold loans)
• Geopolitics (the end of the Cold War in 1989 dramatically openedup Russia and Developing Countries to modern exploration. Asimilar take-off occurred in China in the 1990s following theEconomic Reforms implemented by Deng Xiaoping)
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Exploration spend – actual versus predicted and forecastWorld Mineral exploration expenditures
$0
$10
$20
$30
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
31
Exploration Expenditures(June 2012 US$m)
ActualExplorationSpend
Source: MinEx Consulting © November 2013
PREDICTEDExplorationSpend
Note: The M-R modelflattens-out the peaks
and troughs
Note: The M-R modelflattens-out the peaks
and troughs
Note: Forecast based on a Multiple-Regression analysis of dataIncludes Bulk Mineral spend
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4.3 AVAILABILITY OF FUNDS
Junior Companies continually need to raise cash
32
Useful for predictingshort-term fluctuations
in industry spend
Useful for predictingshort-term fluctuations
in industry spend
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Spending by Junior Explorers is driven by availability of fundsCash and Expenditures for the MEDIAN Australian Junior company: 1998- June 2013
$0
$1
$2
$3
$4
$5
Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12
33
June 2013 A$ Million(annualised basis)
Source: MinEx Consulting © October 2013based on Quarterly Reports to the ASX
Note: Expenditure data is reported on a Quarterly basis, but has beenannualised to be comparable with Cash Reserves
Administration Costs
Exploration + Development Costs
Cash Funds atend of Quarter
Large amount of fundsraised in 2006-2007
Large amount of fundsraised in 2006-2007
Funding dried up duringthe GFC. To preserve
cash, Junior Companiesseverely cut back on
expenditures in the field
Funding dried up duringthe GFC. To preserve
cash, Junior Companiesseverely cut back on
expenditures in the field
Seeing arepeat of 2008bust in 2013
Seeing arepeat of 2008bust in 2013
MedianAustralianJunior has
< 6 months ofcash reserves
MedianAustralianJunior has
< 6 months ofcash reserves
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In the last major downturn the number ofactive explorers went down by 2/3rds
$0
$1
$2
$3
$4
$5
0
200
400
600
800
1000
1985 1990 1995 2000 2005 2010 2015
34
Source: NRCan
No of Active Companies
2012 US$ mper Company
Number of activeJunior Explorers
Average annual explorationspend per Junior Company(RH Scale)
885
307$1.51m
$0.15m
$2.81m
Canadian Junior Companies respond todownturns by cutting back on spend and
going into hibernation
Canadian Junior Companies respond todownturns by cutting back on spend and
going into hibernation
Note: Just because a Company has become inactive doesn’t implythat it has permanently left the market
$2.97m
$1.54m
… Don’t under-estimate theresilience of the Junior Sector !!
772
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4.4 IMPACT OF NEW IDEAS ANDMAJOR NEW DISCOVERIES
Opening up new search-spaces can create a rush
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MinEx Consulting Strategic advice on mineral economics & exploration
Key Drivers for Exploration: DiscoveryNiS discoveries and exploration expenditures in Western Australia: 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)
36
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MinEx Consulting Strategic advice on mineral economics & exploration
Mineral Potential in 2012(ie the “attractiveness of the rocks”)
0%
20%
40%
60%
80%
100%
Dom
inic
anR
epub
licV
ietn
am
Vic
toria
Eg
ypt
Tas
ma
nia
Rom
ania
Nov
aS
cotia
New
Zea
land
Was
hing
ton
Nor
way
Nam
ibia
Mor
occo
Juju
yB
ulg
aria
Sp
ain
New
Bru
nsw
ick
Hon
dura
s
Gu
yan
aM
inne
sota
Su
rinam
e
Sa
ltaN
ewS
outh
Wa
les
Mic
higa
nN
iger
Men
doz
a
Pa
nam
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alifo
rnia
Bo
livia
Ve
nezu
ela
Mis
sour
i
Irel
and
Zam
bia
Mau
ritan
iaM
ada
gasc
ar
Gu
ate
ma
la
Zim
babw
eS
out
hA
fric
a
New
Mex
