The impact of commodity prices and other factors on the ...

MinEx Consulting Strategic advice on mineral economics & exploration

The impact of commodity prices andother factors on the level of exploration

Richard SchoddeManaging Director, MinEx Consulting

Adjunct Professor, University of Western Australia

CET Seminar SeriesCentre of Exploration Targeting, University of Western Australia28th November 2013, Perth


Introduction

1. Trends in exploration spend

2. Significant discoveries in the last decade

3. Discovery performance

4. What drives exploration spend?Rising demand for metal

Commodity prices

Availability of funds

New exploration ideas & discoveries

Changes in Country Risk

5. Special challenges for Australia – depth of cover

6. Future Exploration spend

7. Summary / Conclusions

2


1. TRENDS IN EXPLORATION SPEND

Exploration expenditures reached an all-time high in 2012

3


Exploration expenditures: Worldby Region : 1975-2012

$0

$5

$10

$15

$20

$25

$30

1975 1980 1985 1990 1995 2000 2005 2010

Rest of World

FSU + E Europe

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Canada

Australia

4

2012 US$ billion

Note: “Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)

Sources: MinExConsulting estimates © Oct 2013, based ondata from ABS, NRCan, MLR (China), OECD and SNL MEG

$30Bin 2012

$2.9Bin 2002

Spend is at anall-time high

Spend is at anall-time high

10x real increasein the last decade



$0

$5

$10

$15

$20

$25

$30

1975 1980 1985 1990 1995 2000 2005 2010

Rest of World

FSU + E Europe

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Canada

Australia

5

2012 US$ billion



$30Bin 2012

1988 to 1993down 51%

1997 to 2002down 62%

2008 to 2009down 27%

1980 to 1985down 41%

The industry ishighly cyclicalThe industry ishighly cyclical



0%

20%

40%

60%

80%

100%

1975 1980 1985 1990 1995 2000 2005 2010

Rest of World

FSU + E Europe

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Canada

Australia

6

Note: Includes spend on Bulk Minerals“Rest of World” refers to, Mongolia, Middle East andSouth West Asia (including India and Pakistan)

Percentage of total spend

13%

13%

7%

21%

6%

15%

2%

14%

6%

3%

China spends moreon exploration thanany other country in

the World

China spends moreon exploration thanany other country in

the World

Can+USA+Ausmarket share has

halved in the last 2decades

Can+USA+Ausmarket share has

halved in the last 2decades


24%


$0

$1

$2

$3

$4

$5

Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-15

Exploration spend in AustraliaAll Commodities: March 1990-June 2013

7

Total Expenditures (June 2013 Australian $B)

Source: ABS Cat No. 8412.0Note: Data reported on an annualised basisIncludes exploration expenditures on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium


Most of the increase in exploration spend in recentyears was associated with Bulk Minerals

Level of exploration by Commodity in Australia: March 1990-June 2013

$0

$1

$2

$3

$4

$5


Other - Bulk

Coal

Iron Ore

Other - Non Bulk

Diamonds

Uranium

Base Metals

Gold

8

Total Expenditures (June 2013 A$B)

Source: ABS Cat No. 8412.0Note: Data reported on an annualised basis

Excluding Bulk Minerals,exploration in Australia

has been subdued

Excluding Bulk Minerals,exploration in Australia

has been subdued


Bulk Minerals now makes half of total spendLevel of exploration by Commodity in Australia: March 1990-June 2013

0%

20%

40%

60%

80%

100%


Other - Bulk

Coal

Iron Ore

Other - Non Bulk

Diamonds

Uranium

Base Metals

Gold

9

Percentage of Total Expenditures

Source: ABS Cat No. 8412.0Note: Data reported on an annualised basisIncludes exploration expenditures on Bulk Minerals (such as coal, iron ore and bauxite) and Uranium

10%

54%

There has been a dramatic shiftto Bulk Minerals in Australia

There has been a dramatic shiftto Bulk Minerals in Australia


2. SIGNIFICANT DISCOVERIES INTHE LAST DECADE

Where were the discoveries made?

