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MinEx Consulting Strategic advice on mineral economics & exploration
Discovery Performance for Goldand Base Metals in thePacific/South-East Asia
Richard SchoddeManaging Director, MinEx Consulting
Adjunct Professor, University of Western Australia
PACRIM 201519th March 2014, Hong Kong
MinEx Consulting Strategic advice on mineral economics & exploration
Overview
1. Trends in exploration spend
2. Number of discoveries
3. Location of the discoveries
4. Unit cost of discoveries
5. Quality of the discoveries
6. Value Proposition for exploration
7. Business Risk issues
8. Conclusions
2
Pac/SEA’s share of global expenditures
... and how much metal was found?
How many Tier 1, 2 & 3 deposits found?
… and which countries are well-endowed?
Does exploration make money?Which Regions gave the best return?
Can we use the Fraser Institute’s scores ofMineral and Policy Potential to predict theoverall level of exploration spend?
US$/oz of gold and $/lb of Cu, Ni and Zn, andhow does Pac/SEA compared to other regions?
MinEx Consulting Strategic advice on mineral economics & exploration
1. TRENDS IN EXPLORATION SPENDExploration expenditures reached an all-time high in 2012
3
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures: Worldby Region : 1975-2014
$0
$5
$10
$15
$20
$25
$30
$35
1975 1980 1985 1990 1995 2000 2005 2010
Australia
Canada
USA
Western Europe
Rest of World
Africa
Latin America
FSU + E Europe
China
Pacific / SE Asia
4
2014 US$ Billion
Note: Includes bulk minerals (such as iron ore, coal and bauxite) Sources: MinEx Consulting estimates © March 2015, based ondata from ABS, NRCan, MLR (China), OECD and SNL
Spend reachedan all-time
high in 2012
Spend reachedan all-time
high in 2012
1981
1985
1988
1993 2002
1997
Expenditureshave halved inthe last 3 years
Expenditureshave halved inthe last 3 years
Typically have a40-60% fall between
boom and bust
Typically have a40-60% fall between
boom and bust
$30.7Bin 2012
$15.6Bin 2014
MinEx Consulting Strategic advice on mineral economics & exploration
Exploration expenditures: Worldby Region : 1975-2014
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010
Australia
Canada
USA
Western Europe
Rest of World
Africa
Latin America
FSU + E Europe
China
Pacific / SE Asia
5
Percentage of total spend
13%
11%
6%
21%
5%
14%
3%
19%
7%
2%
China spends moreon exploration thanany other country in
the World
China spends moreon exploration thanany other country in
the World
Aust/Can/USA’s market share hashalved in the last 2 decades
Aust/Can/USA’s market share hashalved in the last 2 decades
Note: Includes bulk minerals (such as iron ore, coal and bauxite) Sources: MinEx Consulting estimates © March 2015, based ondata from ABS, NRCan, MLR (China), OECD and SNL
Pac/SEA
Pac/SE Asia share has alsohalved in the last 2 decades
Pac/SE Asia share has alsohalved in the last 2 decades
China10%
MinEx Consulting Strategic advice on mineral economics & exploration
$0.0
$0.5
$1.0
$1.5
$2.0
1975 1980 1985 1990 1995 2000 2005 2010
6
2014 US$ Billion
Source: MinEx Consulting estimates © March 2015,based in-part on data from SNL-MEG
Exploration expenditures: Pacific/SE Asia1975-2014
Expenditures havedropped by 60% in
the last 2 years
Expenditures havedropped by 60% in
the last 2 years$1.76Bin 2012
$0.71Bin 2014
MinEx Consulting Strategic advice on mineral economics & exploration
$0.0
$0.5
$1.0
$1.5
$2.0
1975 1980 1985 1990 1995 2000 2005 2010
Other
Coal
Iron Ore
Diamonds
Uranium
Base Metals
Gold
7
2014 US$ Billion
Exploration expenditures: Pacific/SE Asiaby Commodity : 1975-2014
Source: MinEx Consulting estimates © March 2015,based in-part on data from SNL-MEG
Most of the exploration spendin Pacific / SE Asia is on gold