ico
Col
ora
doA
lber
ta
Sa
nta
Cru
zLa
os
Ecu
ador
Uta
hN
orth
ern
Ter
ritor
y
Gu
inea
(Con
akr
y)T
anza
nia
Chi
naW
yom
ing
Sw
eden
Rus
sia
Rio
Ne
gro
Po
land
Kyr
gyzs
tan
Indi
a
Idah
oF
inla
nd
Cat
amar
caS
an
Jua
nM
onta
na
Ka
zakh
stan
Mal
i
Tur
key
Ariz
ona
Qu
eens
land
Man
itoba
Gre
enla
nd
Bu
rkin
aF
aso
On
tari
oB
ots
wan
a
So
uth
Au
stra
liaC
olom
bia
Sa
skat
chew
anN
evad
aG
han
a
Chi
leB
razi
l
Qu
ebec
Pe
ruN
FD
&La
brad
or
Mon
gol
iaW
este
rnA
ustr
alia
Brit
ish
Col
umbi
aIn
don
esia
Chu
but
Ph
ilipp
ines
NW
T
Nun
avut
Mex
ico
DR
C(C
ong
o)
Yu
kon
Pa
pua
New
Gui
nea
Ala
ska
Encourages InvestmentNot a deterrent to InvestmentMild DeterrentStrong deterrentWould not pursue investment due to this factor
37
% of Respondents
Source: Fraser Institute March 2012
South Australiawas ranked 71st out of 93jurisdictions in 2012
South Australiawas ranked 71st out of 93jurisdictions in 2012
Note: Assumes full access to land, and best practice by industry
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MinEx Consulting Strategic advice on mineral economics & exploration
South Australia’s perceived Mineral Potential took a stepincrease in 2006 … and its exploration share went up!
3.2% 4.8% 5.4% 4.9% 6.0%8.7%
13.1%16.1%
12.2%8.1% 7.6% 8.8% 8.7%
0%
20%
40%
60%
80%
100%
2000 2002 2004 2006 2008 2010 2012
Would not pursue investment due tothis factorStrong deterrent
Mild Deterrent
Not a deterrent to Investment
Encourages Investment
38
% of Respondents
No dataprior to 2005
Note: Assumes full access to land, and best practice by industry
South Australia’s % share ofAustralia’s exploration spend
Would also argue that the higherspend is also a function of SA being
“friendlier” to exploration companies
Would also argue that the higherspend is also a function of SA being
“friendlier” to exploration companies
Sources: Fraser Institute annual surveysABS (as reported on a Calendar Yr basis)
Carrapateena Cu-Audeposit was
discovered in 2005using Govt funding
Carrapateena Cu-Audeposit was
discovered in 2005using Govt funding
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MinEx Consulting Strategic advice on mineral economics & exploration
4.5 IMPACT OF CHANGES INCOUNTRY RISK
Companies go where they are welcome
39
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Recent actions by Governments
40
Zambia: In 2012 royaltiesdoubled to 6% and
unprocessed exports are tobe banned. Considering
raising mineral taxes
Zambia: In 2012 royaltiesdoubled to 6% and
unprocessed exports are tobe banned. Considering
raising mineral taxes
Zimbabwe: Set toNationalize its mining
industry
Zimbabwe: Set toNationalize its mining
industry
Philippines: OpenPit mining banned in
Mindanao. Governmentconsidering raising
Royalty rates
Philippines: OpenPit mining banned in
Mindanao. Governmentconsidering raising
Royalty rates
Indonesia: Has bannedexport of unprocessed
minerals. New 20% mineraltax. Companies to sell 51%equity to locals within 5 years
Indonesia: Has bannedexport of unprocessed
minerals. New 20% mineraltax. Companies to sell 51%equity to locals within 5 years
Australia: Excess profits tax(MRRT) introduced for iron ore
and coal. Changed write-offrules for exploration spend
Australia: Excess profits tax(MRRT) introduced for iron ore
and coal. Changed write-offrules for exploration spend
DRC: Ban on export of Cu& Co conc. Considering
increasing its 5% free-equity
DRC: Ban on export of Cu& Co conc. Considering
increasing its 5% free-equity
Bolivia: Nationalisedthe Colquiri Sn/Zn mineBolivia: Nationalised
the Colquiri Sn/Zn mine
COUNTRIES THAT HAVE DECREASED / INCREASED THEIR TAXES & ROYALTY RATESOR INTRODUCED NATIONALISM-TYPE RULES SINCE 2011
Chile
Peru
Greenland
Quebec
Poland
Cote d’Ivoire
New Zealand
Guatemala
Guinea: lowered itsTax Rate from 35 to 30%
Guinea: lowered itsTax Rate from 35 to 30%
Ghana
Kazakhstan
Mongolia
Mexico
SouthAfrica
Tanzania
VenezuelaHaiti
NSW
Queensland
China
Brazil: Proposed newlegislation will impose tougher
