Presentation: PACRIM 2015 Conference,
Location: Hong Kong
The PACRIM Conference was organised by the AusIMM. A copy of my paper can be found in the Conference proceedings. The AusIMM has graciously given me permission to share my associated PowerPoint slides with you.
This presentation builds on my recent PDAC presentation. They both discuss the general trends in exploration spend and discovery performance over the period 1975-2014, with special emphasis on the most recent decade. The main difference between the two is that the PDAC presentation focused on Canada, whereas the PACRIM presentation focused on Pacific/South East Asia (Pac/SEA).
The key observations in the PACRIM Presentation are:
- Exploration is incredibly volatile. Expenditures can fall by 40-60% over the business cycle. In the last 2 years Pac/SEA has fallen more than most other regions
- Pac/SEA’s share of global spend has halved in the last 30 years
- Gold and copper are the main targets in the Region. Bulk minerals, uranium and diamonds are under-represented versus the World average
- On average 3-6 significant gold and base metal discoveries are made each year in the Region (2-4 of these were gold and 1-2 copper) … however this has dropped off in the last decade. I suspect this is due to companies being focused on evaluating existing (old) discoveries rather than looking for new deposits
- The 1980s were particularly productive for gold – with 8 giant (ie >6 Moz) deposits being found. Copper discoveries were more evenly distributed over time – with 4 giant deposits found in the last decade 374 significant gold and base metal deposits have been identified in the Pacific/SE Asia. 163 of these were found since 1975 and, of these 20 were discovered in the last decade
- Over the last decade 27 significant gold and base metal discoveries were made in China and 18 in Far East Russia
- In terms of contained metal per km2, the best endowed countries are Philippines. PNG, Fiji and (for Ni) New Caledonia
- Unit discovery cost for gold has doubled in the last decade. It currently costs US$199/oz to find gold in Pacific/SE Asia – versus $50/oz for the World average. Copper discovery costs are currently US 3.6 cents/lb Cu-eq for the Region versus a World average of 4.0 cents/lb
- In Value proposition for exploration in Pac/SEA was very good in the 1975-2004, with an average return of $4.07 in value per $1 spent on exploration. In the last decade (2005-2014) the return has dropped to $0.50 – which is lower than the World average of 0.67. As noted before, the decline is due to heavy focus on evaluating existing projects rather than looking for new greenfield targets
In the final section of my presentation I looked at the impact of changes in geological and business risk issues on the level of exploration spend in the World. A good measure of risk is the Mineral Potential Index (MPI) and the Policy Perception Index (PPI) as published annually by the Fraser institute. Intuitively, countries with better scores should attract more exploration dollars. In practice, the results vary widely between countries – in part because of inherent differences in land area, exploration maturity and overall industry expenditures (which can vary by +/-30% in a given year). After making adjustments for these factors (by looking at the spend per km2, and looking at changes in relative market share rather than total spend) I found that, in a given country a 1%-point increase in the MPI score increases the underlying exploration spend by ~0.8%. However with regard to the PPI, the results were so noisy that it was impossible to come up with any meaningful correlation. At face value this (counter-intuitively) suggests that changes in the PPI have no significant effect on exploration spend.
In short, it appears that the main driver for exploration spend is the mineral potential of the country. Companies go where the “the rocks are good” and are not unduly scared off by Country Risk. Perhaps the logic is that “if the prize if good enough we will sort out how to do business afterwards”. This is a somewhat surprising result and requires further investigation.
As a bonus, the presentation also information on the tonnes and grades of Tier 1, 2 and 3 deposits. A Tier 1 gold or copper deposit needs to contain at least 10 Moz of gold or 10 Mt of copper at good grades.