10


Significant discoveries in the world by Size: 2003-2012

11

Au BaseMetal

U3O8 Other

Major

Moderate

Giant

Alaska/Yukon NorthernOntario

Latin America

Ten current“Hot Spots”Ten current

“Hot Spots”

West AfricaCentral Africa

China

Australia

Far EastRussia

Saskatchewan(Uranium)

SW USA/ Mexico

Source: MinEx Consulting © November 2013

Note: “Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8

“Major” >1Moz Au, >100kt Ni, >1Mt Cu equiv, 2.5Mt Zn+Pb, >25kt U3O8

“Giant” >6Moz Au, >1Mt Ni, >5Mt Cu equiv, 12Mt Zn+Pb, >125kt U3O8

559 depositsfound in the last

decade

559 depositsfound in the last

decade


Tier 1, 2 & 3 discoveries in the world by Quality: 2000-13

12

Au BaseMetal

U3O8 Other

Tier 2

Tier 3

Tier 1


15 Tier 1 ands 69 Tierdeposits found in the

last decade

15 Tier 1 ands 69 Tierdeposits found in the

last decade


3. DISCOVERY PERFORMANCE

Unit discovery costs have risen over the last decade

13


Discovery rate versus spendWestern World gold exploration spend and discoveries

14

$0

$2

$4

$6

$8

$10

0

20

40

60

80

100

1975 1980 1985 1990 1995 2000 2005 2010 2015

Number of Discoveries

Exploration Expenditures


Note: Discoveries are for Primary gold deposits >0.1 Moz Au

2012 US$ Billion

Source: MinEx Consulting © October 2013

$1.1b

$8.9b


Discovery rate versus spendWestern World gold exploration spend and discoveries

15

$0

$2

$4

$6

$8

$10

0

20

40

60

80

100

1975 1980 1985 1990 1995 2000 2005 2010 2015

Estimated No of unreported discoveries


Exploration Expenditures


Note: Discoveries are for Primary gold deposits >0.1 Moz AuIncludes adjustment for unreported discoveries

2012 US$ Billion

Even after adjusting forunreported discoveries, inthe last 5 years a large gap

has opened up betweenexpenditures and the

number of deposits found

Even after adjusting forunreported discoveries, inthe last 5 years a large gap

has opened up betweenexpenditures and the

number of deposits found

Estimate


$1.1b

$8.9b

… Gap is due to higherinput costs (labour,drilling and admin)


Trend in Unit Discovery costs: 1975-2012Western World Primary Gold Deposits > 0.1 Moz

16

$0

$50

$100

$150

$200

$250

1975 1980 1985 1990 1995 2000 2005 2010 2015

Average Cost per discovery(2012 US$m)

Note: Discoveries are for Primary gold deposits >0.1 Moz AuData from 2003 onwards have been adjusted for unreported deposits

Estimated


Weighted Average for1998-2002 = $84m

Unit costs nowrunning at ~$150m

per discovery

Unit costs nowrunning at ~$150m

per discovery

Weighted Average for1978-1982 = $41m


Input costs for exploration have doubledin the last decade

2000nominal

2000real

2012real

% realincrease

$ of the Day 2012 $ 2012$

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 JuniorExploration Company (US$m per annum)- Australia $0.34 $0.44 $1.19 170%

17

Source: MinEx Consulting © July 2013


3%

Most of the wealth created are inTier 1 and 2 discoveries

Estimated value of 559 discoveries found in the World between 2003-2012

0%

20%

40%

60%

80%

100%

Number ofDeposits

NPV

18

Tier 1

50%

35%

12%

29%

2%

32%

Note: NPV 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 [Coppper/Gold]

Example: Degrussa [Cu-Zn-Pb]

Example: Andy Well [Gold]

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: Mt Unicorn [Moly]

37%

Unclassified


How do the various Regions compare?Spend & performance by Region: 2003-12

Region ExplorationSpend (2012 $b)

No ofDiscoveries #

Tier 1+2Discoveries

Estimated Value(2012 $b)