and base metals
Most of the exploration spendin Pacific / SE Asia is on gold
and base metals
MinEx Consulting Strategic advice on mineral economics & exploration
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010
8
Exploration expenditures: Pacific/SE Asiaby Commodity : 1975-2014
Source: MinEx Consulting estimates © March 2015,based in-part on data from SNL-MEG
Gold continuesto be the main
target
Gold continuesto be the main
target
Very little spent in Pac/SEAexploring for iron ore,
diamonds and uranium
Very little spent in Pac/SEAexploring for iron ore,
diamonds and uranium
Base Metals(Cu, Ni, Zn, Pb)
Gold
CoalOther(includes bauxite)
2% Iron Ore16% Coal
6% Other
0% Diamonds0% Uranium
26% Base Metals
50% Gold
Percentage of total spend
MinEx Consulting Strategic advice on mineral economics & exploration
0%
20%
40%
60%
80%
100%
1975 1980 1985 1990 1995 2000 2005 2010
9
Exploration expenditures: WORLDby Commodity : 1975-2014
13% Iron Ore
12% Coal
14% Other
Uranium Base Metals(Cu, Ni, Zn, Pb)
Gold
Diamonds
3% Diamonds3% Uranium
25% Base Metals
Percentage of total spend
30% Gold
Source: MinEx Consulting estimates © March 2015,based in-part on data from SNL-MEG
Iron Ore
Other
WORLD spend showsa different pattern
WORLD spend showsa different pattern
MinEx Consulting Strategic advice on mineral economics & exploration
2. NUMBER OF DISCOVERIES &AMOUNT OF METAL FOUND
Number of discoveries in Pac/SEA – by commodity and size
10
MinEx Consulting Strategic advice on mineral economics & exploration
Number of discoveries by commodityMineral discoveries in Pacific/SE Asia: 1975-2014
0
5
10
15
1975 1985 1995 2005 2015
Zinc/Lead
Nickel
Copper
Gold
11
Number
Source: MinEx Consulting © March 2015
163
Most of the depositsfound were gold
and copper
Most of the depositsfound were gold
and copper
Caution:Incomplete datain recent years
101
43
17
2
Note: Based on Moderate-, Major- and Giant-sized depositsExcludes satellite deposits in existing camps
MinEx Consulting Strategic advice on mineral economics & exploration
Number of discoveries by sizeGold and Base Metal discoveries in Pacific/SE Asia: 1975-2014
0
5
10
15
1975 1985 1995 2005 2015
Moderate
Major
Giant
12
Number
Source: MinEx Consulting © March 2015
Note: “Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb
On average, 3-6significant discoveries
are made each year
On average, 3-6significant discoveries
are made each year
66
163
69
28
Caution:Incomplete datain recent years
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
1975 1985 1995 2005
Gold Ounces foundPrimary gold deposits found in Pacific/SE Asia : 1975-2014
13
Moz Au-eq
Source: MinEx Consulting © March 2015
Estimate
Far South East(38 Moz)
Hishikari(11 Moz)
Lihir (73 Moz)
Macraes (9 Moz)
Simberi (7 Moz)Wafi Gold (7 Moz)Diwawal (15 Moz)
Porgera (32 Moz)
Kelian (7 Moz) Hidden Valley (8 Moz) Martabe (8 Moz)
Chatree (6 Moz)Gosowong Camp (6 Moz)
Most of the giant gold depositsin Pacific/SE Asia were found
in the early 1980s
Most of the giant gold depositsin Pacific/SE Asia were found
in the early 1980s
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
1975 1985 1995 2005
Copper metal foundPrimary copper deposits found in Pacific/SE Asia : 1975-2014
14
Mt Cu-eq
Source: MinEx Consulting © March 2015
Estimate
Namosi(9 Mt)
Grasberg (88 Mt)
Oyu Tolgoi (42 Mt)Tampakan (19 Mt)
Tujuh Bukitk (14 Mt)
Golpu (13 Mt)
Batu Hijau (11 Mt)
Elang(8 Mt)
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
Several giant copperdeposits have been found
in recent years
Several giant copperdeposits have been found
in recent years
MinEx Consulting Strategic advice on mineral economics & exploration
3. LOCATION OF DISCOVERIES
Where were the discoveries made?
