Discovery Performance for Gold and Base Metals in the Pacific/SouthEast Asia Richard Schodde Managing Director, Adjunct Professor, University of Western Australia PACRIM 2015 19 th March 2014, Hong Kong
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 Pac/SEA s share of global expenditures... and how much metal was found? and which countries are wellendowed? US$/oz of gold and $/lb of Cu, Ni and Zn, and how does Pac/SEA compared to other regions? How many Tier 1, 2 & 3 deposits found? Does exploration make money? Which Regions gave the best return? Can we use the Fraser Institute s scores of Mineral and Policy Potential to predict the overall level of exploration spend? 2
Exploration expenditures reached an alltime high in 2012 1. TRENDS IN EXPLORATION SPEND 3
2014 US$ Billion $35 $30 $25 $20 $15 $10 $5 1981 Exploration expenditures: World by Region : 19752014 Typically have a 4060% fall between boom and bust 1985 1988 1997 Spend reached an alltime high in 2012 1993 2002 $0 1975 1980 1985 1990 1995 2000 2005 2010 $30.7B in 2012 $15.6B in 2014 Expenditures have halved in the last 3 years Australia Canada USA Western Europe Rest of World Africa Latin America FSU + E Europe China Pacific / SE Asia Note: Includes bulk minerals (such as iron ore, coal and bauxite) Sources: estimates March 2015, based on data from ABS, NRCan, MLR (China), OECD and SNL 4
Percentage of total spend 100% 80% 60% 40% Exploration expenditures: World by Region : 19752014 20% China 0% 10% Pac/SEA 1975 1980 1985 1990 1995 2000 2005 2010 Note: Includes bulk minerals (such as iron ore, coal and bauxite) Pac/SE Asia share has also halved in the last 2 decades Aust/Can/USA s market share has halved in the last 2 decades 11% 13% 6% 3% 2% 14% 21% 7% 19% 5% Australia Canada USA Western Europe Rest of World Africa Latin America FSU + E Europe China Pacific / SE Asia China spends more on exploration than any other country in the World Sources: estimates March 2015, based on data from ABS, NRCan, MLR (China), OECD and SNL 5
Exploration expenditures: Pacific/SE Asia 19752014 2014 US$ Billion $2.0 $1.76B in 2012 Expenditures have dropped by 60% in the last 2 years $1.5 $1.0 $0.71B in 2014 $0.5 $0.0 1975 1980 1985 1990 1995 2000 2005 2010 Source: estimates March 2015, based inpart on data from SNLMEG 6
Exploration expenditures: Pacific/SE Asia by Commodity : 19752014 2014 US$ Billion $2.0 $1.5 $1.0 $0.5 Most of the exploration spend in Pacific / SE Asia is on gold and base metals Other Coal Iron Ore Diamonds Uranium Base Metals Gold $0.0 1975 1980 1985 1990 1995 2000 2005 2010 Source: estimates March 2015, based inpart on data from SNLMEG 7
100% 80% 60% Exploration expenditures: Pacific/SE Asia by Commodity : 19752014 Percentage of total spend Other (includes bauxite) Coal Base Metals (Cu, Ni, Zn, Pb) Very little spent in Pac/SEA exploring for iron ore, diamonds and uranium 6% Other 16% Coal 2% Iron Ore 0% Diamonds 0% Uranium 26% Base Metals 40% 20% Gold 0% 1975 1980 1985 1990 1995 2000 2005 2010 50% Gold Gold continues to be the main target Source: estimates March 2015, based inpart on data from SNLMEG 8
Exploration expenditures: WORLD by Commodity : 19752014 Percentage of total spend 100% Other WORLD spend shows a different pattern 14% Other 80% 60% 40% Uranium Diamonds Base Metals (Cu, Ni, Zn, Pb) Iron Ore 12% Coal 13% Iron Ore 3% Diamonds 3% Uranium 25% Base Metals 20% Gold 0% 1975 1980 1985 1990 1995 2000 2005 2010 30% Gold Source: estimates March 2015, based inpart on data from SNLMEG 9
Number of discoveries in Pac/SEA by commodity and size 2. NUMBER OF DISCOVERIES & AMOUNT OF METAL FOUND 10
Number of discoveries by commodity Mineral discoveries in Pacific/SE Asia: 19752014 Number 15 Most of the deposits found were gold and copper Zinc/Lead Nickel Copper Gold 2 17 43 101 163 10 5 Caution: Incomplete data in recent years 0 1975 1985 1995 2005 2015 Note: Based on Moderate, Major and Giantsized deposits Excludes satellite deposits in existing camps Source: March 2015 11