Value /Spend

Australia $12 10% 84 15% 14 17% $13 14% 1.12

Canada $21 18% 74 13% 15 18% $15 16% 0.71

USA $9 8% 19 3% 6 7% $5 6% 0.60

Latin America $27 23% 133 24% 15 18% $23 24% 0.84

Pacific/SE Asia $6 5% 23 4% 2 2% $4 4% 0.63

Africa $16 14% 124 22% 20 24% $22 24% 1.38

W Europe $3 3% 24 4% 1 1% $1 2% 0.48

Rest of World $22 19% 78 14% 11 13% $10 11% 0.46

----- ------ ------ ------- ------ ------- ------- ------- -------

TOTAL $116 100% 559 100% 86 100% $94 100% 0.81

19

Note: Analysis excludes Bulk Minerals, and excludes satellite deposits found within existing campsDiscoveries refer to Moderate-, Major- and Giant-sized deposits.The Estimated Value is approximate only, and ignores the value of unreported discoveries Source: MinEx Consulting © November 2013

i.e. “Bang-per-Buck”i.e. “Bang-per-Buck”


4. WHAT DRIVES EXPLORATION SPEND ?

20


Key Drivers for Exploration spend

The main drivers are :

• Commodity price

• Availability of funds (to Junior Companies)

• Long term growth in metal demand

21


Key Drivers for Exploration spend

Secondary drivers include :

• New discoveries … such as Voisey Bay and Ekati, and failures like Bre-X

• New geological concepts and search techniques… such as the copper porphyry model, development of airborne GeoPxsystems

• New processing technologies, which make lower grade orebodies economic … such as Au CIP in 1970s, Cu SXEW in the 1980s,

PAL NiLat in the 1990s and bio heap leaching for base metals in the 2010s?

• Government Policies … such as flow-through tax credits in Canada.Conversely the introduction of new royalties or Carbon Taxes may makesome mines uneconomic or scare away investors (like in Australia)

• Changes in business risk … such as the opening up of the DevelopingWorld or, conversely, the threat of nationalism in Venezuela

22


4.1 RISING DEMAND FOR METAL

Why we need more exploration

23


World’s metal production doubles every 20-25 yearsPrimary copper production: 1900-2040

24

Mt pa Cu

Source: Historical data fromUSGS Jan 2013

Cumulative copperproduction for all history

(1000BC to 2012 AD)= 611 Mt Cu

Cumulative copperproduction for all history

(1000BC to 2012 AD)= 611 Mt Cu

Forecast cumulativedemand over next 25 years

(2013-2037)= 638 Mt Cu

Forecast cumulativedemand over next 25 years

(2013-2037)= 638 Mt Cu

Forecast DemandBased on 3% pa growth

Historic DemandAverage growth rate of3.0% pa over last 20 years

17.0 Mt pain 2012

35.6 Mt pain 2037

Need to discover anddevelop new mines

Need to discover anddevelop new mines


The challenge is that most discoveries are toosmall / low grade to develop as an economic mine

Tonnes & Grade of all primary copper deposits in the world containing >500kt Cu

25

Grade (% Cu-equivalent)

Pre-Mined Resource (million tonnes)

Source: MinEx Consulting Sept 2010

Envelope foreconomic mines

Envelope forundeveloped projects


4.2 COMMODITY PRICES

Exploration spend is strongly driven by price

26


Exploration spend vs Commodity Price: Australia 1997-2012

27

GOLD

R2 = 0.59

BASE METALS

R2 = 0.87

URANIUM

R2 = 0.77

IRON ORE

R2 = 0.91

COAL

R2 = 0.86

OTHER MINERALS

R2 = 0.88

Source: MinEx Consulting© October 2013

Note: Includes 1 year lag in spend


Exploration spend is closely linked to commodity pricesWorld gold exploration expenditures versus gold price

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

28

Exploration Expenditures(June 2012 US$ billion)

Gold Price(June 2012 US$/oz)

Gold Price(RHS>)

ActualExplorationSpend

Source: MinEx Consulting © October 2013, LME

$10.0Bin 2012

$1.2Bin 2002


Exploration spend versus gold priceWorld: 1975-2012

$0

$2

$4

$6

$8

$10

$12

$0 $500 $1,000 $1,500 $2,000

29

Gold Price (June 2012 US$/oz)


2012

1997


1985

1975

1980

Since the mid-1980sexploration spend has

moved in-line withgold prices

Since the mid-1980sexploration spend has

moved in-line withgold prices

With adjustments for otherfactors (such as thegeneral growth in metaldemand and theavailability of risk capital),this can be used as a toolfor predicting futureexploration spend


Why were the 1970s different for gold?