development schedules fornew projects. Also considering
raising Royalty rates
Brazil: Proposed newlegislation will impose tougher
development schedules fornew projects. Also considering
raising Royalty rates
MODULE 5
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MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
Indo
nesi
a
Vie
tna
m
Ven
ezue
la
DR
CC
ongo
Kyr
gyzs
tan
Zim
babw
e
Bol
ivia
Gua
tem
ala
Phi
lippi
nes
Gre
ece
Ro
man
ia
Ma
daga
scar
Ho
ndur
as
Mo
ngol
ia
Ecu
ador
Indi
a
Kaz
akhs
tan
Mal
i
Ch
ubut
PN
G
Gui
nea
(Con
akry
)
La
Rio
ja
Tanz
ania
Rus
sia
Chi
na
Sur
inam
e
Nig
er
Egy
pt
San
taC
ruz
Guy
ana
Col
ombi
a
Juju
y
Sou
thA
fric
a
Pan
ama
Me
ndoz
a
Bra
zil
Do
min
ica
nR
ep
Zam
bia
Per
u
Pol
and
Cal
iforn
ia
Bur
kin
aF
aso
Gha
na
Turk
ey
Ser
bia
San
Juan
Bul
gari
a
Tas
man
ia
Spa
in
Wa
shin
gton
Mon
tana
Ne
wM
exic
o
New
Sou
thW
ale
s
Cat
am
arca
Mex
ico
Rio
Neg
ro
Min
neso
ta
Ne
uque
n
Sal
ta
Nun
avut
Idah
o
Mau
ritan
ia
Co
lora
do
Mic
hig
an
Que
ensl
and
Brit
ish
Col
umbi
a
Nam
ibia
NW
Terr
itorie
s
Ariz
ona
Fre
nch
Gui
ana
New
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lan
d
Mor
occo
Vic
tori
a
Chi
le
Nor
the
rnT
errit
ory
Ma
nito
ba
Ala
ska
Sou
thAu
stra
lia
NF
D&
Lab
rad
or
Bot
swan
a
Ont
ario
We
ster
nA
ust
ralia
Gre
enla
nd
Sas
katc
hew
an
No
vaS
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Que
bec
Nor
way
Uta
h
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on
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nd
Wyo
min
g
Ne
wB
runs
wic
k
Alb
erta
Sw
ede
n
Fin
land
There is a wide spectrum of business risk
41
Source: Fraser Institute March 2013
Policy Potential Index
Note: Higher the Score, the betterWesternAustralia
SouthAfrica
Peru
Chile
1st Quartile2nd Quartile3rd Quartile4th Quartile
Finland
Indonesia
Mongolia
Bolivia
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MinEx Consulting Strategic advice on mineral economics & exploration
Equally important to look at whether therisk profile is getting better / worse
0
20
40
60
80
100
1999 2001 2003 2005 2007 2009 2011 2013
42
Source: MinEx Consulting analysis of Fraser Institute annual surveys
Western Australia
Policy Potential Index
4th Quartile
3rd Quartile
2nd Quartile
1st Quartile
BoliviaMongolia
South Africa
Peru
Chile
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5. SPECIAL CHALLENGES FORAUSTRALIA - DEPTH OF COVER
We are having to progressively explore under deeper cover
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MinEx Consulting Strategic advice on mineral economics & exploration
Average depth of cover for discoveries - all metalsWestern World: 2003-2012
204
126122
9882
68
3212
74
0
50
100
150
200
250
55
44
WWAverage
LatinAm
Africa(excl Sth Africa) Aust
WEurope Canada USA
PacificSE Asia
Restof WW
Metres
If you exclude SouthAfrica, the average
depth of cover falls from55 to 12 metres
If you exclude SouthAfrica, the average
depth of cover falls from55 to 12 metres
Note: Based on Moderate-,Major- and Giant-sized depositsExcludes bulk mineral discoveries Source: MinEx Consulting © July 2013
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MinEx Consulting Strategic advice on mineral economics & exploration
… and we are exploring under deeper coverDepth of cover for discoveries in Australia: 1900-2013
45
Discovery Year
Depth of Cover (Metres)
Note: Excludes satellite deposits within existing Camps. Also excludes Bulk Mineral discoveries..Analysis based on Moderate-, Major- and Giant-sized deposits
It is difficult to finddeposits under deep
cover
It is difficult to finddeposits under deep
cover
… end-result is that wehave to drill more metres
per discovery
… end-result is that wehave to drill more metres
per discovery
Source: MinEx Consulting © November 2013
Most of the golddiscoveries are stillbeing made under
shallow cover
Most of the golddiscoveries are stillbeing made under
shallow cover
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MinEx Consulting Strategic advice on mineral economics & exploration