15
MinEx Consulting Strategic advice on mineral economics & exploration 16
Au
Cu Ni Zn+Pb
50 Moz10 Moz
1 Moz
0.1 Moz
50 Mt
1 Mt
0.1 Mt
10 Mt
Significant gold and base metal deposits in East AsiaALL YEARS
Source: MinEx Consulting © March 2015
Pac/SE AsiaN= 374
ChinaN = 403
Far East RussiaN = 187
MinEx Consulting Strategic advice on mineral economics & exploration
Total contained metal per km2 : by country in Pac/SEA
17
Oz Au t Cu t Ni t Zn+Pb
WORLD 88 26 2.3 10.6
China 38 11 0.9 5.6
Far East Russia 63 5 0.6 5.5
Pac/SE Asia 127 16 3.5 5.7
Cambodia 7 - - -
Fiji 1173 426 - -
Indonesia 161 43 17.3 2.6
Japan 79 9 - 9.3
Laos 43 19 - -
Malaysia 33 15 - 3.0
Mongolia 37 38 - 0.2
Oz Au t Cu t Ni t Zn+Pb
Myanmar 2 12 1.9 12.2
New Caledonia - - 1118.8 -
New Zealand 122 - - -
North Korea 141 27 - 202.6
Philippines 606 189 49.8 0.2
PNG 542 110 16.8 0.1
Solomon Islands 102 - 66.8 -
South Korea 12 - - -
Taiwan 193 8 - -
Thailand 13 4 - 3.4
Vietnam 22 3 0.5 -
Source: MinEx Consulting © January 2015
MinEx Consulting Strategic advice on mineral economics & exploration 18
Oz Au t Cu t Ni t Zn+Pb
WORLD 88 26 2.3 10.6
China 38 11 0.9 5.6
Far East Russia 63 5 0.6 5.5
Pac/SE Asia 127 16 3.5 5.7
Cambodia 7 - - -
Fiji 1173 426 - -
Indonesia 161 43 17.3 2.6
Japan 79 9 - 9.3
Laos 43 19 - -
Malaysia 33 15 - 3.0
Mongolia 37 38 - 0.2
Oz Au t Cu t Ni t Zn+Pb
Myanmar 2 12 1.9 12.2
New Caledonia - - 1118.8 -
New Zealand 122 - - -
North Korea 141 27 - 202.6
Philippines 606 189 49.8 0.2
PNG 542 110 16.8 0.1
Solomon Islands 102 - 66.8 -
South Korea 12 - - -
Taiwan 193 8 - -
Thailand 13 4 - 3.4
Vietnam 22 3 0.5 -
Source: MinEx Consulting © January 2015
Some of the Pac/SEA countries are very well endowed for gold and base metalsSome of the Pac/SEA countries are very well endowed for gold and base metals
>10x2-5x 6-10x0.2-0.5x<0.2x 0.5-2xRelative to WORLD
Room to improve ?
Total contained metal per km2 : by country in Pac/SEA
MinEx Consulting Strategic advice on mineral economics & exploration
Significant gold and base metal deposits in East AsiaDiscovered 2005-2014
19
Au
Cu Ni Zn+Pb
50 Moz10 Moz
1 Moz
0.1 Moz
50 Mt
1 Mt
0.1 Mt
10 Mt
Tujuh Bukit[Cu/Au:2007]
Golpu[Cu/Au:2009]
Poyi[Ni:2009]
Malmyzh[Cu/Au:2007]
Zhaxikang[Zn:2010]
Kekura Centre[Au:2005]
Sovinoye[Au:2005]
Kultuminskaya[Au:2007]
Lugokanskaya[Au:2006]
Beiya[Au:2005]
Source: MinEx Consulting © March 2015
Pac/SE AsiaN= 20
ChinaN = 27
Far East RussiaN = 18
MinEx Consulting Strategic advice on mineral economics & exploration
4. UNIT COST OF DISCOVERIES
How much does it cost to find gold and copper in PAC/SEA?
20
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
1975 1985 1995 2005
Gold Ounces foundPrimary gold deposits found in Pacific/SE Asia : 1975-2014
21
Moz Au-eq
Source: MinEx Consulting © March 2015
Estimate
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
MinEx Consulting Strategic advice on mineral economics & exploration
Gold exploration expenditures and ounces foundPrimary gold deposits found in Pacific/SE Asia: 1975-2014
22
$0
$200
$400
$600
$800
$1,000
0
20
40
60
80
100
1975 1985 1995 2005
Exploration $
Estimated Unreported
By-product Credits (Au-eq)
Primary Gold Discovered
Estimate
Moz Au-eq Expenditures (2014 US$ M)
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
Source: MinEx Consulting © March 2015
MinEx Consulting Strategic advice on mineral economics & exploration
Unit discovery costs for gold have doubled each decadePrimary gold found in Pacific/SE Asia and World: 1975-2014
$0
$50
$100
$150
$200
$250
1975 1985 1995 2005 2015
23
2014 US$/oz
2005-2014Whtd Avg = $199/oz
2005-2014Whtd Avg = $50/oz
1995-2004Whtd Avg = $51/ozWhtd Avg = $25/oz
1985-1994Whtd Avg = $25/ozWhtd Avg = $18/oz
1975-1984Whtd Avg = $2/ozWhtd Avg = $9/oz
Source: MinEx Consulting © March 2015
Pacific / SE Asia
World
Note: Three-Year Rolling Average. Includes by-product creditsand adjusted for unreported discoveries in recent years
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
1975 1985 1995 2005
Copper metal foundPrimary copper deposits found in Pacific/SE Asia : 1975-2014
