The declining discovery rate what is the real story?

Transcription

1 The declining discovery rate what is the real story? Richard Schodde Managing Director, AMIRA International s 8th Exploration Managers Conference March 2010, Yarra Valley, Victoria

2 Overview Review of long term trends in the discovery performance for copper, gold and uranium: Unit discovery costs ($/oz, c/lb) are rising but the rate varies by commodity and location Case study on gold Three key drivers appear to be district maturity, increased focus on brownfield exploration and reduced presence of the majors Implications for the future Quality/cost of the next generation of mines Importance of a strong greenfield program Need to develop new tools and models for exploring under cover 2

3 Review of long term trends in copper, gold and uranium exploration 3

4 Number of copper deposits found in the World Primary copper deposits >0.3 Mt found : Number COPPER N = 505 The industry typically finds 5-10 copper deposits a year Caution: Incomplete data Source: Sept 09 Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database 4

5 Amount of copper metal found in Western World Primary copper deposits >0.3 Mt : Mt Cu Most of the copper found comes from a handful of giant deposits Source: Sept 09 Note: Chart include adjustment for deposits missing from the database 5

6 Exploration expenditures and amount of copper found Primary copper deposits >0.3 Mt found in Western World: Mt Cu Exploration Expenditures (2009 US$B) Est Source: Sept 09 Note: Chart include adjustment for deposits missing from the database 6

7 Discovery costs Until recent times, discovery costs have been fairly steady at around 1c/lb Cu US Cents per lb Cu in 2009$ 3 Year rolling average This emphasises the importance of steady funding through the business cycle Discovery costs spiked during down-turns in exploration spend?? Estimates Source: Sept 09 Note: The reported costs exclude credits for by-product metal Western World only 7

8 Exploration expenditures on uranium World: URANIUM 2009$/lb U 3 O 8 peak Exploration Expenditures (2009 US$B) Peaks driven by spikes in uranium price Est Source: Sept 09 Expenditures from OECD 8

9 Exploration expenditures and amount of uranium found Primary uranium deposits >0.5 kt U 3 O 8 found in the World: kt U 3 O 8 Exploration Expenditures (2009 US$B) Each successive wave of discovery is smaller. As the search space becomes depleted Est Note: Chart include adjustment for deposits missing from the database Source: May 09 Expenditures from OECD Olympic Dam (Cu-U-Au deposit) found in 1975 contains 2405 kt U 3 O 8 9

10 resulting in a four-fold rise in uranium discovery costs over the last 40 years 2009$/lb U 3 O 8 $10 5 Year rolling average $13.82 $8 $6 $4 Average discovery costs are rising ~$4/lb in 2008 $2 $1/lb in 1970 $ est Source: May 09

11 Gold Exploration expenditures and ounces found Primary gold found in Western World: GOLD Moz Exploration $ Moz Discovered Expenditures (2009 US$B) $5 $4 150 $ Estimate $2 $ $0 Although expenditures are up, the rate of discovery remains low Source: Jan

12 Average discovery costs have been rising Primary gold found in Western World Discovery Cost (2009 US$/oz) $80 3 Year rolling average $60 Average discovery costs are rising Estimate ~$52/oz in 2008 $40 $20 Weighted Average $2/oz in the 1950s $9/oz in 1980 $ Note: Based on all deposits >0.1 Moz. Includes adjustment for deposits with no reported discovery year Source: Jan

13 Case Study for Gold: Key drivers behind the rising discovery costs 13

14 Cumulative size-frequency for gold deposits Total World Primary Gold deposits : All Years Cumulative Frequency (Total Number of deposits) Estimate that ~4400 deposits > 0.1 Moz have been discovered in the World. Total amount found is ~300kt Endowment ie Current Resource + Historic Production (Moz) Source: Jan

15 Cumulative size-frequency for gold deposits Western World Primary deposits: Found by Decade per $1 Billion spent Cumulative Frequency (Total Number of deposits found per $1 B of Exploration in 2009$) Since the 1960s it has become progressively more expensive to find a given-sized gold deposit s 1970s 1950s This is most pronounced for the larger sizes s 1980s Endowment ie Current Resource + Historic Production (Moz) Caution: No adjustment made for deposits missing from the data base (only an issue at the smaller sizes) Source: Jan

16 Average ore grades have also fallen over time Average ore grade for all primary gold discoveries >1 Moz in the World g/t Au 3 Year rolling average 2.86 g/t in g/t in g/t in g/t in 2008 Caution: Part of the reduction in grades in 1970s may be a consequence of new processing technologies (principally CIP) - which enabled operators to use lower cut-off grades Source: Jan

17 Surprisingly, the average copper-equivalent grade of discovery hasn t changed in the last 50 years All primary copper discoveries > 0.3 Mt Cu in the World: % Cu-equiv Copper -Equivalent All deposits 3 year rolling average Open Pit deposits Note: Excludes deposits where copper is a by-product SXEW technology introduced in 1970s-80s enabled lower grade (open pit) ore to be treated Source: Sept 09 17

18 DRIVER 1: District maturity and the need to chase deep targets Depth to top of ore body for (>0.1 Moz) gold discoveries made in the Western World Still searching under < 25m in the developing world To date, most of the deeper discoveries were made in Mature countries Depth (Metres) Note: Chart refers to the initial discovery in a camp. and so excludes subsequent brownfield discoveries which are often deeper Source: Jan 10 18