Over the last Decade (2003-2012) …
Australia made … 3 Giant discoveries
22 Major discoveries
59 Moderate discoveries
32 ?? Unidentified discoveries
~116 discoveries
And spent … A$14,168 million on exploration (in 2013 A$)
And drilled … ~64.4 million metres
Performance >> $122m per discovery
~0.55 million metres per (>= Moderate) discovery
~2.5 million metres per (>= Major) discovery
~20 million metres per (Giant) discovery
46
Note: Excludes satellite deposits within existing Camps and Bulk Mineral discoveries and spend.
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MinEx Consulting Strategic advice on mineral economics & exploration
The amount of drilling required is enormous !!
47
Giant Discovery = 20,000 km
ADELAIDE
Moderate Discy = 550 km
OLYMPIC DAM
MajorDiscovery= 2500 km
CAPE YORK
PERTH
The OBVIOUS conclusion isthat exploration is inefficient
and most projects fail.Industry needs to improvie theefficiency & effectiveness of
exploration
The OBVIOUS conclusion isthat exploration is inefficient
and most projects fail.Industry needs to improvie theefficiency & effectiveness of
exploration
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MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits in AustraliaEstimated depth of cover
48
Sources: MinExConsulting © November 2013Geoscience Australia
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
INDICATIVE DEPTH OF COVER
Note: Bubble-size refers to size of deposit“Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8
“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8
“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8
Outcropping
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MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits in AustraliaEstimated depth of cover
49
Sources: MinExConsulting © November 2013Geoscience Australia
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
INDICATIVE DEPTH OF COVER
Note: Bubble-size refers to size of deposit“Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8
“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8
“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8
Outcropping
1-50 Metres
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MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits in AustraliaEstimated depth of cover
50
Sources: MinExConsulting © November 2013Geoscience Australia
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
INDICATIVE DEPTH OF COVER
Note: Bubble-size refers to size of deposit“Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8
“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8
“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8
Outcropping
1-50 Metres
51-200 Metres
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MinEx Consulting Strategic advice on mineral economics & exploration
Significant mineral deposits in AustraliaEstimated depth of cover
51
Sources: MinExConsulting © November 2013Geoscience Australia
Outcrop & Shallow Basement
Basement depth <500m
Basement depth 500 to 1000m
Basement depth >1000m
INDICATIVE DEPTH OF COVER
Note: Bubble-size refers to size of deposit“Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8
“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8
“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8
Outcropping
1-50 Metres
51-200 Metres
>200 Metres
Most of the deepdiscoveries are in
established districts
Most of the deepdiscoveries are in
established districts
Large areas of Australiahave not yet been
explored effectively
Large areas of Australiahave not yet been
explored effectively
Industry needs to comewith ways of exploringmore effectively under
deep cover
Industry needs to comewith ways of exploringmore effectively under
deep cover
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MinEx Consulting Strategic advice on mineral economics & exploration
6. FORECAST EXPLORATION SPEND
What’s the future gold price?What’s the outlook for exploration, and which Regions will do better?