24
Mt Cu-eq
Source: MinEx Consulting © March 2015
Estimate
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
MinEx Consulting Strategic advice on mineral economics & exploration
Copper exploration expenditures and metal foundPrimary copper deposits found in Pacific/SE Asia: 1975-2014
25
$0
$200
$400
$600
$800
$1,000
0
20
40
60
80
100
1975 1985 1995 2005
Exploration $
Estimated Unreported
By-product Credits (Cu-eq)
Primary Copper Discovered
Estimate
Mt Cu-eq Expenditures (2014 US$ M)
Note: By-product credits are based on average commodity pricesprevailing between Jan 2012 and Dec 2014
In spite of heavyspending, no new
deposits have beenreported since 2010
In spite of heavyspending, no new
deposits have beenreported since 2010
Source: MinEx Consulting © March 2015
MinEx Consulting Strategic advice on mineral economics & exploration
Until recently, unit discovery costs for copperhave not increased in real terms over time
Primary copper found in Pacific/SE Asia and World: 1975-2014
0
2
4
6
8
10
1975 1985 1995 2005 2015
26
2014 US c/lb Cu-eq2005-2014Whtd Avg = 3.6 c/lbWhtd Avg = 4.0 c/lb
1995-2004Whtd Avg = 0.6 c/lbWhtd Avg = 0.8 c/lb
1985-1994Whtd Avg = 0.2 c/lbWhtd Avg = 0.5 c/lb
1975-1984Whtd Avg = 2.1 c/lbWhtd Avg = 1.2 c/lb
Source: MinEx Consulting © March 2015
Pacific / SE Asia
World
Note: Three-Year Rolling Average. Includes by-product creditsand adjusted for unreported discoveries in recent years
MinEx Consulting Strategic advice on mineral economics & exploration
Unit discovery costs for gold and copperBy Region 2005-2014
$31
$81 $71$47
$101
$42
$199
$71 $65 $57 $50
$0
$50
$100
$150
$200
27
25.9
4.7 3.0 2.8 2.3 3.6 4.9 3.9
35.5
4.0
0
10
20
30
402014 US c/lb
2014 US $/oz
91
GOLD
COPPER
Source: MinEx Consulting © March 2015Note: Includes by-product credits and adjusted for unreported discoveries in recent years
MinEx Consulting Strategic advice on mineral economics & exploration
Unit discovery costs for nickel and zinc/leadBy Region 2005-2014
17.333.7
20.3
57.3
120.7
17.6
73.1
3.6 9.022.6
0
50
100
150
200
28
7.310.9
5.27.6
3.7
8.7
0
10
20
302014 US c/lb
NICKEL
ZINC/LEAD
Source: MinEx Consulting © March 2015Note: Includes by-product credits and adjusted for unreported discoveries in recent years
2014 US c/lb
NA
NA NANANA
40.4
MinEx Consulting Strategic advice on mineral economics & exploration
5. QUALITY OF THE DISCOVERIES
How many Tier 1, 2 and 3 deposits were found in Pacific/SE Asia?
29
MinEx Consulting Strategic advice on mineral economics & exploration
5%
Most of the wealth created arein Tier 1 and 2 discoveries
Estimated value of 20 discoveries found in Pacific/SE Asia between 2005-2014
0%
20%
40%
60%
80%
100%
Number ofDeposits
NPV
30
Tier 1
50%
40%
5%
28%
2%
56%
Note: Limited to deposits >=“Moderate “ in sizeNPV values refer to the Net Present Value at the Decision-to-Build stageEV = Expected Value, which is the weighted average value of the NPV rangeValues are based on long run commodity prices as prevailing at Jan 2013
Caution: Values are indicative / approximate-only
‘Tier 1 deposits’ are Company making" mines.They are large, long life and low cost. … ie >20Years ,>200 ktpa Cu or >250koz pa Au, andBottom Quartile costs. Have an NPV of>$1000m, and EV of ~$2000m
‘‘Tier 2 deposits’ are “Significant” deposits -but are not quite as large or long life or asprofitable as Tier 1 deposits . They have anNPV of $200-1000m and EV of ~$500m
‘Tier 3 deposits’ are small / marginal depositsWhile they can be profitable they often only getdeveloped at the top of the business cycle . Atthey don’t meet more than one of the Tier 1 or 2criteria. NPV of $0 to $200m, EV of ~$100m
Definitions
Example: Golpu [Copper - PNG]
Example: Tujuh Bukit [Copper - Indonesia]
Example: Okvau [Gold - Cambodia]
Tier 2
Tier 3
Unclassified
Tier 1
Tier 2
Tier 3
‘Unclassified deposits’ are small depositsthat are less than “Major “in size and/or ofminimal value. EV of (say) ~$10m
Example: Tharkhek [Copper - Laos]
14%
Unclassified
MinEx Consulting Strategic advice on mineral economics & exploration