Number of discoveries by size Gold and Base Metal discoveries in Pacific/SE Asia: 19752014 Number 15 On average, 36 significant discoveries are made each year Moderate Major Giant 66 69 28 163 10 5 Caution: Incomplete data in recent years 0 1975 1985 1995 2005 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 Source: March 2015 12
Gold Ounces found Primary gold deposits found in Pacific/SE Asia : 19752014 Moz Aueq 100 80 60 Macraes (9 Moz) Lihir (73 Moz) Most of the giant gold deposits in Pacific/SE Asia were found in the early 1980s 40 20 Hishikari (11 Moz) Far South East (38 Moz) Porgera (32 Moz) Estimate 0 1975 1985 1995 2005 Kelian (7 Moz) Hidden Valley (8 Moz) Martabe (8 Moz) Simberi (7 Moz) Wafi Gold (7 Moz) Diwawal (15 Moz) Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 Chatree (6 Moz) Gosowong Camp (6 Moz) Source: March 2015 13
Copper metal found Primary copper deposits found in Pacific/SE Asia : 19752014 100 Mt Cueq 80 60 Several giant copper deposits have been found in recent years 40 20 Namosi (9 Mt) Elang (8 Mt) Estimate 0 1975 1985 1995 2005 Grasberg (88 Mt) Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 Tampakan (19 Mt) Batu Hijau (11 Mt) Oyu Tolgoi (42 Mt) Golpu (13 Mt) Tujuh Bukitk (14 Mt) Source: March 2015 14
Where were the discoveries made? 3. LOCATION OF DISCOVERIES 15
Significant gold and base metal deposits in East Asia ALL YEARS Pac/SE Asia N= 374 China N = 403 Far East Russia N = 187 Au 50 Moz 10 Moz 1 Moz 0.1 Moz Cu Ni Zn+Pb 50 Mt 10 Mt 1 Mt 0.1 Mt Source: March 2015 16
Total contained metal per km2 : by country in Pac/SEA Oz Au t Cu t Ni t Zn+Pb Oz Au t Cu t Ni t Zn+Pb WORLD 88 26 2.3 10.6 Myanmar 2 12 1.9 12.2 China 38 11 0.9 5.6 New Caledonia 1118.8 Far East Russia 63 5 0.6 5.5 New Zealand 122 Pac/SE Asia 127 16 3.5 5.7 North Korea 141 27 202.6 7 Philippines 606 189 49.8 0.2 Fiji 1173 426 PNG 542 110 16.8 0.1 Indonesia 161 43 17.3 2.6 Solomon Islands 102 66.8 Japan 79 9 9.3 South Korea 12 Laos 43 19 Taiwan 193 8 Malaysia 33 15 3.0 Thailand 13 4 3.4 Mongolia 37 38 0.2 Vietnam 22 3 0.5 Cambodia Source: January 2015 17
Total contained metal per km2 : by country in Pac/SEA Room to improve? Some of the Pac/SEA countries are very well endowed for gold and base metals Oz Au t Cu t Ni t Zn+Pb Oz Au t Cu t Ni t Zn+Pb WORLD 88 26 2.3 10.6 Myanmar 2 12 1.9 12.2 China 38 11 0.9 5.6 New Caledonia 1118.8 Far East Russia 63 5 0.6 5.5 New Zealand 122 Pac/SE Asia 127 16 3.5 5.7 North Korea 141 27 202.6 7 Philippines 606 189 49.8 0.2 Fiji 1173 426 PNG 542 110 16.8 0.1 Indonesia 161 43 17.3 2.6 Solomon Islands 102 66.8 Japan 79 9 9.3 South Korea 12 Laos 43 19 Taiwan 193 8 Malaysia 33 15 3.0 Thailand 13 4 3.4 Mongolia 37 38 0.2 Vietnam 22 3 0.5 Cambodia Relative to WORLD <0.2x 0.20.5x 0.52x 25x 610x >10x Source: January 2015 18
Significant gold and base metal deposits in East Asia Discovered 20052014 Pac/SE Asia N= 20 Kultuminskaya [Au:2007] Sovinoye [Au:2005] Lugokanskaya [Au:2006] China N = 27 Far East Russia N = 18 Kekura Centre [Au:2005] Malmyzh [Cu/Au:2007] Poyi [Ni:2009] Beiya [Au:2005] Au 50 Moz 10 Moz 1 Moz Zhaxikang [Zn:2010] 0.1 Moz Cu Ni Zn+Pb 50 Mt 10 Mt 1 Mt 0.1 Mt Golpu [Cu/Au:2009] Tujuh Bukit [Cu/Au:2007] Source: March 2015 19
How much does it cost to find gold and copper in PAC/SEA? 4. UNIT COST OF DISCOVERIES 20
Gold Ounces found Primary gold deposits found in Pacific/SE Asia : 19752014 Moz Aueq 100 80 60 40 20 Estimate 0 1975 1985 1995 2005 Source: March 2015 Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 21
Gold exploration expenditures and ounces found Primary gold deposits found in Pacific/SE Asia: 19752014 Expenditures (2014 US$ M) Moz Aueq 100 $1,000 Exploration $ Estimated Unreported Byproduct Credits (Aueq) 80 $800 Primary Gold Discovered 60 $600 40 $400 20 $200 Estimate 0 1975 $0 1985 1995 2005 Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 Source: March 2015 22