Exploration spend lagged the gold price because of:

• Inertia (it took time for the industry to respond to the higher prices)

• Innovations (in 1980s new processing methods were developed(CIP/ HL), new exploration techniques (AA Spectrometry enabledgeochem sampling) and new financing methods (gold loans)

• Geopolitics (the end of the Cold War in 1989 dramatically openedup Russia and Developing Countries to modern exploration. Asimilar take-off occurred in China in the 1990s following theEconomic Reforms implemented by Deng Xiaoping)

30


Exploration spend – actual versus predicted and forecastWorld Mineral exploration expenditures

$0

$10

$20

$30

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

31

Exploration Expenditures(June 2012 US$m)



PREDICTEDExplorationSpend

Note: The M-R modelflattens-out the peaks

and troughs


and troughs

Note: Forecast based on a Multiple-Regression analysis of dataIncludes Bulk Mineral spend


4.3 AVAILABILITY OF FUNDS

Junior Companies continually need to raise cash

32

Useful for predictingshort-term fluctuations

in industry spend

Useful for predictingshort-term fluctuations

in industry spend


Spending by Junior Explorers is driven by availability of fundsCash and Expenditures for the MEDIAN Australian Junior company: 1998- June 2013

$0

$1

$2

$3

$4

$5

Dec-98 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12

33

June 2013 A$ Million(annualised basis)

Source: MinEx Consulting © October 2013based on Quarterly Reports to the ASX

Note: Expenditure data is reported on a Quarterly basis, but has beenannualised to be comparable with Cash Reserves

Administration Costs

Exploration + Development Costs

Cash Funds atend of Quarter

Large amount of fundsraised in 2006-2007

Large amount of fundsraised in 2006-2007

Funding dried up duringthe GFC. To preserve

cash, Junior Companiesseverely cut back on

expenditures in the field

Funding dried up duringthe GFC. To preserve

cash, Junior Companiesseverely cut back on

expenditures in the field

Seeing arepeat of 2008bust in 2013

Seeing arepeat of 2008bust in 2013

MedianAustralianJunior has

< 6 months ofcash reserves

MedianAustralianJunior has

< 6 months ofcash reserves


In the last major downturn the number ofactive explorers went down by 2/3rds

$0

$1

$2

$3

$4

$5

0

200

400

600

800

1000

1985 1990 1995 2000 2005 2010 2015

34

Source: NRCan

No of Active Companies

2012 US$ mper Company

Number of activeJunior Explorers

Average annual explorationspend per Junior Company(RH Scale)

885

307$1.51m

$0.15m

$2.81m

Canadian Junior Companies respond todownturns by cutting back on spend and

going into hibernation

Canadian Junior Companies respond todownturns by cutting back on spend and

going into hibernation

Note: Just because a Company has become inactive doesn’t implythat it has permanently left the market

$2.97m

$1.54m

… Don’t under-estimate theresilience of the Junior Sector !!