TONNES & GRADE CHARACTERISTICS OFGOLD AND COPPER DEPOSITS
Large high grade deposits get better ranks
31
MinEx Consulting Strategic advice on mineral economics & exploration
Tonnes and Grade of Tier 1, 2 and 3 copper deposits:World all years, open pit & underground
0.1%
1.0%
10.0%
1 10 100 1,000 10,000 100,000
Unclassified
Tier 3
Tier 2
Tier 1
32
% Cu-eq
Pre-Mined Resource ( Mt Ore)
Source: MinEx Consulting © March 2015
Minimum sizethreshold forTier 1 deposit
A Tier 1 copper depositneeds to contain >10 Mt Cu
and have a grade >0.5-1.0% Cu
A Tier 1 copper depositneeds to contain >10 Mt Cu
and have a grade >0.5-1.0% Cu
MinEx Consulting Strategic advice on mineral economics & exploration
Tonnes and Grade of Tier 1, 2 and 3 gold deposits:World all years, open pit & underground
0.1
1
10
100
1 10 100 1,000 10,000
Unclassified
Tier 3
Tier 2
Tier 1
33
g/t Au-eq
Pre-Mined Resource ( Mt Ore)
Source: MinEx Consulting © March 2015
Minimum sizethreshold forTier 1 deposit
A Tier 1 GOLD depositneeds to contain >10 Moz
and have good grades
A Tier 1 GOLD depositneeds to contain >10 Moz
and have good grades
MinEx Consulting Strategic advice on mineral economics & exploration
0
5
10
15
1975 1985 1995 2005 2015
Unclassified
Tier 3
Tier 2
Tier 1
34
Number
Source: MinEx Consulting © March 2015
Note: Excludes bulk mineral and other discoveries
64
163
72
18
9
The number and qualityof discoveries has declined
in the last decade
The number and qualityof discoveries has declined
in the last decade
Number of discoveries by qualityTier 1, 2 & 3 Gold and Base Metal discoveries in Pacific/SE Asia: 1975-2014
Caution:Incomplete datain recent years
HishikariGolpu
Porgera
Diwalwal
Lihir
Grasberg
Tampakan
Koniamba
Oyu Tolgoi
Between 1975 and 2004 , around3 Tier1, 5 Tier2 and 21 Tier3deposits were found eachdecade. Discovery rates havehalved in the last decade
MinEx Consulting Strategic advice on mineral economics & exploration
6. VALUE-PROPOSITION FOREXPLORATION
Does exploration create or destroy value?How does PAC/SEA compare against regions to explore?
35
MinEx Consulting Strategic advice on mineral economics & exploration
0
5
10
15
1975 1985 1995 2005 2015
Unclassified
Tier 3
Tier 2
Tier 1
36
Number
Source: MinEx Consulting © March 2015Note: Excludes bulk mineral and other discoveries
64
163
72
18
9
Number of discoveries by qualityTier 1, 2 & 3 Gold and Base Metal discoveries in Pacific/SE Asia: 1975-2014
Caution:Incomplete datain recent years
MinEx Consulting Strategic advice on mineral economics & exploration
$0
$1,000
$2,000
$3,000
1975 1985 1995 2005 2015
Unclassified
Tier 3
Tier 2
Tier 1
37
Source: MinEx Consulting © March 2015
Value of gold & base metal explorationEstimated value of discoveries in Pacific/SE Asia: 1975-2014
2014 US$ Million
Note: Excludes bulk mineral and other discoveriesAssumes a value (in 2013 US$) of $2000m / $500m/$100m/$10m for T1/T2/T3/Unclassifed discoveries
MinEx Consulting Strategic advice on mineral economics & exploration
$0
$1,000
$2,000
$3,000
1975 1985 1995 2005 2015
Unclassified
Tier 3
Tier 2
Tier 1
38
Source: MinEx Consulting © March 2015
Cost and value of gold & base metal explorationExploration expenditures and estimated value of discoveries in Pac/SEA: 1975-2014
2014 US$ Million
Over the last decade,US$7.4b was spent ongold and base metal
exploration, deliveringUS$3.7b of value … ie a“Bang per Buck” of 0.50
Over the last decade,US$7.4b was spent ongold and base metal
exploration, deliveringUS$3.7b of value … ie a“Bang per Buck” of 0.50
… the true situation islikely to be better, due to
delays in reportingdiscoveries
ExplorationSpend
In previous decades, exploring in Pac/SEAwas a very profitable activity … not so nowIn previous decades, exploring in Pac/SEAwas a very profitable activity … not so now
Note: Excludes bulk mineraland other discoveries
MinEx Consulting Strategic advice on mineral economics & exploration
How does Pac/SEA compare to the Rest of the World?Spend & performance by Region: 2005-2014
Region ExplorationSpend (2014 $b)
No ofDiscoveries #
