- Gloom or Boom? Richard Schodde Managing Director, MinEx Consulting Adjunct Professor, University of Western Australia

Transcription

1 - Gloom or Boom? Richard Schodde Managing Director, Adjunct Professor, University of Western Australia Geological Society of South Africa GeoForum 2013 Conference 2 nd 5 th July 2013, Johannesburg

2 Overview: Gloom or Boom? 1. Trends in global exploration spend Forecast future spend out to 2020 & financing issues for Junior Companies 2. Trends in discovery rates Where were the discoveries made? Current Hot Spots for exploration 3. Trends in discovery performance Which Regions did better? Factors impacting on discovery performance 4. Trends in the types of exploration methods used Geophysics versus geochemistry versus nearology 5. Trends in discovery costs Unit discovery costs ($/oz, c/lb) are rising 6. Are we finding enough metal? To be sustainable we need to find enough to replace what we mine 7. Conclusions 2

3 Exploration expenditures reached an all-time high in

4 Exploration expenditures: World by Commodity : US$ billion $30 Spend is at an all-time high $29.4B in 2012 $25 $20 $15 $10 $5 10x real increase in the last decade $7.9B in 1997 $2.9B in 2002 $ Other Bulk Coal Iron Ore Other Diamonds Uranium Base Metals Gold Sources: estimates April 2013, based on data from ABS, NRCan, MLR (China), OECD and MEG SNL 4

5 Percentage of total spend 100% 80% 60% 40% 20% Uranium Exploration expenditures: World by Commodity : Gold Diamonds Base Metals (Cu, Ni, Zn, Pb) Other - Bulk 1% 11% 14% 13% 2% 3% 23% 34% Major increase in spend on Bulk Minerals Iron Ore Coal Other Non Bulk Gold continues to be the main target 0% Sources: estimates April 2013, based on data from ABS, NRCan, MLR (China), OECD and MEG SNL 5

6 Exploration expenditures: World by Region : US$ billion $30 $25 Expenditures are very $20 cyclical $15 $10 $5 $ Rest of World FSU + E Europe China Western Europe Africa Pacific / SE Asia Latin America USA Canada Australia Note: Rest of World refers to, Mongolia, Middle East and South West Asia (including India and Pakistan) Sources: estimates April 2013, based on data from ABS, NRCan, MLR (China), OECD and MEG SNL 6

7 Percentage of total spend 100% 80% 60% 40% 20% Exploration expenditures: World by Region : % % 6% 14% 2% 15% 6% 21% 7% 13% 13% China spends more on exploration than any other country in the World Rest of World FSU + E Europe China Western Europe Africa Pacific / SE Asia Latin America USA Canada Australia Can+USA+Aus market share has halved in the last 2 decades Note: Rest of World refers to, Mongolia, Middle East and South West Asia (including India and Pakistan) Sources: estimates April 2013, based on data from ABS, NRCan, MLR (China), OECD and MEG SNL 7

8 Exploration spend is closely linked to commodity prices World gold exploration expenditures versus gold price Exploration Expenditures (June 2012 US$m) $12,000 $10,000 $8,000 Gold Price (RHS>) Since 1990s there has been a strong correlation between Gold Price and Exploration Spend Exploration Spend (<LHS) Gold Price (June 2012 US$/oz) Brokers Forecasts (June 13) $2,400 $2,000 $1,600 $6,000 See a similar trend for other metals $1,200 $4,000 $800 $2,000 $400 $ $0 Source: July 2013 Forecasts from Consensus Economics June

9 Forecast exploration expenditures: World by Commodity : US$ billion $30 $25 $20 $15 $10 Other Coal Iron Ore Uranium Base Metals Gold $29B in 2012 Down 35% $19B in 2020 Spend on uranium is projected to increase $5 Forecast $ Gold is projected to fall the most Note: Forecast based on a Multiple-Regression analysis of data from with R 2 = 0.95 Source: estimates July 2013, based on commodity price forecasts from Consensus Economics June

10 2012 US$ billion $30 Forecast exploration expenditures: World by Region : $29B in 2012 Down 35% CAUTION: Forecast assumes no change in Country Risk and tax rules $25 $20 $15 $10 $5 $19B in 2020 $ FSU + EE + ROW China Western Europe Africa Pacific / SE Asia Latin America USA Canada Australia Note: Rest of World refers to, Mongolia, Middle East and South West Asia (including India and Pakistan) Source: estimates July 2013, based on commodity price forecasts from Consensus Economics June

