Challenges of Exploring Under Deep Cover

Presentation to the AMIRA International’s Exploration Managers Conference, Healesville, Victoria, March 2017

This presentation looks at the long-term trends in exploration – both in terms of expenditures and number (and quality) of discoveries and tries to identify the key factors behind the recent decline in discovery performance. These are both structural and cyclical. With regard to the former, one factor is the challenges towards looking under progressively deeper cover. Data is provided showing the trend in depth over the last hundred years for gold and base metal discoveries in brownfield and greenfield settings.

With regard to the cyclical factors, it is noted that during the recent boom (due to strong demand) the cost of hiring a geologist and drilling a hole doubled in real terms – so it shouldn’t be a real surprise that unit discovery costs also rose over that time. What is surprising is that discovery costs continued to remain high during the bust-part of the cycle. A detailed analysis of exploration activities in Australia and Canada over the period 2000-2016 suggests that the poor performance is due to the lack of drilling being done. Simply put – “If you don’t drill you won’t discover”.

Based on data spanning two business cycles, it appears that the industry performs best during the first couple of years after the bottom of the cycle. The thesis is that that during the down-part of the cycle companies conserve cash by cutting back on field work and pruning their project portfolio to their very best targets. Notwithstanding this, the company has not gone completely into hibernation – instead, it uses the time to work-up the remaining (highest-quality) projects to a drill-ready stage. When the market does turn and funds flow back-in, the company is in a strong position to return to the field and quickly make good discoveries. During this time, the cost of hiring a geologist and drilling rig are modest. The end result is a much better “bang-per-buck”. This, in turn, allows companies to raise more money and the industry eventually moves back to boom-phase of the business cycle. In other words – the exploration industry is never in steady-state.

Given that the industry bottomed out in mid-2016, and is now showing signs of being on the way up, the above thesis suggests that the next couple of years will deliver a string of good / exciting discoveries. Let’s hope so!

Note: Please note that the AMIRA Exploration Managers Conference is held every two years and is an invitation-only event and is limited to the most senior people from industry, government and universities.

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