The declining discovery rate
– what is the real story?
Richard Schodde
Managing Director, MinEx Consulting
AMIRA International’s 8th Exploration Managers Conference
22-23 March 2010, Yarra Valley, Victoria
MinEx Consulting
Strategic advice on mineral economics & exploration
Overview
• Review of long term trends in the discovery performance for
copper, gold and uranium: 1950 – 2009
– Unit discovery costs ($/oz, c/lb) are rising – but the rate varies by
commodity and location
• Case study on gold
– Three key drivers appear to be district maturity, increased focus on
brownfield exploration and reduced presence of the majors
• Implications for the future
– Quality/cost of the next generation of mines
– Importance of a strong greenfield program
– Need to develop new tools and models for exploring under cover
MinEx Consulting
Strategic advice on mineral economics & exploration
2
Review of long term trends in copper,
gold and uranium exploration
MinEx Consulting
Strategic advice on mineral economics & exploration
3
Number of copper deposits found in the World
Primary copper deposits >0.3 Mt found : 1950-2009
COPPER
Number
N = 505
The industry typically
finds 5-10 copper
deposits a year
Caution:
Incomplete data
Source: MinEx Consulting Sept 09
Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database
MinEx Consulting
Strategic advice on mineral economics & exploration
4
Amount of copper metal found in Western World
Primary copper deposits >0.3 Mt : 1950-2009
Mt Cu
Most of the copper
found comes from a
handful of giant
deposits
Source: MinEx Consulting Sept 09
Note: Chart include adjustment for deposits missing from the database
MinEx Consulting
Strategic advice on mineral economics & exploration
5
Exploration expenditures and amount of copper found
Primary copper deposits >0.3 Mt found in Western World: 1950-2009
Mt Cu
Exploration Expenditures (2009 US$B)
Est
Source: MinEx Consulting Sept 09
Note: Chart include adjustment for deposits missing from the database
MinEx Consulting
Strategic advice on mineral economics & exploration
6
Discovery costs
Until recent times, discovery costs have been fairly steady at around 1c/lb Cu
This emphasises the
importance of steady
funding through the
business cycle
US Cents per lb Cu in 2009$
3 Year rolling average
Discovery costs spiked
during down-turns in
exploration spend
??
Estimates
Source: MinEx Consulting Sept 09
Note: The reported costs exclude credits for by-product metal
Western World only
MinEx Consulting
Strategic advice on mineral economics & exploration
7
Exploration expenditures on uranium
World: 1940-2008
URANIUM
Exploration Expenditures (2009 US$B)
2009$/lb U3O8
peak
Peaks driven by spikes
in uranium price




Est
Source: MinEx Consulting Sept 09
Expenditures from OECD
MinEx Consulting
Strategic advice on mineral economics & exploration
8
Exploration expenditures and amount of uranium found
Primary uranium deposits >0.5 kt U3O8 found in the World: 1940-2008
kt U3O8
Exploration Expenditures (2009 US$B)
Each successive wave
of discovery is smaller
…. As the search space
becomes depleted
Est
Source: MinEx Consulting May 09
Expenditures from OECD
Note: Chart include adjustment for deposits missing from the database
Olympic Dam (Cu-U-Au deposit) found in 1975 – contains 2405 kt U3O8
MinEx Consulting
Strategic advice on mineral economics & exploration
9
… resulting in a four-fold rise in uranium discovery
costs over the last 40 years
2009$/lb U3O8
$10
$13.82
5 Year rolling average
$8
Average discovery
costs are rising
$6
~$4/lb
in 2008
$4
$1/lb
in 1970
$2
est
$0
1940
1950
1960
1970
1980
1990
2000
2010
Source: MinEx Consulting May 09
MinEx Consulting
Strategic advice on mineral economics & exploration
Gold Exploration expenditures and ounces found
Primary gold found in Western World: 1950-2009
Moz
250
GOLD
Expenditures (2009 US$B)
$5
Exploration $
Moz Discovered
200
$4
150
$3
100
$2
Estimate
50
$1
0
$0
1950
1960
1970
1980
1990
2000
Although expenditures are up, the
rate of discovery remains low
MinEx Consulting
Strategic advice on mineral economics & exploration
2010
Source: MinEx Consulting Jan 2010
11
Average discovery costs have been rising
Primary gold found in Western World
Discovery Cost (2009 US$/oz)
$80
Average discovery
costs are rising
3 Year rolling average
Estimate
$60
~$52/oz
in 2008
$40
Weighted Average
$2/oz in the 1950s
$20
$9/oz
in 1980
$0
1950
1960
1970
1980
1990
2000
2010
Source: MinEx Consulting Jan 2010
Note: Based on all deposits >0.1 Moz.