11 The Junior sector is facing severe funding problems. This will most felt in-terms of reduced money into the ground Cash and Expenditures for the MEDIAN Australian Junior company: r June 2012 A$ Million (annualised basis) $5 Large amount of funds raised in Funding dried up during the GFC. To preserve cash, Junior Companies severely cut back on expenditures in the field $4 $3 $2 $1 Cash Funds at end of Quarter Exploration + Development Costs Administration Costs $0 Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Funding dried up again in Key problem is that the starting cash reserves are low Because of this The 2013 bust could be more severe than the 2008 GFC Note: Expenditure data is reported on a Quarterly basis, but has been annualised to be comparable with Cash Reserves Source: February 2013 based on Quarterly Reports to the ASX 11

12 Exploration expenditures reached an all-time high in

13 Number Number of deposits found each year by Region Mineral deposits # found in the World: N = 2161 China+FSU+EE+ME Western Europe Africa Pacific / SE Asia Latin America USA Canada Australia Caution: Incomplete data in recent years Note: # Discoveries are for deposits >0.1 Moz Au, >5 kt U 3 O 8, >10 kt Ni, >0.1 Mt Cu-equiv Excludes satellite deposits within existing Camps Excludes bulk mineral discoveries Due to delays in reporting of discoveries, expect the final number to be 2-3x larger Source: July

14 Number of deposits found each year by Region Mineral deposits # found in the World: Share of discoveries made 100% 80% 60% 40% 20% China+FSU+EE+ME Western Europe Africa Pacific / SE Asia Latin America USA Canada Australia Caution: Incomplete data in recent years 0% Note: # Discoveries are for deposits >0.1 Moz Au, >5 kt U 3 O 8, >10 kt Ni, >0.1 Mt Cu-equiv Excludes satellite deposits within existing Camps Excludes bulk mineral discoveries Source: July

15 Tier 1, 2 & 3 discoveries in the world: 2002-Present Saskatchewan (Uranium) Far East Russia Alaska/Yukon SW USA/ Mexico Northern Ontario China Latin America West Africa Central Africa Au Base Metal U 3 O 8 Other Tier 1 Tier 2 Tier 3 Ten current Hot Spots Australia Source: July

16 Spend & performance by Region: Region Exploration Spend (2012 $b) Number of Discoveries # Tier 1+2 Discoveries Australia $12 (10%) 83 (16%) 13 (15%) Canada $22 (18%) 65 (12%) 16 (19%) USA $9 (8%) 20 (4%) 9 (10%) Latin America $28 (23%) 118 (23%) 15 (17%) Pacific / SE Asia $6 (5%) 23 (4%) 2 (3%) Africa $17 (14%) 116 (22%) 19 (22%) Western Europe $3 (3%) 22 (4%) 1 (1%) China+FSU+EE+RoW $22 (19%) 77 (15%) 11 (13%) TOTAL $116 (100%) 524 (100%) 86 (100%) Africa performed the best Note: # Discoveries are for deposits >0.1 Moz Au, >5 kt U 3 O 8, >10 kt Ni, >0.1 Mt Cu-equiv Excludes satellite deposits within existing Camps Excludes bulk mineral discoveries Source: July

17 Due to rising input costs and deeper targets It is become more expensive to make a discovery 17

18 Discovery rate versus spend Western World non-ferrous exploration spend and discoveries Number of Discoveries 200 Estimated No of unreported discoveries Number of Discoveries Exploration Expenditures 150 Between 2002 & 2012 WW spend went up 8x and 100 discovery rate up ~3x $18.5b 2012 US$ Billion $20 Even after adjusting for $15 unreported discoveries, in the last 5 years a large gap has opened up between expenditures and number of deposits found $10 50 $2.4b Estimate $5 Gap due to higher input costs (labour, drilling and admin) $0 Note: Excludes expenditures and discoveries for Bulk Minerals Discoveries are for deposits >0.1 Moz Au, >5 kt U 3 O 8, >10 kt Ni, >0.1 Mt Cu-equiv Source: July

19 Input costs for exploration have doubled in the last decade 2000 nominal 2000 real 2012 real $ of the Day 2012 $ 2012$ % real increase Average Diamond Drilling Cost (US$/metre) - Canada - Australia $84 $77 $112 $102 $210 $229 88% 125% Average salary for an Exploration Manager (US$ per annum) - Canada - Australia $70,000 $75,000 $93,000 $100,000 $170,000 $250,000 83% 150% Median Administration Cost for a Junior Exploration Company (US$m per annum) - Australia $0.34 $0.44 $ % Source: July

