Presentation to the PDAC, Toronto, March 2015
The following presentation was given at PDAC 2015. It provides a high level overview of the exploration expenditures and discoveries made in Canada between 1975 and 2014.
The main observations are:
- Exploration expenditures are incredibly volatile. Expenditures can fall by 40-60% over the business cycle. Canada tends to be the first to “boom” and the first to “bottom out”. Expenditures in Canada is currently down 49% from the peak in 2011, with a further 10-20% to go
- Canada’s share of global spend has halved in the last 30 years
- Gold is still the main target in Canada, followed by base metals
- On average 5-10 significant discoveries are made each year in Canada
- In the last decade 71% of all discoveries were made by Junior Explorers
- With regard to the quality of the discoveries made, I found that on average, industry finds three Tier 1, seven Tier 2 and forty Tier 3 deposits per decade in Canada. This rate is fairly constant – however we are spending more to find them
- 80% of the value generated comes from the Tier 1 & 2 discoveries
- Over the last decade (2005-2014) over 336 Tier 1, 2 & 3 discoveries were made in the World. 14% of these were in Canada.
- There are currently 10 “hot spots” for exploration around the World. Three of these are in Canada … in Northern Ontario, Yukon and Saskatchewan
- Over the last 60 years there has been a clear trend towards discovering deposits under progressively deeper cover in Canada. In the last decade the average depth of discovery was 125 metres, versus a global average of 78 metres. Surprisingly 22% of the discoveries in Canada outcropped suggesting that that there still opportunities for prospectors and junior explorers to find exposed orebodies
- I analysed the cost and value of these discoveries. I found that, over the last decade US$27b was spent on exploration in Canada, delivering US$19b of value … this give a “Bang per Buck” of 0.77
- Canada discovery efficiency was better than the global average (0.67) but not as good as Africa (1.19) or Australia (0.97)
- In Canada, over the last decade:
- Junior companies were 30% more effective at generating wealth than Senior Companies (with a Bang per Buck of 0.83 versus 0.63)
- Most of the value generated came from brownfield gold discoveries.
- Greenfield only gave a return of 0.30 (versus 1.86 for brownfield)
- Gold and “Other” gave a much better return (of 1.06 and 1.11) than base metals (0.17) or diamond exploration (0.07)
- With regard to the outlook for exploration I found that the exploration spend is driven by commodity prices and general market sentiment (which impacts on junior company’s ability to raise funds). Junior companies are currently facing a huge cash squeeze. As at Feb 2015, half of all juniors current have
- Of more concern is the low market cap of many junior companies. .. It is the collateral for raising fresh funds. As at Feb 2015 one-third of all the TSX/TSE listed juniors have a market cap < C$1 million. That makes it very difficult to raise money. On this basis, depending on how long the “deep freeze” will last, up to 20-40% of junior companies face closure in next year or two. Notwithstanding this, the majority of juniors will survive
- The response to date has been to cut back on spending and to go into hibernation. That’s not good for discovery rates or the industry in general