772


4.4 IMPACT OF NEW IDEAS ANDMAJOR NEW DISCOVERIES

Opening up new search-spaces can create a rush

35


Key Drivers for Exploration: DiscoveryNiS discoveries and exploration expenditures in Western Australia: 1960-2004

Source: Hronsky & Schodde, 2006Economic Geology, Special Publication 13

ExplorationExpenditures

Discoveries

Western Australia’s“Nickel Boom” ran

from 1966-71

Western Australia’s“Nickel Boom” ran

from 1966-71

In Jan 1966 WMCdiscovered the Lunnon

Shoot at Kambalda

In Jan 1966 WMCdiscovered the Lunnon

Shoot at Kambalda

$0

$50

$100

$150

$200

$250

$300

0

1

2

3

4

5

6

1960 1970 1980 1990 2000 2010

Discovery Year

Expenditures(June 2012 A$ Million)Ni Discovered (Mt)

36


Mineral Potential in 2012(ie the “attractiveness of the rocks”)

0%

20%

40%

60%

80%

100%

Dom

inic

anR

epub

licV

ietn

am

Vic

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Eg

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Tas

ma

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Rom

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Nov

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New

Zea

land

Was

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Nor

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Nam

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Mor

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Juju

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Sp

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Bru

nsw

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Hon

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Gu

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Su

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Sa

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Wa

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Mic

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Men

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Bo

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Ve

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Mis

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Mau

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Mex

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Ter

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Encourages InvestmentNot a deterrent to InvestmentMild DeterrentStrong deterrentWould not pursue investment due to this factor

37

% of Respondents

Source: Fraser Institute March 2012

South Australiawas ranked 71st out of 93jurisdictions in 2012

South Australiawas ranked 71st out of 93jurisdictions in 2012

Note: Assumes full access to land, and best practice by industry


South Australia’s perceived Mineral Potential took a stepincrease in 2006 … and its exploration share went up!

3.2% 4.8% 5.4% 4.9% 6.0%8.7%

13.1%16.1%

12.2%8.1% 7.6% 8.8% 8.7%

0%

20%

40%

60%

80%

100%

2000 2002 2004 2006 2008 2010 2012

Would not pursue investment due tothis factorStrong deterrent

Mild Deterrent

Not a deterrent to Investment

Encourages Investment

38

% of Respondents

No dataprior to 2005

Note: Assumes full access to land, and best practice by industry

South Australia’s % share ofAustralia’s exploration spend

Would also argue that the higherspend is also a function of SA being

“friendlier” to exploration companies

Would also argue that the higherspend is also a function of SA being

“friendlier” to exploration companies

Sources: Fraser Institute annual surveysABS (as reported on a Calendar Yr basis)

Carrapateena Cu-Audeposit was

discovered in 2005using Govt funding

Carrapateena Cu-Audeposit was

discovered in 2005using Govt funding


4.5 IMPACT OF CHANGES INCOUNTRY RISK

Companies go where they are welcome

39


Recent actions by Governments

40

Zambia: In 2012 royaltiesdoubled to 6% and

unprocessed exports are tobe banned. Considering

raising mineral taxes

Zambia: In 2012 royaltiesdoubled to 6% and

unprocessed exports are tobe banned. Considering

raising mineral taxes

Zimbabwe: Set toNationalize its mining

industry

Zimbabwe: Set toNationalize its mining

industry

Philippines: OpenPit mining banned in

Mindanao. Governmentconsidering raising

Royalty rates

Philippines: OpenPit mining banned in

Mindanao. Governmentconsidering raising

Royalty rates

Indonesia: Has bannedexport of unprocessed

minerals. New 20% mineraltax. Companies to sell 51%equity to locals within 5 years

Indonesia: Has bannedexport of unprocessed

minerals. New 20% mineraltax. Companies to sell 51%equity to locals within 5 years