19 Depth of Cover (Metres) Even though giant gold deposits do exist at depth, to date most exploration has been limited to <25 metres of cover Primary gold discoveries (>0.1 Moz) found in the Western World: Number Total Ounces (Moz) Average Size (Moz) Most gold discoveries (by number & Ounces) are under less than 25 metres of cover On average, the biggest deposits were found below 50 metres But the industry doesn t have good tools to find them N = 333 Moz Moz Source: Jan 10 19

20 DRIVER 2: Shift towards brownfields exploration Total World gold discoveries: Moz Brownfield Greenfield % Brownfield (3 yr rolling avg) 25% BF in % BF in 2006 % Brownfield 100% 80% 60% 40% 20% % Note: Includes By-Product gold (mainly from base metal deposits) Brownfield is defined as exploration associated with conventional targets within an established mineral district. This includes exploration beneath/immediately along-strike from a known deposit. Greenfield is defined as all other exploration. Source: Jan 10 20

21 DRIVER 3: Most exploration is now done by Juniors... But their track record is not as good as the Majors Primary gold discoveries > 0.1 Moz in the World: Majors + Intermediates Juniors + Prospectors Total/Average Majors share/ performance Exploration US$m $19,815 $26,619 $46,434 43% of total spend Number of Discoveries (est) % of total number found Moz found (est) % of all ounces found Average Size per Discovery (Moz) Average cost per Discovery (2009 US$m) Average cost Oz found (2009 US$/oz) Number of Tier 1 & 2 Discoveries (a) (a) Key factor Discoveries by Majors 1.55x bigger than Juniors $66m $70m $68m Majors 94% cost of Juniors $25/oz $42/oz $33/oz Majors 60% cost of Juniors % of total number found Analysis includes adjustments for deposits missing from the database. Have pro-rated shared discoveries. Analysis excludes expenditures and discoveries made by Private, Industrial and Oil and State-Owned Companies. Source: Jan 10

22 Implications of a declining discovery rate on the future of the industry 22

23 In the case for gold, the declining performance means that the industry struggles to replace the metal it mines Total gold discoveries versus World gold production Moz The industry is struggling to replace the ounces it mines. Critically, only 80% of all ounces found are mined and not all of the mined gold is recovered Note: Includes Primary and By-Product gold Sources: Discovery data from. Production data from Macquarie First South Securities 23

24 For other commodities the issue becomes one of declining resource quality Australia s Economic Demonstrated Resources for Nickel: Mt Ni Australia s inventory of nickel has grown nickel by a factor of 6x over the last two decades. Total EDR for Australia Source: Geoscience Australia, 24

25 For other commodities the issue becomes one of declining resource quality Australia s Economic Demonstrated Resources for Nickel: Mt Ni Australia s inventory of nickel has grown nickel by a factor of 6x over the last two decades. Total EDR for Australia M&I resources for Ni Sulphides Sources: Geoscience Australia, 25

26 While gold resources have grown in Australia, this is tied up in a handful of deposits Australia s Economic Demonstrated Resources for gold: Tonnes Au Total EDR for Australia Source: Geoscience Australia, 26

27 While gold resources have grown in Australia, this is tied up in a handful of deposits Australia s Economic Demonstrated Resources for gold: Tonnes Au Total EDR for Australia Olympic Dam Sources: Geoscience Australia BHP Billiton and WMC Annual Reports 27

28 While gold resources have grown in Australia, this is tied up in a handful of deposits Australia s Economic Demonstrated Resources for gold: Tonnes Au All of the recent growth in Australia s gold resources came from just 2 mines Total EDR for Australia This emphasises the importance of greenfield exploration to deliver giant discoveries. Also the importance of new deposit styles (Porphyry and IOCG) Olympic Dam Cadia/Ridgeway Most of Australia s gold industry is in decline Estimated EDR for Australia excluding Olympic Dam & Cadia/Ridgeway Note: The EDRs for Olympic Dam and Cadia/Ridgeway are based on reported P&P Reserves + Measured & Indicated Resources Sources: Geoscience Australia BHP Billiton, WMC and Newcrest Annual Reports 28

29 Conclusions 29

30 Conclusions Discovery performance has been declining Unit discovery costs are up by a factor of 5 for gold (~$52/oz) and 4-fold ($4/lb) for U3O8. The rise for copper is less Finding less giant deposits (which is where most of the value is) The main cause is due to the existing search space becoming depleted Target terrains are maturing Increased emphasis on brownfield exploration where the opportunities for giant discoveries are limited Over-focus on small discoveries (which is what the Juniors are looking for) The quality of the industry s resource base is declining Need to re-invigorate the search space by going under deeper cover This requires most cost-effective methods of exploration. The new CRC for Deep Exploration Technologies has a vital role to play 30

31 The challenge (and the opportunity) is that the next generation of discoveries will be under deep cover Depth to basement for operating mines/deposits in Australia To make this happen we need to develop cost-effective tools for exploring under deep cover Sources: Geoscience Australia, Deep Exploration Technologies CRC 31