Tier 1+2Discoveries
Estimated Value(2014 $b)
Value /Spend
Australia $13 9% 100 18% 14 18% $13 14% 0.97
Canada $25 18% 79 14% 15 19% $19 21% 0.77
USA $10 7% 23 4% 5 6% $5 5% 0.48
Latin America $33 24% 109 19% 13 17% $19 20% 0.57
Pacific/SE Asia $8 5% 22 4% 2 3% $4 4% 0.49
Africa $20 14% 135 24% 20 25% $23 25% 1.19
W Europe $4 3% 23 4% 1 1% $2 2% 0.42
Rest of World $27 20% 78 14% 9 11% $8 9% 0.32
----- ------ ------ ------- ------ ------- ------- ------- -------
TOTAL $140 100% 569 100% 79 100% $93 100% 0.67
39
Note: Analysis includes “Other” discoveries (such as U3O8, Sn,W, PGE, Ag , REE, etc) but excludes bulk mineralsDiscoveries refer to Moderate-, Major- and Giant-sized deposits.
“Rest of World” includes China, FSU and Eastern EuropeThe Estimated Value is approximate only, and ignores the value of unreported discoveries
i.e. “Bang-per-Buck”i.e. “Bang-per-Buck”
Source: MinEx Consulting © March 2015
PAC/SEA was below average. Africa & Australia performed bestPAC/SEA was below average. Africa & Australia performed best
MinEx Consulting Strategic advice on mineral economics & exploration
7. COUNTRY RISK ISSUES
The level of exploration spend is influenced by changes inCountry Risk and Mineral Potential
40
perceptions of
MinEx Consulting Strategic advice on mineral economics & exploration
Factors driving exploration spend
Intuitively, companies are more likely to explore incountries with high mineral potential and low countryrisk ….
… a good way to test this is to compare the level ofexploration spend with the Fraser Institute’s MineralPotential Index (MPI) and Policy Perception Index (PPI)
41
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
42
0
20
40
60
80
100
Source: Fraser Institute March 2015
PPI
Policy Perception Index: March 2015122 jurisdictions around the world
PPI is a measure of how “easy” it is to do business in the Country… a high score is better
PPI is a measure of how “easy” it is to do business in the Country… a high score is better
The Pacific/SE Asian countries tend to ranked poorly
MinEx Consulting Strategic advice on mineral economics & exploration
0
20
40
60
80
100
43
0
20
40
60
80
100
Source: Fraser Institute March 2015
MPIx100
Mineral Potential Index: March 2015122 jurisdictions around the world
MPI is a measure of “geological potential” of the Country… a high score is better
MPI is a measure of “geological potential” of the Country… a high score is better
Wide range of rankings for Pacific/SE Asian countries
MinEx Consulting Strategic advice on mineral economics & exploration
Relationship between exploration spend and PPI & MPIfor 94 jurisdictions around the World in 2014
$0
$500
$1,000
$1,500
0 20 40 60 80 100
44
$0
$500
$1,000
$1,500
0 20 40 60 80 100
Exploration Spend (2014 US$m)
Note: Australia and Canada are broken down by State/ProvinceNo expenditure data available for individual US States
Source: MinEx Consulting © Jan 2015 based on data from theFraser Institute, ABS, NRCan, MLR (China) and SNL
Policy Perception Index (PPI) Mineral Potential Index (MPI) x 100
Exploration Spend (2014 US$m)
No obviousrelationship
between PPI andexploration spend
No obviousrelationship
between PPI andexploration spend
Positive linkbetween MPI andexploration spend
Positive linkbetween MPI andexploration spend
MinEx Consulting Strategic advice on mineral economics & exploration
Need to look at the “relative” trends
In addition to PPI and MPI, the absolute level of explorationexpenditures is also influenced by:• The size of the Country, particularly the size of its mineral belts and types of
target minerals available
• The “maturity” of the mineral belts
• Cost issues – such as access to ports and power and local terrain effects
• Commodity prices and investment patterns (global spend can vary by+/- 30% in a given year)
45
… Need to adjust for differences in land areas (ie focus on $/km2) andlook at relative changes in global market share over time (ie do changes
by Governments result in the country getting a bigger/smaller slice of thetotal exploration pie?).