Unit discovery costs for gold have doubled each decade Primary gold found in Pacific/SE Asia and World: 19752014 2014 US$/oz $250 $200 Pacific / SE Asia 19751984 Whtd Avg = $2/oz Whtd Avg = $9/oz 19851994 Whtd Avg = $25/oz Whtd Avg = $18/oz 19952004 Whtd Avg = $51/oz Whtd Avg = $25/oz 20052014 Whtd Avg = $199/oz $150 World $100 $50 $0 1975 20052014 Whtd Avg = $50/oz 1985 1995 2005 Note: ThreeYear Rolling Average. Includes byproduct credits and adjusted for unreported discoveries in recent years 2015 Source: March 2015 23
Copper metal found Primary copper deposits found in Pacific/SE Asia : 19752014 Mt Cueq 100 80 60 40 20 0 1975 Estimate 1985 1995 2005 Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 Source: March 2015 24
Copper exploration expenditures and metal found Primary copper deposits found in Pacific/SE Asia: 19752014 Expenditures (2014 US$ M) Mt Cueq Exploration $ 100 Estimated Unreported Byproduct Credits (Cueq) 80 Primary Copper Discovered In spite of heavy spending, no new deposits have been reported since 2010 $1,000 $800 60 $600 40 $400 20 0 1975 Estimate $0 1985 1995 2005 Note: Byproduct credits are based on average commodity prices prevailing between Jan 2012 and Dec 2014 $200 Source: March 2015 25
Until recently, unit discovery costs for copper have not increased in real terms over time Primary copper found in Pacific/SE Asia and World: 19752014 2014 US c/lb Cueq 10 19751984 Whtd Avg = 2.1 c/lb Whtd Avg = 1.2 c/lb 19851994 Whtd Avg = 0.2 c/lb Whtd Avg = 0.5 c/lb 20052014 Whtd Avg = 3.6 c/lb Whtd Avg = 4.0 c/lb 19952004 Whtd Avg = 0.6 c/lb Whtd Avg = 0.8 c/lb 8 6 Pacific / SE Asia 4 2 0 1975 World 1985 1995 2005 Note: ThreeYear Rolling Average. Includes byproduct credits and adjusted for unreported discoveries in recent years 2015 Source: March 2015 26
Unit discovery costs for gold and copper By Region 20052014 2014 US $/oz GOLD $200 $150 $81 $100 $50 $199 $101 $71 $31 $71 $47 $42 $65 $57 $50 $0 2014 US c/lb 40 30 91 35.5 COPPER 25.9 20 10 4.7 3.0 2.8 2.3 3.6 4.9 3.9 4.0 0 Note: Includes byproduct credits and adjusted for unreported discoveries in recent years Source: March 2015 27
Unit discovery costs for nickel and zinc/lead By Region 20052014 2014 US c/lb 200 NICKEL 150 120.7 100 50 17.3 33.7 73.1 57.3 20.3 17.6 3.6 0 2014 US c/lb 40.4 30 NA 9.0 22.6 ZINC/LEAD 20 7.3 10 10.9 5.2 8.7 7.6 NA NA 3.7 NA NA 0 Note: Includes byproduct credits and adjusted for unreported discoveries in recent years Source: March 2015 28
How many Tier 1, 2 and 3 deposits were found in Pacific/SE Asia? 5. QUALITY OF THE DISCOVERIES 29
Most of the wealth created are in Tier 1 and 2 discoveries 100% 80% Estimated value of 20 discoveries found in Pacific/SE Asia between 20052014 Definitions Unclassified 2% Unclassified 40% 60% 40% 14% Tier 3 Tier 2 Tier 1 Number of Deposits Tier 3 Example: Tharkhek [Copper Laos] Tier 2 5% 56% Tier 1 Tier 2 deposits are Significant deposits but are not quite as large or long life or as profitable as Tier 1 deposits. They have an NPV of $2001000m and EV of ~$500m Example: Tujuh Bukit [Copper Indonesia] 5% NPV Note: Limited to deposits >= Moderate in size NPV values refer to the Net Present Value at the DecisiontoBuild stage EV = Expected Value, which is the weighted average value of the NPV range Values are based on long run commodity prices as prevailing at Jan 2013 Caution: Values are indicative / approximateonly Tier 3 deposits are small / marginal deposits While they can be profitable they often only get developed at the top of the business cycle. At they don t meet more than one of the Tier 1 or 2 criteria. NPV of $0 to $200m, EV of ~$100m Example: Okvau [Gold Cambodia] 50% 20% 0% 28% Unclassified deposits are small deposits that are less than Major in size and/or of minimal value. EV of (say) ~$10m Tier 1 deposits are Company making" mines. They are large, long life and low cost. ie >20 Years,>200 ktpa Cu or >250koz pa Au, and Bottom Quartile costs. Have an NPV of >$1000m, and EV of ~$2000m Example: Golpu [Copper PNG] 30