20 Higher costs impact on the amount of drilling done Exploration spend and drilling in Canada and Australia: (2012 US$ Billion) (million metres) $6 12 $5 Canada Metres Drilled $4 7 $3 $2 2 $1 Exploration Expenditures $ Between , Expenditures rose 8.0x but drilling only rose 3.9x $6 Australia Metres Drilled $5 $4 $3 $2 $1 Exploration Expenditures $ Between , Expenditures rose 9.3x but drilling only rose 2.4x Data: NRCan, ABS 20

21 and we are exploring under deeper cover Depth of cover for Gold and Base Metal discoveries in the World: Discovery Year It is difficult to find deposits under deep cover 1500 end-result is that we have to drill more metres per discovery 2000 Depth of Cover (Metres) Note: Excludes satellite deposits within existing Camps Excludes gold deposits in South Africa Source: July

22 Average depth of cover for discoveries - all metals Western World: Average 74 Africa (excl Sth Africa) Latin Am 32 If you exclude South Africa, the average depth of cover falls from 55 to 12 metres W Rest Pacific Europe Aust Canada of WW SE Asia USA Metres 250 Note: Based on deposits >0.1 Moz Au, >5 kt U 3 O 8, >10 kt Ni, >0.1 Mt Cu-equiv Excludes bulk mineral discoveries Source: July

23 There have been several innovations in the exploration tools used to make discoveries 23

24 Trends in exploration methods The preferred search method used varies by commodity type, depth of cover and scale Continental-Scale Province-Scale MinEx has carried out a detailed analysis of the discovery history of 1750 deposits at these two scales District-Scale Project-Scale Prospect-Scale 24

25 Primary search method used at the project-scale GOLD discoveries (>0.1 Moz) in the World: Percentage of total discoveries 100% ie What method was used to decide where to peg the leases Serendipity Prospector 80% Other Visual 60% Conceptual/Geological Geological Mapping 40% Extrapolated from Known Mineralisation Geochem 20% Geophysics + Geochem Geophysics 0% Note: Analysis based on detailed analysis of 993 gold projects (out of 1779 known discoveries) Source: July

26 Primary search method used at the prospect-scale GOLD discoveries (>0.1 Moz) in the World: Percentage of total discoveries 100% ie What method was used to decide where to drill the first hole Serendipity Prospector 80% Other Drilling (Sole Method) Visual 60% Conceptual/Geological 40% Geological Mapping 20% Extrapolated from Known Mineralisation Geochem Geophysics + Geochem Geophysics 0% Note: Analysis based on detailed analysis of 993 gold projects (out of 1779 known discoveries) Source: July

27 Primary search method used at the project-scale BASE METAL discoveries (>0.1 Mt Cu-eq) in the World: Percentage of total discoveries 100% ie What method was used to decide where to peg the leases Serendipity Prospector 80% Other Visual 60% Conceptual/Geological Geological Mapping 40% Extrapolated from Known Mineralisation Geochem 20% Geophysics + Geochem Geophysics 0% Note: Analysis based on detailed analysis of 757 Cu+Ni+Zn+Pb projects (out of 1344 known discoveries) Source: July

28 Primary search method used at the prospect-scale BASE METAL discoveries (>0.1 Mt Cu-eq) in the World: Percentage of total discoveries 100% ie What method was used to decide where to drill the first hole Serendipity Prospector 80% Other Drilling (Sole Method) Visual 60% Conceptual/Geological 40% Geological Mapping 20% Extrapolated from Known Mineralisation Geochem Geophysics + Geochem Geophysics 0% Note: Analysis based on detailed analysis of 757 Cu+Ni+Zn+Pb projects (out of 1344 known discoveries) Source: July

29 Depth of cover and discovery method Prospect-Scale BASE METAL Discoveries in the World: Discovery Year Depth of Cover (Metres) Over time we are exploring under progressively deeper cover Note: Excludes satellite deposits within existing Camps Source: July

30 Depth of cover and discovery method Prospect-Scale GOLD Discoveries in the World: Discovery Year Depth of Cover (Metres) Note: Excludes satellite deposits within existing Camps Source: July

31 Depth of cover and discovery method Prospect-Scale GOLD Discoveries in the World: Discovery Year Gold exploration is generally done under shallower cover only because we don t have any good tools to look deep!! EXCLUDING South Africa Depth of Cover (Metres) Note: Excludes satellite deposits within existing Camps Source: July

