I was invited by the organisers of the FEM Conference to give a thought-provoking high-level assessment of the future direction of the World’s exploration and mining industries.
This presentation attempts to answer a very basic question – are we finding enough metal to meet the future needs of the World?
The key commodities of interest were gold, copper, nickel and zinc/lead.
The analysis involved the following seven steps:
The first step was to identify how much metal has been found in the world. A series of charts for showing the trend in discoveries for each commodity over the last 100+ years.
The second step was to compare this against the total amount spent on exploring for each of these commodities (based on global data available from 1975 onwards)
The third step was to determine the overall trend in unit discovery costs– which is calculated by dividing the expenditures by the amount of metal found. In detail, it shows that the unit cost of finding gold has been rising over time – a currently around $45/oz and rising by $10/oz per decade (all figures are in constant 2017 US Dollars). The unit discovery costs for copper and zinc/lead are both projected to remain at around 3 cents/lb going forward – up by a factor of 2-3 over that experienced in previous decades. In the case of nickel, unit discovery costs are estimated to be 5 c/lb for laterite deposits and 28 c/lb for sulphide deposits – with the latter rising by 4 c/lb over the longer term.
The fourth step involved building an economic model to predict the future level of exploration expenditures. A key driver is the commodity price itself. In detail, based on current industry consensus views on long-run commodity prices (of $1175/oz Au, $2.75/lb Cu, $7.30/lb Ni, $1.00/lb Zn and $0.85/lb Pb) MinEx projects that the global expenditure for non-bulk mineral exploration is set to rise by 65% over the next decade. In the case of gold, it is estimated that, by year 2027 the global exploration spend will be around $6000m pa.
The fifth step was to divide the projected exploration spend by the unit discovery cost to come up with the likely average amount of metal to be discovered each year out to 2040. In the case for gold it is estimated that industry will find ($6000/$55 =) 109 Moz. An additional 24 Moz of by-product gold will also found.
The sixth step was to determine how much of this metal will actually be mined and recovered. Based on the past trends, MinEx estimates that (at best) only 70% of the gold found will be mined, and that a further 10-20% be lost during processing and mining. The net result is that only around 82 Moz of gold will be (eventually be) produced from discoveries made in 2027.
The seventh, and final, step was to compare the adjusted discovery rate against the respectively likely mine production for each commodity. In the case of gold, it is projected that mine production in 2027 will be around 119 Moz pa. This gives a ratio of adjusted-discovery to production of 0.68. In other words, industry needs to find (1/0.68 -1=) 45% more to stay in-balance. On this basis, we are not finding enough gold to sustain the industry in the longer term.
With regard to the other metals – it appears that copper is in-balance (with a ratio of 1.23 in 2027) but not so for lead (0.71), zinc (0.58) or nickel (0.39). What this means is that the rate of discovery needs to rise by 41% for zinc, 72% for lead and 156% for nickel.
The clear conclusion from the above is that, for the global mining industry to sustain itself, it either needs to either reduce production, or increase the exploration spend (by more than the 65% currently projected), or it needs to be much more efficient at discovery (i.e. find more for less by a factor of 2x) or the commodity prices have to rise above that currently projected; Or all of the above.
Whichever path is chosen, I am sure that it will be an interesting and eventful journey.