MinEx Consulting Strategic advice on mineral economics & exploration
Relationship between exploration spend, MPI and PPIfor 94 jurisdictions around the World in 2014
0.0
0.2
0.4
0.6
0.8
1.0
0 20 40 60 80 100
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Mineral Potential Index (MPI)
Policy Perception Index (PPI)
Note: The Bubble size varies with the exploration expenditures per km2 Sources: MPI & PPI scores are from the Fraser Institute’s 2014Survey of Mining Companies. Exploration expenditures are fromABS, NRCan, MLR (China) and SNL
China
Fiji
Indonesia
Laos
MalaysiaMongolia
Myanmar
New Zealand
Philippines
PNG
Thailand
Vietnam
Western Australia
NSWNT
Queensland
South AustraliaTasmania
Victoria
Countries with a high Mineral Potential tend tohave a higher exploration spend per km2..
Countries with a high Mineral Potential tend tohave a higher exploration spend per km2..
French Guiana
Chile
MinEx Consulting Strategic advice on mineral economics & exploration
Relationship between intensity of exploration spend andPPI & MPI for 94 jurisdictions around the World in 2005-2014
10%
100%
1000%
0 20 40 60 80 100
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10%
100%
1000%
0 20 40 60 80 100
Intensity of Exploration Spend
Note: The Intensity of Exploration spend refers to the amount spent in the given country(per km2) versus the World average in a given year
Source: MinEx Consulting © Jan 2015 based on data from theFraser Institute, ABS, NRCan, MLR (China) and SNL
Intensity of Exploration Spend
Policy Perception Index (PPI) Mineral Potential Index (MPI) x 100
MinEx Consulting Strategic advice on mineral economics & exploration
10%
100%
1000%
0 20 40 60 80 100
New Zealand
Indonesia
Philippines
PNG
China
Mongolia
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10%
100%
1000%
0 20 40 60 80 100
China
Indonesia
Mongolia
New Zealand
Philippines
PNG
Intensity of Exploration Spend
Note: The Intensity of Exploration spend refers to the amount spent in the given country(per km2) versus the World average in a given year
Source: MinEx Consulting © Jan 2015 based on data from theFraser Institute, ABS, NRCan, MLR (China) and SNL-MEG
Intensity of Exploration Spend
Policy Perception Index (PPI) Mineral Potential Index (MPI) x 100
Relationship between intensity of exploration spend andPPI & MPI for 94 jurisdictions around the World in 2005-2014
MinEx Consulting Strategic advice on mineral economics & exploration
Coefficient : a 1%-point increase inthe PPI or MPI score will increasethe amount of exploration spend by0.17% and 0.65% respectively
Limited to those jurisdictions with >= 4 data points
Statistical Results (based on Panel Analysis)
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Variable Coefficient P test
PPI a = 0.17 0.74
MPIx100 b = 0.65 0.22
ie a multidimensionalmodel that looks at the
common trends in relateddata sets over time
ie a multidimensionalmodel that looks at the
common trends in relateddata sets over time
P test refers to the likelihood that result is statisticallyvalid … ie PPI trend model has a 74% chance ofbeing incorrect, whereas the MPI model has a 22%chance of invalid.For a result to be statistically significant P <0.05(ie 5% chance of error)
Source: MinEx Consulting © March 2015, with assistance from Joeri Smitsat the Center for Development and Cooperation (NADEL-ETH)
Varying the minimum number of data points ( to >=5 and >= 10)did not significantly improve the P test results
Formula … Spend per km2 = a x PPI + b x MPI + cwhere a, b and c are constants
MinEx Consulting Strategic advice on mineral economics & exploration
Limited to those jurisdictions with >= 4 data points
Statistical Results … effect of leaving out countries
50
Variable Coefficient P test
PPI a = 0.17 0.74
MPIx100 b = 0.65 0.22
Limited to those jurisdictions with >= 4 data pointsand excluding Russia & China
Variable Coefficient P test
PPI a = 0.29 0.54
MPIx100 b = 0.83 0.10
Source: MinEx Consulting © March 2015, with assistance from Joeri Smitsat the Center for Development and Cooperation (NADEL-ETH)
Leaving out Russia and Chinaimproved the P test score
Leaving out Russia and Chinaimproved the P test score
Possible causes ….