Includes adjustment for deposits with no reported discovery year
MinEx Consulting
Strategic advice on mineral economics & exploration
12
Case Study for Gold:
Key drivers behind the rising
discovery costs
MinEx Consulting
Strategic advice on mineral economics & exploration
13
Cumulative size-frequency for gold deposits
Total World Primary Gold deposits : All Years
Cumulative Frequency (Total Number of deposits)
Estimate that ~4400 deposits
> 0.1 Moz have been discovered in the World.
4400
3260
2077
Total amount found is ~300kt
Endowment ie Current Resource + Historic Production (Moz)
Source: MinEx Consulting Jan 2010
MinEx Consulting
Strategic advice on mineral economics & exploration
14
Cumulative size-frequency for gold deposits
Western World Primary deposits: Found by Decade per $1 Billion spent
Cumulative Frequency
(Total Number of deposits found per $1 B of Exploration in 2009$)
50
26
15
8.5
6
3.7
Since the 1960s it has become
progressively more expensive to
find a given-sized gold deposit
This is most pronounced
for the larger sizes
1950s
1960s
0.9
0.43
1970s
2000-08
1990s
1980s
Endowment ie Current Resource + Historic Production (Moz)
Caution: No adjustment made for deposits missing from the data base
(only an issue at the smaller sizes)
MinEx Consulting
Strategic advice on mineral economics & exploration
Source: MinEx Consulting Jan 2010
15
Average ore grades have also fallen over time …
Average ore grade for all primary gold discoveries >1 Moz in the World
g/t Au
3 Year rolling average
2.86 g/t
in 1960
1.73 g/t
in 1980
1.37 g/t
in 2000
0.98 g/t
in 2008
Caution: Part of the reduction in grades in 1970s may be a consequence of new processing
technologies (principally CIP) - which enabled operators to use lower cut-off grades
MinEx Consulting
Strategic advice on mineral economics & exploration
Source: MinEx Consulting Jan 2010
16
Surprisingly, the average copper-equivalent grade of
discovery hasn’t changed in the last 50 years
All primary copper discoveries > 0.3 Mt Cu in the World: 1950-2009
% Cu-equiv
Copper -Equivalent
All deposits
3 year rolling average
Open Pit deposits
Source: MinEx Consulting Sept 09
Note: Excludes deposits where copper is a by-product
SXEW technology introduced in 1970s-80s enabled lower grade (open pit) ore to be treated
MinEx Consulting
Strategic advice on mineral economics & exploration
17
DRIVER 1: District maturity and the need to chase deep targets
Depth to top of ore body for (>0.1 Moz) gold discoveries made in the Western World
Still searching under < 25m
in the developing world
To date, most of the deeper
discoveries were made in
“Mature” countries
Depth (Metres)
Note: Chart refers to the initial discovery in a camp. – and so excludes
subsequent brownfield discoveries which are often deeper
MinEx Consulting
Strategic advice on mineral economics & exploration
Source: MinEx Consulting Jan 10
18
Even though giant gold deposits do exist at depth, to date
most exploration has been limited to <25 metres of cover
Primary gold discoveries (>0.1 Moz) found in the Western World: 1950-2009
Total Ounces (Moz)
Depth of Cover (Metres)
Number
Most gold discoveries
(by number & Ounces)
are under less than
25 metres of cover
Average Size (Moz)
On average, the biggest
deposits were found
below 50 metres … But
the industry doesn’t have
good tools to find them
N = 333
Moz
Moz
Source: MinEx Consulting Jan 10
MinEx Consulting
Strategic advice on mineral economics & exploration
19
DRIVER 2: Shift towards brownfields exploration
Total World gold discoveries: 1950-2009
Moz
400
% Brownfield
100%
Brownfield
Greenfield
80%
% Brownfield (3 yr rolling avg)
300
53% BF
in 2006
25% BF
in 1976
200
60%
40%
100
20%
0
0%
1950
1960
1970
1980
1990
2000
Note: Includes By-Product gold (mainly from base metal deposits)
“Brownfield” is defined as exploration associated with conventional targets within
an established mineral district. This includes exploration beneath/immediately along-strike from
a known deposit. “Greenfield” is defined as all other exploration.
MinEx Consulting
Strategic advice on mineral economics & exploration
2010
Source: MinEx Consulting Jan 10
20
DRIVER 3: Most exploration is now done by Juniors …
... But their track record is not as good as the Majors
Primary gold discoveries > 0.1 Moz in the World: 1992-2008
Majors +
Intermediates
Juniors +
Prospectors
Total/Average
Majors share/ performance
$19,815
$26,619
$46,434
43% of total spend
Number of Discoveries (est)
299
379
678
44% of total number found
Moz found (est)
783
640
1423
55% of all ounces found
Average Size per Discovery
(Moz)
2.62
1.69
2.10
Key factor
Average cost per Discovery (a)
(2009 US$m)
$66m
$70m
$68m
Majors 94% cost of Juniors
Average cost Oz found (a)
(2009 US$/oz)
$25/oz
$42/oz
$33/oz
Majors 60% cost of Juniors
34
23.5
57.5
59% of total number found
Exploration US$m
Number of Tier 1 & 2
Discoveries
Discoveries by Majors 1.55x
bigger than Juniors
Analysis includes adjustments for deposits missing from the database. Have pro-rated shared discoveries.