52
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Exploration spend is closely linked to commodity pricesWorld gold exploration expenditures versus gold price
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$0
$2
$4
$6
$8
$10
$12
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
53
Exploration Expenditures(June 2012 US$ billion)
Gold Price(June 2012 US$/oz)
Gold Price(RHS>)
ActualExplorationSpend
Source: MinEx Consulting © October 2013, LME
$10.0Bin 2012
$1.2Bin 2002
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MinEx Consulting Strategic advice on mineral economics & exploration
Exploration spend is closely linked to commodity pricesWorld gold exploration expenditures versus gold price
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
$0
$2
$4
$6
$8
$10
$12
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
54
Exploration Expenditures(June 2012 US$ billion)
Gold Price(June 2012 US$/oz)
Gold Price(RHS>)
ActualExplorationSpend
Sources: MinExConsulting © October 2013, LMEForecastprices from ConsensusEconomics© June 2013
BrokersForecasts
(June 2013)
BrokersForecasts
(June 2013)
$10.0Bin 2012
$1.2Bin 2002
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MinEx Consulting Strategic advice on mineral economics & exploration
Exploration spend – actual versus predicted and forecastWorld Mineral exploration expenditures
$0
$10
$20
$30
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
55
Exploration Expenditures(June 2012 US$m)
ActualExplorationSpend
Source: MinEx Consulting © November 2013
PREDICTEDExplorationSpend
Note: The M-R modelflattens-out the peaks
and troughs
Note: The M-R modelflattens-out the peaks
and troughs
Note: Forecast based on a Multiple-Regression analysis of dataIncludes Bulk Mineral spend
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MinEx Consulting Strategic advice on mineral economics & exploration
$0
$5
$10
$15
$20
$25
$30
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
FSU + EE + ROW
China
Western Europe
Africa
Pacific / SE Asia
Latin America
USA
Canada
Australia
Forecast exploration expenditures: Worldby Region : 1975-2020
56
2012 US$ billion$30B
in 2012
Note: “Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)
$21Bin 2020
Down28%
CAUTION:Forecast assumes nochange in Country Riskand tax rules
Source: MinEx Consulting estimates© November 2013, based oncommodity price forecasts from ConsensusEconomics Oct 2013
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MinEx Consulting Strategic advice on mineral economics & exploration
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
FSU + EE + ROW
China
Western Europe
Africa
Pacific / SE Asia
Latin America
USA
Australia
Canada
Forecast exploration expenditures: Worldby Region : 1975-2020
57
2012 US$ billion
Note: “Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)
CAUTION:Forecast assumes nochange in Country Riskand tax rules
Source: MinEx Consulting estimates© November 2013, based oncommodity price forecasts from ConsensusEconomics Oct 2013
13%13%
Canada forecast tomaintain its market
share at ~13%
Canada forecast tomaintain its market
share at ~13%
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MinEx Consulting Strategic advice on mineral economics & exploration
7. SUMMARY / CONCLUSIONS
The industry is facing a number of challenges and opportunities
58
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MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions [1/2]
1. Trends in exploration spend
Exploration spend peaked at $30 billion in 2012
Industry is highly cyclical (Peak>Trough of 50-70%)
Half of exploration spend in Australia is on Bulk Minerals
2. Significant discoveries in the last decade
559 significant discoveries made
but only 15 of these were Tier1, and 69 Tier 2
3. Discovery performance
Our discovery efficiency has declined in recent years.This is due to higher input costs
In terms of Value/Cost Australia did well, Africa best
59
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MinEx Consulting Strategic advice on mineral economics & exploration
Summary / Conclusions [2/2]
4. What drives exploration spend?
Main factors are commodity prices and the availability offunds. At a local level spend will be influenced by newexploration ideas & discoveries, as well as country risk
5. Special challenges for Australia – depth of cover
Average depth of discovery is now 82 metres and risingDrilling is very inefficient (20,000 km per giant !!)
6. Future Exploration spend
Based on long-run commodity prices, global explorationspend will level out at ~ 28% below 2012 peak.
In the short-term, the level of spend will remain volatile
60
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MinEx Consulting Strategic advice on mineral economics & exploration 61
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