Issue of “granuality”… the Fraser Institute only reports asingle PPI & PPI number for each country … but these dovary at the local level
Influence of local companies .. The Fraser Institute mainlysurveyed Western companies. Local Russian and Chineseexplorers (who make up a big part of the local spend) havea more positive view on risk and opportunities
Strategic issues … level of spending may be driven bygovernment and industry needs
Analysis suggests no reliable linkbetween changes in Country Risk
and exploration spend
Analysis suggests no reliable linkbetween changes in Country Risk
and exploration spend
50:50 chance at best
MinEx Consulting Strategic advice on mineral economics & exploration
The analysis suggests:
• That strong link between Mineral Potential and explorationspend. Spend will rise by ~0.8% for every 1% increase in theMPI
• Suggests that there isn’t a link between changes in CountryRisk (as measured by the PPI) and exploration spend.
Ie companies will go where the rocks are “good”, and (counter-intuitively) will continue to explore in countries with poor policypotential. Alternatively, the Fraser Institute data is not reliable.
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Statistical Results
MinEx Consulting Strategic advice on mineral economics & exploration
9. CONCLUSIONS
52
MinEx Consulting Strategic advice on mineral economics & exploration
Conclusions [1/4]
1. Trends in exploration spend- Exploration is incredibly volatile. Expenditures can fall by 40-60% over
the business cycle. In the last 2 years Pac/SEA has fallen more than mostother regions
- Pac/SEA’s share of global spend has halved in the last 30 years
- Gold and Copper are the main targets in the Region
2. Number of discoveries- On average 3-6 significant gold and base metal discoveries are made each
year in the Region (2-4 of these were gold and 1-2 copper) … however thishas dropped off in the last decade
- Most of the metal found was in a small handful of giant deposits
- The 1980s were particularly productive for gold
- The last giant gold deposit found was Martebe in 1998 (with 8 Moz) andthe last giant copper deposit was Golpu in 2009 (with 13 Mt Cu-eq)
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MinEx Consulting Strategic advice on mineral economics & exploration
Conclusions [2/4]
3. Location of the discoveries- 374 significant gold and base metal deposits have been identified in the
Pacific/SE Asia. 163 of these were found since 1975 and, of these 20were discovered in the last decade
- Over last decade 27 significant gold and base metal discoveries weremade in China and 18 in Far East Russia
- In terms of contained metal per km2, the best endowed countries arePhilippines. PNG, Fiji and (for Ni) New Caledonia
4. Unit cost of discoveries- Unit discovery cost for gold has doubled in the last decade
- It currently costs US$199/oz to find gold in Pacific/SE Asia – versus $50/ozfor the World average
- Copper discovery costs are currently US 3.6 cents/lb Cu-eq for the Regionversus a World average of 4.0 cents/lb
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MinEx Consulting Strategic advice on mineral economics & exploration
Conclusions [3/4]
5. Quality of the discoveries- Between 1975 and 2004, on average 3 Tier1, 5 Tier2 and 21 Tier3 deposits
were found each decade in the Pacific/SE Asia. Discovery rates have halvedin the last decade
- A Tier 1 gold deposit typically contains at least 10 Moz at good grades
- A Tier 1 copper deposit typically contains at least 10 Mt Cu at 0.5-1.0% Cu
6. Value proposition for exploration- Between 1975 and 2004 exploration in Pac/SEA created a lot of value ..
With $4 of value per Dollar spent …
- But this has dropped off in the last decade with a return of only of 0.50.This is lower than the World average of 0.67
- This is due to heavy focus on evaluating existing projects rather thanlooking for new greenfield targets
- The best performing regions were Africa (1.19) and Australia (0.97).
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MinEx Consulting Strategic advice on mineral economics & exploration
Conclusions [4/4]
7. Country Risk Issues- The Fraser Institute publishes annual surveys of the Policy Perception Index
and Mineral Potential Index of a wide range of countries. The Pac/SEAcountries tend to be ranked poorly on the PPI
- A statistical analysis of the data for 2005-2014 shows that the level ofexploration spend in a given country increases with Mineral Potential (iecompanies go where the “rocks are good”). A 1% increase in the MPIincreases the spend by ~0.8%.
- Surprisingly there is no strong statistical correlation between a change inthe PPI and Spend …. This is a counter-intuitive result which needs moreinvestigation
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MinEx Consulting Strategic advice on mineral economics & exploration 57
Contact details
Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia
Email: Richard@MinExConsulting.comWebsite: MinExConsulting.com
Copies of this and other similarpresentations can be downloaded
from my website
Copies of this and other similarpresentations can be downloaded
from my website