Large high grade deposits get better ranks TONNES & GRADE CHARACTERISTICS OF GOLD AND COPPER DEPOSITS 31
Tonnes and Grade of Tier 1, 2 and 3 copper deposits: World all years, open pit & underground % Cueq 10.0% A Tier 1 copper deposit needs to contain >10 Mt Cu and have a grade >0.51.0% Cu 1.0% Minimum size threshold for Tier 1 deposit Unclassified Tier 3 Tier 2 Tier 1 0.1% 1 10 100 1,000 10,000 100,000 PreMined Resource ( Mt Ore) Source: March 2015 32
Tonnes and Grade of Tier 1, 2 and 3 gold deposits: World all years, open pit & underground A Tier 1 GOLD deposit needs to contain >10 Moz and have good grades g/t Aueq 100 Unclassified Tier 3 Tier 2 10 Tier 1 Minimum size threshold for Tier 1 deposit 1 0.1 1 10 100 1,000 10,000 PreMined Resource ( Mt Ore) Source: March 2015 33
Number of discoveries by quality Tier 1, 2 & 3 Gold and Base Metal discoveries in Pacific/SE Asia: 19752014 The number and quality of discoveries has declined in the last decade Number 15 Unclassified 64 Tier 3 72 Tier 2 18 Tier 1 9 163 Between 1975 and 2004, around 3 Tier1, 5 Tier2 and 21 Tier3 deposits were found each decade. Discovery rates have halved in the last decade 10 5 Caution: Incomplete data in recent years 0 1975 1985 Hishikari Lihir Grasberg Porgera Diwalwal 1995 2005 Oyu Tolgoi Golpu 2015 Tampakan Koniamba Source: March 2015 Note: Excludes bulk mineral and other discoveries 34
Does exploration create or destroy value? How does PAC/SEA compare against regions to explore? 6. VALUEPROPOSITION FOR EXPLORATION 35
Number of discoveries by quality Tier 1, 2 & 3 Gold and Base Metal discoveries in Pacific/SE Asia: 19752014 Number 15 Unclassified 64 Tier 3 72 Tier 2 18 Tier 1 9 163 10 5 Caution: Incomplete data in recent years 0 1975 1985 Note: Excludes bulk mineral and other discoveries 1995 2005 2015 Source: March 2015 36
Value of gold & base metal exploration Estimated value of discoveries in Pacific/SE Asia: 19752014 Unclassified Tier 3 2014 US$ Million Tier 2 $3,000 Tier 1 $2,000 $1,000 $0 1975 1985 1995 2005 Note: Excludes bulk mineral and other discoveries Assumes a value (in 2013 US$) of $2000m / $500m/$100m/$10m for T1/T2/T3/Unclassifed discoveries 2015 Source: March 2015 37
Cost and value of gold & base metal exploration Exploration expenditures and estimated value of discoveries in Pac/SEA: 19752014 Unclassified Tier 3 2014 US$ Million Tier 2 $3,000 Tier 1 Exploration Spend Over the last decade, US$7.4b was spent on gold and base metal exploration, delivering US$3.7b of value ie a Bang per Buck of 0.50 $2,000 $1,000 $0 1975 Note: Excludes bulk mineral and other discoveries 1985 1995 2005 In previous decades, exploring in Pac/SEA was a very profitable activity not so now the true situation is likely to be better, due to 2015 delays in reporting discoveries Source: March 2015 38
How does Pac/SEA compare to the Rest of the World? Spend & performance by Region: 20052014 i.e. BangperBuck PAC/SEA was below average. Africa & Australia performed best Region Exploration Spend (2014 $b) No of Discoveries # Tier 1+2 Discoveries 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 $140 100% 569 100% 79 100% $93 100% 0.67 TOTAL Note: Analysis includes Other discoveries (such as U3O8, Sn,W, PGE, Ag, REE, etc) but excludes bulk minerals Discoveries refer to Moderate, Major and Giantsized deposits. Rest of World includes China, FSU and Eastern Europe The Estimated Value is approximate only, and ignores the value of unreported discoveries Estimated Value (2014 $b) Value / Spend Source: March 2015 39
The level of exploration spend is influenced by changes in Country Risk and Mineral Potential perceptions of 7. COUNTRY RISK ISSUES 40
