Discovery Performance for Gold and Base Metals in the...

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


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?


1. TRENDS IN EXPLORATION SPENDExploration expenditures reached an all-time high in 2012

3


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


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%


$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


$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


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


0%

20%

40%

60%

80%

100%

1975 1980 1985 1990 1995 2000 2005 2010

8

Exploration expenditures: Pacific/SE Asiaby Commodity : 1975-2014


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



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


30% Gold


Iron Ore

Other

WORLD spend showsa different pattern

WORLD spend showsa different pattern


2. NUMBER OF DISCOVERIES &AMOUNT OF METAL FOUND

Number of discoveries in Pac/SEA – by commodity and size

10


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


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


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



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


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


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


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)


Several giant copperdeposits have been found

in recent years

Several giant copperdeposits have been found

in recent years


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


Pac/SE AsiaN= 374

ChinaN = 403

Far East RussiaN = 187


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


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



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


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


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]


Pac/SE AsiaN= 20

ChinaN = 27

Far East RussiaN = 18


4. UNIT COST OF DISCOVERIES

How much does it cost to find gold and copper in PAC/SEA?

20


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


Estimate



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)




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




Pacific / SE Asia

World

Note: Three-Year Rolling Average. Includes by-product creditsand adjusted for unreported discoveries in recent years


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


Estimate



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)


In spite of heavyspending, no new

deposits have beenreported since 2010

In spite of heavyspending, no new

deposits have beenreported since 2010



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




Pacific / SE Asia

World

Note: Three-Year Rolling Average. Includes by-product creditsand adjusted for unreported discoveries in recent years


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


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


5. QUALITY OF THE DISCOVERIES

How many Tier 1, 2 and 3 deposits were found in Pacific/SE Asia?

29


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


TONNES & GRADE CHARACTERISTICS OFGOLD AND COPPER DEPOSITS

Large high grade deposits get better ranks

31


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)


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


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)


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


0

5

10

15

1975 1985 1995 2005 2015

Unclassified

Tier 3

Tier 2

Tier 1

34

Number


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


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


6. VALUE-PROPOSITION FOREXPLORATION

Does exploration create or destroy value?How does PAC/SEA compare against regions to explore?

35


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



$0

$1,000

$2,000

$3,000

1975 1985 1995 2005 2015

Unclassified

Tier 3

Tier 2

Tier 1

37


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


$0

$1,000

$2,000

$3,000

1975 1985 1995 2005 2015

Unclassified

Tier 3

Tier 2

Tier 1

38


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


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”


PAC/SEA was below average. Africa & Australia performed bestPAC/SEA was below average. Africa & Australia performed best


7. COUNTRY RISK ISSUES

The level of exploration spend is influenced by changes inCountry Risk and Mineral Potential

40

perceptions of


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


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


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


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


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?).


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

46

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


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

47

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




10%

100%

1000%

0 20 40 60 80 100

New Zealand

Indonesia

Philippines

PNG

China

Mongolia

48

10%

100%

1000%

0 20 40 60 80 100

China

Indonesia

Mongolia

New Zealand

Philippines

PNG


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



Relationship between intensity of exploration spend andPPI & MPI for 94 jurisdictions around the World in 2005-2014


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)

49

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


Limited to those jurisdictions with >= 4 data points

Statistical Results … effect of leaving out countries

50


PPI a = 0.17 0.74

MPIx100 b = 0.65 0.22

Limited to those jurisdictions with >= 4 data pointsand excluding Russia & China


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


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.

51

Statistical Results


9. CONCLUSIONS

52


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)

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 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

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 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).

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/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

56


Contact details

Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia

Email: [email protected]: 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

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