Presentation to the PDAC 2021 Post Convention Programming session on Exploration Success and Strategy
The following presentation looks at the global trends in exploration for gold. It also introduces a number of new metrics (associated with drilling and the number of companies) for assessing exploration performance.
Key observations were:
- Exploration expenditures are extremely volatile – with boom/busts of +/-70% not uncommon.
- The overall level of exploration spend is mainly driven by changes in the gold price.
- The impact of COVID-19 on the level of exploration activity is complex and dynamic. On the negative- side, office closures and travel-restrictions and have made it difficult for geologists and drillers to work on projects in remote areas. On the positive-side, market uncertainties, coupled with low interest rates has caused the price of gold to go up (from US$1420 in 2019 to $1771/oz in 2020) – thereby encouraging to be more active in the field. The net effect was a modest increase in the World’s overall spending on gold exploration … up from $4639m in 2019 to $4830m in 2020.
- It is worth noting that the level of activity varied by Region – with expenditures in 2020 up in Canada (by 4%) and Australia (by 15%) and down in Africa (by -6%) and Latin America (by -15%).
- On average around 40-50 significant gold deposits are found in the World each year.
- Over the last decade (2010-19) Canada accounted for 12% of all gold discoveries and Australia 15% by number.
- In terms of ounces over the last decade a total of 628 Moz of gold was found in the World. Ten of these contained more than 10 Moz each. This includes three Cu-Au deposits, where gold is a by-product.
- After adjusting for by-product credits the “average cost per ounce found” rose from $15 in 1980s to $61 in the last decade (all in constant 2020 US Dollars). Part of the reason for the increase was cyclical (associated with higher labour and drilling costs – which have now come back down) and structural (namely the extra cost of exploring under deeper cover and/or in more remote locations).
- In terms of “$ spent per discovery”, unit costs unit costs have risen from $41m in the 1980s to $142m in the last decade.
- In terms of “metres drilled per discovery” the amount of drilling required rose from 336,000 metres in the 1990s to 551,000 metres in the last decade.
- In terms of the “number of holes drilled per discovery”, the amount of drilling required has stayed relatively constant at 6700-6900 holes over the study period (1990 to 2019). The challenge is that the average depth of the hole doubled from 41 metres to 82 metres over this period.
- In terms of the number of “gold discoveries made per Company per year” performance in the Western World over the last two decades has declined from 1-chance-in-25 to 1-in-29.
Given that most companies have modest exploration budgets (of ~$3 to 5 m pa) the odds of a given company finding a significant new gold deposit in a given year are very low/modest. In summary, to be a successful gold explorer you need to be much better than average.