32 The cost per unit of metal found has been rising 32

33 Exploration expenditures and amount of copper found Primary copper deposits >0.5 Mt Cu-eq found in Western World: Expenditures (2012 US$B) $5 Mt Cu-eq 200 Exploration Expenditures Estimate Western World Discoveries $4 150 $3 100 $ $1 $ Note: Estimate includes adjustments for deposits with no discovery year and deposits missing from the database Source: June

34 Until recently, copper discovery costs were fairly steady Unit discovery costs for primary copper in the Western World: US Cents per lb Cu-eq in 2012$ 3 Year rolling average # Equal to 3.0 /lb excluding by-product credits Assume 2.5 /lb # Cu-eq going forward Average = 0.9 /lb Cu-eq Estimate Source: June

35 Gold exploration expenditures and ounces found Primary gold found in the Western World: Moz Expenditures (2012 US$B) 300 $10 Exploration Expenditures Estimate Western World Discoveries $8 200 $6 $4 100 $ $ Source: June

36 Discovery costs for gold are rising Unit discovery costs for primary gold in the Western World: Discovery Cost (June 2012 US$/oz) $113 3 Year rolling average Average = $25/oz Assume $32/oz going forward Estimate Source: June

37 Average discovery costs for uranium are rising Unit discovery costs for uranium in the Western World: Discovery Cost (US$/lb U3O8) $ Year rolling average Average = $1.63/lb Assume $2.50/lb going forward Estimate Source: June

38 For the industry to be sustainable it needs to replace what it mines 6. ARE WE FINDING ENOUGH METAL? 38

39 Are we finding enough metal? Key drivers Current discovery rates Conversion rates (not all discoveries turn into mines) Lag between discovery and development Conversion rate for Resources > Reserves Losses on mining Current and (more importantly) future demand for metal Given the long delays to convert a discovery into a mine, need to consider the future size of the market As a rule of thumb to be sustainable we need to find at least 2x as much as we mine 39

40 Mining & discovery rates for gold Amount of gold found and mined in the World: Outlook Moz 400 Exploration Spend $ Unit Discovery Costs Discoveries Total Metal Found World Production Future Mine Production Discovery/Prodn Ratio in x Tight 200 Estimate Note: Chart include minor adjustment for deposits missing from the database Is based on discoveries > 0.1 Moz Sources: Nov Production data from USGS 40

41 Mining & discovery rates for copper Amount of primary copper found and mined in the World: Outlook Mt Cu Exploration Spend $ Unit Discovery Costs Total Metal Found Discoveries - By-Product Future Mine Production Discoveries - Primary Discovery/Prodn Ratio in Discoveries - Estimated 1.7x Mine Production in-balance Estimate Note: By-Product metal refers to copper found in Ni, Au and Zn/Pb deposits 2010 Source: March

42 Mining & discovery rates for uranium Amount of Primary U3O8 found and mined in the World: Outlook Discoveries kt U3O8 World Production 600 Exploration Spend $ Unit Discovery Costs Total Metal Found Future Mine Production Discovery/Prodn Ratio in x 400 in-balance 200 Estimate Note: Chart excludes Olympic Dam (Cu-U-Au deposit) found in 1975 contains 2545 kt U 3O8 Note: Chart include minor adjustment for deposits missing from the database Is based on discoveries > 0.5 kt U3O8 Sources: July 2012 Production data from USGS 42

43 Mining & discovery rates for zinc Amount of Primary Zinc found and mined in the World: Outlook Mt Zn 50 Discoveries - Estimated Discoveries - Known 40 Mine Production Exploration Spend $ Unit Discovery Costs Total Metal Found Future Mine Production Discovery/Prodn Ratio in x 30 Major Shortfall Estimate Sources: Feb 2012 Production data from USGS 43

44 Mining & discovery rates for lead Amount of Primary Lead found and mined in the World: Outlook Mt Pb 30 Discoveries - Estimated Discoveries - Known Mine Production Exploration Spend $ Unit Discovery Costs Total Metal Found Future Mine Production Discovery/Prodn Ratio in x 20 Severe Shortfall Estimate Sources: Feb 2012 Production data from USGS 44

