Back in July 2014, the Geological Survey of New South Wales (which is part of the NSW Department of Trade & Investment) commissioned MinEx Consulting to assess the role and importance of junior exploration companies for the future of the mining industry in that State. The independent report was used to brief the incoming Minister of Energy and Resources. They liked the story and asked me to extend and update the report and to present the findings in a keynote speech at their Forum, "Exploration in the House" which is held annually in the NSW State Parliament.
The Geological Survey has kindly given MinEx Consulting permission the host a copy of the updated report on its website.
Key findings are:
- Over the last decade (2005-2014) NSW accounted for 6.6% of Australia's expenditures on non-bulk mineral exploration.
- The good news is that, over this period, NSW accounted for 12% of the Australia's discoveries, resulting in cost per discovery 60% that of the national average (of A$139m) using only 70% as much drilling (375km versus 570km) per discovery.
- The bad news is that most of the discoveries in NSW were of modest value – 40% of the national average (of US$99m per discovery). This resulted in the value created per dollar spent on exploration (i.e. "bang-per-buck") of only 70% of the national average.
- The problem appears to be due to an over-emphasis on low-risk/low-reward brownfield exploration. This is also an issue for the global industry.
- Junior Explorers account for 70% of the work and 80% of the discoveries made in NSW. This is higher than the National average of 67%.
- There are 51 junior companies currently exploring in NSW. Half of these have less than A$0.53m of cash reserves – which is only sufficient to fund the next 7 months of exploration spend. This compares with cash reserves of 1-2 years In a normal market.
- In-spite of the current difficult business conditions, junior companies are remarkably resilient and, provided they can get access to fresh funds, can survive for 10-20 years or more.
- There are currently 15 major non-bulk mines operating in NSW. Based on current mining rates and published reserves/resources, half of these mines could close down in the next 5/13 years. The challenge is that there is a 10-15 year delay between discovery and development.
- Given the above, there is an urgent need to find large new deposits now. The industry can't afford to go to sleep. Without active and successful explorers, there is a real risk that mine production (and revenues and employment) could significantly decline in 10-15 years time.
In summary, the future of NSW's mining industry relies heavily on a strong and vigorous junior sector. To make new discoveries and deliver new mines the Junior Explorers need good funding and access to good ideas and good tenements. They also need to be encouraged to focus on greenfield targets. Government plays a pivotal role in ensuring that this happens.