Report on the importance of junior exploration companies to the NSW mining industry

Independent report prepared by MinEx Consulting Pty Ltd for the NSW Department of Trade & Investment, 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.

The study was completed in July. In September the Government publicly released the report on its website here. The Geological Survey has kindly given MinEx Consulting permission to also host a copy of the report on its website.

Key findings are:

  • Over the last decade (2004-2013) NSW accounted 7% of the Australia’s exploration expenditures and delivered 12% of the country’s discoveries (a table detailing these discoveries in given in the report). However, most of these deposits were modest in size, and as such, accounted for only 3% of the value created.
  • Over the same time period, Junior Exploration Companies accounted for 86% of all of the discoveries in the State. This is higher than the National average (of 66%).
  • Junior Explorers currently make up ~80% of the State’s exploration and development activity – and so play a key role in the future of mining in NSW.
  • It was found that many of NSW’s mines are mature – with an average age of 15 years, and half of the large-scale mines may close down in the next 7 to 13 years. The challenge is that the average delay between discovery and development is 10 to 15 years. Consequently any delay in the exploration process could result in sustained decline in the State’s output in the medium to longer term – with obvious adverse impacts on regional employment and State revenues.
  • An analysis of 39 junior explorers with projects in NSW found that half of the companies currently only have $0.86 million in cash reserves on-hand, and that this is only sufficient to fund the next 1.2 years of exploration activities. This is half the normal level, and reflects the tough situation the industry is currently facing with regard to raising funds. Notwithstanding this, in most cases they have the ability to raise additional funds their shareholders. To do so requires a positive news flow.
  • Australian junior explorers are remarkably resilient. A detailed study of 100 Junior Explorers listed on the ASX in July 2004, found that 66 of them were still active ten years later (in July 2014). It is estimated that the average life expectancy of a Junior Explorer is around 10-20 years. Their longevity depends on ongoing funding from its shareholders. To achieve this, the company needs to generate a steady stream of good news on its projects. This, in turn, requires them to actively work their exploration leases.
  • Ironically, the riskiest activity a junior explorer can do is actually build a mine – as the risk of failure is very high. In my survey 28% of the juniors did this, and of those one half of the companies went quickly broke or closed down their operations. Another quarter were taken over by other companies.
  • 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. Government plays a pivotal role in ensuring that this happens.

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