45 The industry is facing a number of challenges and opportunities 7. CONCLUSIONS 45

46 Conclusions: Gloom or Boom? [1/3] Industry has gone through a boom 1. Trends in global exploration spend Over last decade world exploration spend rose from $2.9b to $29.4b Exploration spend reached an all-time high in 2012 Due to lower commodity prices, exploration spend is forecast to drop 20% in 2013, with a further 15% out to 2020 Junior Companies facing a cash-crisis. Expect a big cut-back on money-inthe-ground until the situation stabilises 2. Trends in discovery rates Industry faces several years of gloom Over the last decade industry spend $116b (in 2012$) and found 524 significant deposits, including 86 Tier 1&2 deposits The are currently ten Hot Spots for exploration around the world. Two of those are in Africa (Central Africa and West Africa) Good opportunities still available 46

47 Conclusions: Gloom or Boom? [2/3] 3. Trends in discovery performance In terms of discovery, Africa is the place to be In terms of bang-per-buck, Africa was the best Region. Over the last decade it accounted for 14% of global spend and found 22% of the deposits. Even though non-ferrous spending in the Western world rose by x8 over the last decade, the discovery rate only rose ~3x. This was due to a doubling in the cost of drilling, staff and admin. Industry is also having to explore under deeper cover. Input costs should fall in medium term. The challenge of being able to explore under deeper cover will get more severe 4. Trends in the types of exploration methods used Varies by commodity, scale and depth of cover. Even so, brownfields exploration (i.e. nearology ) and geophysics are becoming much more important. Innovations in geophysics, computing and drilling will help boost discovery performance 47

48 Conclusions: Gloom or Boom? [3/3] 5. Trends in discovery costs Unit discovery costs for all commodities has been rising - going forward assume $32/oz Au, 3 /lb Cu and $2.50/lb U3O8 6. Are we finding enough metal? To be sustainable industry need to find 2x as much as we mine. Taking into account, forecast exploration & unit discovery costs, and future growth in mine production, it appears that uranium and copper are in-balance, gold is tight and zinc & lead face major shortfalls. In the longer term, industry needs to spend more on exploration to meet future metal demand. Either that or commodity prices will need to rise!! 48

49 Contact details Richard Schodde Managing Director Melbourne, Australia Website: MinExConsulting.com Copies of this and other similar presentations can be downloaded from my website 49

50 Background data for assessing the sustainability of the mining industry APPENDIX ESTIMATED FUTURE MINE PRODUCTION AND DISCOVERY RATES 50

51 How much metal do we need to find? To ensure no supply interruptions in the longer term the industry needs to be finding at least 2x as much metal as it currently mines 51

52 Estimated Discovery/Production ratios Gold Copper Uranium ~$32/oz ~3 c/lb ~$2.50/lb [A] = $5100m [P] = $9980m [F] = $4400m [A] = $2280m [P] = $4870m [F] = $2800m [A] = $680m [P] = $1110m [F] = $1500m Expected amount of metal to be found [F] = 138 Moz [F] = 42 Mt [F] = 270 kt Mine Production (in 15 years time) 2011 = 84 Moz 2026 = 95 Moz 2011 = 16 Mt 2026 = 25 Mt 2011 = 64 kt 2026 = 133 kt [F] [F] [F] At 2011 Production Rate 1.6x 2.6x 4.2x At 2026 Production Rate 1.5x 1.7x 2.0x Unit discovery costs World exploration spend rate (2012 US$m pa) Discovery/Production Ratios Target is >2x [A] = Average exploration spending rate over last decade ( ) [P] = Peak exploration spending rate (in the last decade) [F] = Forecast spend in 2020, based on June 2013 Consensus Economics commodity price forecast Source: July

53 Estimated Discovery/Production ratios Zinc Unit discovery costs Assumes that FSU+China make up 15% of total world spend [A] = $650m [P] = $1040m [F] = $1100m [F] = 12.2 Mt [F] = 2.7 Mt 2011 = 12.4 Mt 2026 = 16.7 Mt 2011 = 4.5 Mt 2026 = 5.2 Mt [F] [F] At 2011 Production Rate 1.0x 0.6x At 2026 Production Rate 0.7x 0.5x Mine Production Discovery/Production Ratios [A] = Average exploration spending rate over last decade ( ) [P] = Peak exploration spending rate (in the last decade) [F] = Forecast spend in 2020, based on June 2013 Consensus Economics commodity price forecast Comments Actually refers to Zn-eq ~3 USc/lb World exploration spend rate (2012 US$m pa) Expected amount of metal to be found Lead Assumes that the Zn-eq is made up of 67% zinc, 16% lead and 17% other by-product credits Assumes 2% & 1% pa growth Target is > 2x Required for industry to be sustainable Source: July