Factors driving exploration spend Intuitively, companies are more likely to explore in countries with high mineral potential and low country risk. a good way to test this is to compare the level of exploration spend with the Fraser Institute s Mineral Potential Index (MPI) and Policy Perception Index (PPI) 41
Policy Perception Index: March 2015 122 jurisdictions around the world 100 60 PPI is a measure of how easy it is to do business in the Country a high score is better 40 The Pacific/SE Asian countries tend to ranked poorly PPI 80 20 0 100 80 60 40 20 0 Source: Fraser Institute March 2015 42
Mineral Potential Index: March 2015 122 jurisdictions around the world 100 MPIx100 80 60 MPI is a measure of geological potential of the Country a high score is better Wide range of rankings for Pacific/SE Asian countries 40 20 0 100 80 60 40 20 0 Source: Fraser Institute March 2015 43
Relationship between exploration spend and PPI & MPI for 94 jurisdictions around the World in 2014 Exploration Spend (2014 US$m) $1,500 No obvious relationship between PPI and exploration spend Exploration Spend (2014 US$m) $1,500 Positive link between MPI and exploration spend $1,000 $1,000 $500 $500 $0 $0 0 20 40 60 80 100 Policy Perception Index (PPI) Note: Australia and Canada are broken down by State/Province No expenditure data available for individual US States 0 20 40 60 80 100 Mineral Potential Index (MPI) x 100 Source: Jan 2015 based on data from the Fraser Institute, ABS, NRCan, MLR (China) and SNL 44
Need to look at the relative trends In addition to PPI and MPI, the absolute level of exploration expenditures 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) Need to adjust for differences in land areas (ie focus on $/km2) and look at relative changes in global market share over time (ie do changes by Governments result in the country getting a bigger/smaller slice of the total exploration pie?). 45
Relationship between exploration spend, MPI and PPI for 94 jurisdictions around the World in 2014 Countries with a high Mineral Potential tend to have a higher exploration spend per km2.. Mineral Potential Index (MPI) 1.0 Chile Philippines Queensland PNG 0.8 Myanmar Indonesia Mongolia 0.6 NT NSW China Western Australia South Australia Tasmania Malaysia New Zealand Victoria Vietnam 0.4 Laos Fiji Thailand 0.2 French Guiana 0.0 0 20 40 60 80 100 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 2014 Survey of Mining Companies. Exploration expenditures are from ABS, NRCan, MLR (China) and SNL 46
Relationship between intensity of exploration spend and PPI & MPI for 94 jurisdictions around the World in 20052014 Intensity of Exploration Spend 1000% Intensity of Exploration Spend 1000% 100% 100% 10% 10% 0 20 40 60 80 100 Policy Perception Index (PPI) 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 0 20 40 60 80 100 Mineral Potential Index (MPI) x 100 Source: Jan 2015 based on data from the Fraser Institute, ABS, NRCan, MLR (China) and SNL 47
Relationship between intensity of exploration spend and PPI & MPI for 94 jurisdictions around the World in 20052014 Intensity of Exploration Spend 1000% Intensity of Exploration Spend 1000% Philippines PNG Philippines PNG China China Indonesia 100% 100% Indonesia New Zealand New Zealand Mongolia Mongolia 10% 10% 0 20 40 60 80 100 Policy Perception Index (PPI) 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 0 20 40 60 80 100 Mineral Potential Index (MPI) x 100 Source: Jan 2015 based on data from the Fraser Institute, ABS, NRCan, MLR (China) and SNLMEG 48
Statistical Results (based on Panel Analysis) Formula Spend per km2 = a x PPI + b x MPI + c where a, b and c are constants ie a multidimensional model that looks at the common trends in related data sets over time Coefficient : a 1%point increase in the PPI or MPI score will increase the amount of exploration spend by 0.17% and 0.65% respectively Limited to those jurisdictions with >= 4 data points Variable Coefficient P test PPI a = 0.17 0.74 MPIx100 b = 0.65 0.22 P test refers to the likelihood that result is statistically valid ie PPI trend model has a 74% chance of being 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) Varying the minimum number of data points ( to >=5 and >= 10) did not significantly improve the P test results Source: March 2015, with assistance from Joeri Smits at the Center for Development and Cooperation (NADELETH) 49
