The following paper was presented at a special session at PDAC on Mineral Economics, on approaches to understanding and managing uncertainty and risk.
The focus of this paper was to firstly look at what is the likelihood that a discovery will turn into a mine? And (secondly) if it does turn into a mine, how long does it take?
The study reviewed ~3500 non-ferrous deposits found in the World between 1950-2013, with a special focus on copper and gold.
Key observations were:
- Only 45% of all discoveries made since 1950 have turned into mines. In terms of contained metal the conversion rate is 57%. The rate is higher for gold and lower for nickel laterites.
- In practice, due to time delays, the final conversion rates will be ~15% percentage points higher.
- Bigger discoveries have better conversion rates.
- For those deposits that were developed, there was an average delay of 12.4 years between discovery and mine start-up. The delay is getting longer over time.
- The delay varies from 10.0 years for gold to 17.1 years for copper.
- The delay period was not significantly affected by the size of the deposit or the depth of cover. Brownfield discoveries were quicker to develop for copper, but not significantly so for gold.
- Country Risk was critically important. Projects in Low Risk countries are 30-40% quicker to develop.
- The business cycle is critical. A project may require several cycles (and decades) to be developed. In terms of creating value for the explorer it is critical that you catch the first wave!
- In the case of copper, over the last two years the development pipeline has been put on hold. The four main factors causing the delays are cost over-runs (23%), poor economics (21%), a general lack of supporting infrastructure (15%) and social issues (15%).
- The next generation of mines will be progressively found under deeper cover in remote/more difficult areas with higher country risk. Such deposits also face challenging social and infrastructure issues.
Given the above, project conversion rates and the time delay between discovery and production are both set to deteriorate over the next decade. To help offset this, companies will continually need to improve their risk management practices.
Enlightened (and bold) companies should embrace the current situation and start developing projects to catch the next wave of the business cycle!