Australia: Excess profits tax(MRRT) introduced for iron ore

and coal. Changed write-offrules for exploration spend

Australia: Excess profits tax(MRRT) introduced for iron ore

and coal. Changed write-offrules for exploration spend

DRC: Ban on export of Cu& Co conc. Considering

increasing its 5% free-equity

DRC: Ban on export of Cu& Co conc. Considering

increasing its 5% free-equity

Bolivia: Nationalisedthe Colquiri Sn/Zn mineBolivia: Nationalised

the Colquiri Sn/Zn mine

COUNTRIES THAT HAVE DECREASED / INCREASED THEIR TAXES & ROYALTY RATESOR INTRODUCED NATIONALISM-TYPE RULES SINCE 2011

Chile

Peru

Greenland

Quebec

Poland

Cote d’Ivoire

New Zealand

Guatemala

Guinea: lowered itsTax Rate from 35 to 30%

Guinea: lowered itsTax Rate from 35 to 30%

Ghana

Kazakhstan

Mongolia

Mexico

SouthAfrica

Tanzania

VenezuelaHaiti

NSW

Queensland

China

Brazil: Proposed newlegislation will impose tougher

development schedules fornew projects. Also considering

raising Royalty rates

Brazil: Proposed newlegislation will impose tougher

development schedules fornew projects. Also considering

raising Royalty rates

MODULE 5


0

20

40

60

80

100

Indo

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Nor

way

Uta

h

Yuk

on

Nev

ada

Irela

nd

Wyo

min

g

Ne

wB

runs

wic

k

Alb

erta

Sw

ede

n

Fin

land

There is a wide spectrum of business risk

41

Source: Fraser Institute March 2013

Policy Potential Index

Note: Higher the Score, the betterWesternAustralia

SouthAfrica

Peru

Chile

1st Quartile2nd Quartile3rd Quartile4th Quartile

Finland

Indonesia

Mongolia

Bolivia


Equally important to look at whether therisk profile is getting better / worse

0

20

40

60

80

100

1999 2001 2003 2005 2007 2009 2011 2013

42

Source: MinEx Consulting analysis of Fraser Institute annual surveys

Western Australia

Policy Potential Index

4th Quartile

3rd Quartile

2nd Quartile

1st Quartile

BoliviaMongolia

South Africa

Peru

Chile


5. SPECIAL CHALLENGES FORAUSTRALIA - DEPTH OF COVER

We are having to progressively explore under deeper cover

43


Average depth of cover for discoveries - all metalsWestern World: 2003-2012

204

126122

9882

68

3212

74

0

50

100

150

200

250

55

44

WWAverage

LatinAm

Africa(excl Sth Africa) Aust

WEurope Canada USA

PacificSE Asia

Restof WW

Metres

If you exclude SouthAfrica, the average

depth of cover falls from55 to 12 metres

If you exclude SouthAfrica, the average

depth of cover falls from55 to 12 metres

Note: Based on Moderate-,Major- and Giant-sized depositsExcludes bulk mineral discoveries Source: MinEx Consulting © July 2013


… and we are exploring under deeper coverDepth of cover for discoveries in Australia: 1900-2013

45

Discovery Year

Depth of Cover (Metres)

Note: Excludes satellite deposits within existing Camps. Also excludes Bulk Mineral discoveries..Analysis based on Moderate-, Major- and Giant-sized deposits

It is difficult to finddeposits under deep

cover

It is difficult to finddeposits under deep

cover

… end-result is that wehave to drill more metres

per discovery

… end-result is that wehave to drill more metres

per discovery


Most of the golddiscoveries are stillbeing made under

shallow cover

Most of the golddiscoveries are stillbeing made under

shallow cover


Over the last Decade (2003-2012) …

Australia made … 3 Giant discoveries

22 Major discoveries

59 Moderate discoveries

32 ?? Unidentified discoveries

~116 discoveries

And spent … A$14,168 million on exploration (in 2013 A$)

And drilled … ~64.4 million metres

Performance >> $122m per discovery

~0.55 million metres per (>= Moderate) discovery

~2.5 million metres per (>= Major) discovery

~20 million metres per (Giant) discovery

46

Note: Excludes satellite deposits within existing Camps and Bulk Mineral discoveries and spend.


The amount of drilling required is enormous !!