Statistical Results effect of leaving out countries Limited to those jurisdictions with >= 4 data points Variable Coefficient P test PPI a = 0.17 0.74 MPIx100 b = 0.65 0.22 Leaving out Russia and China improved the P test score Possible causes. Limited to those jurisdictions with >= 4 data points and excluding Russia & China Variable Coefficient P test PPI a = 0.29 0.54 MPIx100 b = 0.83 0.10 Analysis suggests no reliable link between changes in Country Risk and exploration spend 50:50 chance at best Issue of granuality the Fraser Institute only reports a single PPI & PPI number for each country but these do vary at the local level Influence of local companies.. The Fraser Institute mainly surveyed Western companies. Local Russian and Chinese explorers (who make up a big part of the local spend) have a more positive view on risk and opportunities Strategic issues level of spending may be driven by government and industry needs Source: March 2015, with assistance from Joeri Smits at the Center for Development and Cooperation (NADELETH) 50
Statistical Results The analysis suggests: That strong link between Mineral Potential and exploration spend. Spend will rise by ~0.8% for every 1% increase in the MPI Suggests that there isn t a link between changes in Country Risk (as measured by the PPI) and exploration spend. Ie companies will go where the rocks are good, and (counterintuitively) will continue to explore in countries with poor policy potential. Alternatively, the Fraser Institute data is not reliable. 51
9. CONCLUSIONS 52
Conclusions [1/4] 1. Trends in exploration spend Exploration is incredibly volatile. Expenditures can fall by 4060% over the business cycle. In the last 2 years Pac/SEA has fallen more than most other 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 36 significant gold and base metal discoveries are made each year in the Region (24 of these were gold and 12 copper) however this has 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) and the last giant copper deposit was Golpu in 2009 (with 13 Mt Cueq) 53
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 20 were discovered in the last decade Over last decade 27 significant gold and base metal discoveries were made in China and 18 in Far East Russia In terms of contained metal per km2, the best endowed countries are Philippines. 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/oz for the World average Copper discovery costs are currently US 3.6 cents/lb Cueq for the Region versus a World average of 4.0 cents/lb 54
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 halved in 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 0.51.0% 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 than looking for new greenfield targets The best performing regions were Africa (1.19) and Australia (0.97). 55
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/SEA countries tend to be ranked poorly on the PPI A statistical analysis of the data for 20052014 shows that the level of exploration spend in a given country increases with Mineral Potential (ie companies go where the rocks are good ). A 1% increase in the MPI increases the spend by ~0.8%. Surprisingly there is no strong statistical correlation between a change in the PPI and Spend. This is a counterintuitive result which needs more investigation 56
Contact details Richard Schodde Managing Director Melbourne, Australia Email: Richard@MinExConsulting.com Website: MinExConsulting.com Copies of this and other similar presentations can be downloaded from my website 57