Analysis excludes expenditures and discoveries made by Private, Industrial and Oil and State-Owned Companies.
Source: MinEx Consulting Jan 10
MinEx Consulting
Strategic advice on mineral economics & exploration
Implications of a declining discovery
rate on the future of the industry
MinEx Consulting
Strategic advice on mineral economics & exploration
22
In the case for gold, the declining performance means
that the industry struggles to replace the metal it mines
Total gold discoveries versus World gold production
Moz
The industry is struggling to replace
the ounces it mines.
Critically, only 80% of all ounces
found are mined and not all of the
mined gold is recovered
Note: Includes Primary and By-Product gold
Sources: Discovery data from MinEx Consulting. Production data from Macquarie First South Securities
MinEx Consulting
Strategic advice on mineral economics & exploration
23
For other commodities the issue becomes one
of declining resource quality
Australia’s Economic Demonstrated Resources for Nickel: 1975-2008
Mt Ni
Australia’s inventory of nickel has
grown nickel by a factor of 6x over
the last two decades ….
Total EDR for
Australia
Source: Geoscience Australia,
MinEx Consulting
Strategic advice on mineral economics & exploration
24
For other commodities the issue becomes one
of declining resource quality
Australia’s Economic Demonstrated Resources for Nickel: 1975-2008
Mt Ni
Australia’s inventory of nickel has
grown nickel by a factor of 6x over
the last two decades ….
Total EDR for
Australia
M&I resources
for Ni Sulphides
Sources: Geoscience Australia, MinEx Consulting
MinEx Consulting
Strategic advice on mineral economics & exploration
25
While gold resources have grown in Australia,
this is tied up in a handful of deposits
Australia’s Economic Demonstrated Resources for gold: 1976-2008
Tonnes Au
Total EDR for
Australia
Source: Geoscience Australia,
MinEx Consulting
Strategic advice on mineral economics & exploration
26
While gold resources have grown in Australia,
this is tied up in a handful of deposits
Australia’s Economic Demonstrated Resources for gold: 1976-2008
Tonnes Au
Total EDR for
Australia
Olympic Dam
Sources: Geoscience Australia
BHP Billiton and WMC Annual Reports
MinEx Consulting
Strategic advice on mineral economics & exploration
27
While gold resources have grown in Australia,
this is tied up in a handful of deposits
Australia’s Economic Demonstrated Resources for gold: 1976-2008
All of the recent growth in
Australia’s gold resources
came from just 2 mines
Tonnes Au
Olympic Dam
This emphasises the importance of
greenfield exploration to deliver giant
discoveries. Also the importance of new
deposit styles (Porphyry and IOCG)
Cadia/Ridgeway
Most of Australia’s gold
industry is in decline
Note: The EDRs for Olympic Dam and Cadia/Ridgeway are based on reported
P&P Reserves + Measured & Indicated Resources
MinEx Consulting
Total EDR for
Australia
Estimated EDR for
Australia excluding
Olympic Dam &
Cadia/Ridgeway
Sources: Geoscience Australia
BHP Billiton , WMC and
Newcrest Annual Reports
Strategic advice on mineral economics & exploration
28
Conclusions
MinEx Consulting
Strategic advice on mineral economics & exploration
29
Conclusions
• Discovery performance has been declining
– Unit discovery costs are up by a factor of 5 for gold (~$52/oz) and
4-fold ($4/lb) for U3O8. The rise for copper is less
– Finding less giant deposits (which is where most of the value is)
• The main cause is due to the existing search space becoming depleted
– Target terrains are maturing
– Increased emphasis on brownfield exploration … where the opportunities for giant
discoveries are limited
– Over-focus on small discoveries (which is what the Juniors are looking for)
• The quality of the industry’s resource base is declining
• Need to re-invigorate the search space by going under deeper cover
– This requires most cost-effective methods of exploration . The new CRC for Deep
Exploration Technologies has a vital role to play
MinEx Consulting
Strategic advice on mineral economics & exploration
30
The challenge (and the opportunity) is that the next
generation of discoveries will be under deep cover
Depth to basement for operating mines/deposits in Australia
To make this happen we need
to develop cost-effective tools
for exploring under deep cover
Sources: Geoscience Australia ,
Deep Exploration Technologies CRC
MinEx Consulting
Strategic advice on mineral economics & exploration
31