47

Giant Discovery = 20,000 km

ADELAIDE

Moderate Discy = 550 km

OLYMPIC DAM

MajorDiscovery= 2500 km

CAPE YORK

PERTH

The OBVIOUS conclusion isthat exploration is inefficient

and most projects fail.Industry needs to improvie theefficiency & effectiveness of

exploration

The OBVIOUS conclusion isthat exploration is inefficient

and most projects fail.Industry needs to improvie theefficiency & effectiveness of

exploration


Significant mineral deposits in AustraliaEstimated depth of cover

48

Sources: MinExConsulting © November 2013Geoscience Australia

Outcrop & Shallow Basement

Basement depth <500m

Basement depth 500 to 1000m

Basement depth >1000m

INDICATIVE DEPTH OF COVER

Note: Bubble-size refers to size of deposit“Moderate” >100koz Au, >10kt Ni, >100Kt Cu equiv, 250kt Zn+Pb, >5kt U3O8



Outcropping



49










Outcropping

1-50 Metres



50










Outcropping

1-50 Metres

51-200 Metres



51










Outcropping

1-50 Metres

51-200 Metres

>200 Metres

Most of the deepdiscoveries are in

established districts

Most of the deepdiscoveries are in

established districts

Large areas of Australiahave not yet been

explored effectively

Large areas of Australiahave not yet been

explored effectively

Industry needs to comewith ways of exploringmore effectively under

deep cover

Industry needs to comewith ways of exploringmore effectively under

deep cover


6. FORECAST EXPLORATION SPEND

What’s the future gold price?What’s the outlook for exploration, and which Regions will do better?

52



$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

53



Gold Price(RHS>)


Source: MinEx Consulting © October 2013, LME

$10.0Bin 2012

$1.2Bin 2002



$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

54



Gold Price(RHS>)


Sources: MinExConsulting © October 2013, LMEForecastprices from ConsensusEconomics© June 2013

BrokersForecasts

(June 2013)

BrokersForecasts

(June 2013)

$10.0Bin 2012

$1.2Bin 2002


Exploration spend – actual versus predicted and forecastWorld Mineral exploration expenditures

$0

$10

$20

$30

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

55

Exploration Expenditures(June 2012 US$m)



PREDICTEDExplorationSpend


and troughs


and troughs

Note: Forecast based on a Multiple-Regression analysis of dataIncludes Bulk Mineral spend


$0

$5

$10

$15

$20

$25

$30

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

FSU + EE + ROW

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Canada

Australia

Forecast exploration expenditures: Worldby Region : 1975-2020

56

2012 US$ billion$30B

in 2012


$21Bin 2020

Down28%

CAUTION:Forecast assumes nochange in Country Riskand tax rules

Source: MinEx Consulting estimates© November 2013, based oncommodity price forecasts from ConsensusEconomics Oct 2013


0%

20%

40%

60%

80%

100%

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

FSU + EE + ROW

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Australia

Canada

Forecast exploration expenditures: Worldby Region : 1975-2020

57

2012 US$ billion


CAUTION:Forecast assumes nochange in Country Riskand tax rules

Source: MinEx Consulting estimates© November 2013, based oncommodity price forecasts from ConsensusEconomics Oct 2013

13%13%

Canada forecast tomaintain its market

share at ~13%

Canada forecast tomaintain its market

share at ~13%


7. SUMMARY / CONCLUSIONS

The industry is facing a number of challenges and opportunities

58


Summary / Conclusions [1/2]

1. Trends in exploration spend

Exploration spend peaked at $30 billion in 2012

Industry is highly cyclical (Peak>Trough of 50-70%)

Half of exploration spend in Australia is on Bulk Minerals

2. Significant discoveries in the last decade

559 significant discoveries made

but only 15 of these were Tier1, and 69 Tier 2

3. Discovery performance

Our discovery efficiency has declined in recent years.This is due to higher input costs

In terms of Value/Cost Australia did well, Africa best

59


Summary / Conclusions [2/2]

4. What drives exploration spend?

Main factors are commodity prices and the availability offunds. At a local level spend will be influenced by newexploration ideas & discoveries, as well as country risk

5. Special challenges for Australia – depth of cover

Average depth of discovery is now 82 metres and risingDrilling is very inefficient (20,000 km per giant !!)

6. Future Exploration spend

Based on long-run commodity prices, global explorationspend will level out at ~ 28% below 2012 peak.

In the short-term, the level of spend will remain volatile

60

MinEx Consulting Strategic advice on mineral economics & exploration 61

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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