Long term trends in global exploration – are we finding ... Conference... · Long term trends in...

MinEx Consulting Strategic advice on mineral economics & exploration

Long term trends in global exploration– are we finding enough metal?

Richard SchoddeManaging Director, MinEx Consulting

Adjunct Professor, Centre for Exploration Targeting , UWA

11th Fennoscandian Exploration and Mining Conference31st October 2017, Levi, Finland


Overview

1. The Business Case for exploration

2. Long term trend in exploration expenditures

3. Long term outlook for exploration expenditures

4. Number of discoveries made

5. Long Term trends in Unit Discovery Costs

6. Forecast amount of metal discovered

7. Summary / Conclusions


1. BUSINESS CASE FOR EXPLORATION

Its simple – for the industry to be sustainable it need to find (good) new deposits to replacewhat it mines

3


The World’s demand for metals doubles every 20-30 yearsPrimary copper production for World: 1900-2050

0

5

10

15

20

25

30

35

40

1900 1920 1940 1960 1980 2000 2020 2040

Cumulative copperproduction for all history

(1000 BC to 2016 AD)= 687 Mt Cu

Cumulative copperproduction for all history

(1000 BC to 2016 AD)= 687 Mt Cu

Forecast cumulativedemand over next 26 years

(2017-2042)= 689 Mt Cu

Forecast cumulativedemand over next 26 years

(2017-2042)= 689 Mt Cu

Forecast DemandBased on 1.8% pa growth

Historic DemandAverage growth rate of3.2% pa over last 25 years

Source: MinEx Consulting © June 2017 based on historical datafrom USGS and the Australian Department of Industry

Mt pa Cu

20.7 Mt pain 2016

32.8 Mt pain 2042

9.3 Mt pain 1991

4.6 Mt pain 1966

2.5 Mt pain 19410.5 Mt pa

in 1900

CASE STUDY : COPPEROver the next 26 years the world is goingto mine more copper than what has beenmined in all history

CASE STUDY : COPPEROver the next 26 years the world is goingto mine more copper than what has beenmined in all history

4

We see similar trends forother commodities


2. LONG TERM TREND IN EXPLORATIONEXPENDITURES

Over the last 50 years, exploration expenditures (in real terms) have increased 3-fold

5


$0

$5

$10

$15

$20

$25

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

China

FSU + E Europe

Western World

2017 US$ Billion

Exploration expendituresNon-Bulk mineral exploration – World : 1950-2016

Note: No data forWestern Worldprior to 1950

Note: No data forFSU +E Europe + Chinaprior to 1975

Compared to previous businesscycles, the 2005-12 exploration

boom was unprecedented

Compared to previous businesscycles, the 2005-12 exploration

boom was unprecedented

6

Source: MinEx Consulting © October 2017Note: Excludes expenditures on Bulk Minerals (i.e. bauxite, potash, phosphate, coal and iron ore)


$0

$5

$10

$15

$20

$25

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Western World

Rest of World

China

FSU + E Europe

Western Europe

Africa

Pac / SE Asia

Latin America

United States

Canada

Australia

2017 US$ Billion

Exploration expenditures by RegionNon-Bulk mineral exploration – World : 1975-2016

7



Exploration expenditures by CommodityNon-Bulk mineral exploration – World : 1975-2016

$0

$5

$10

$15

$20

$25

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Other

Uranium

Lead/Zinc

Nickel

Copper

Gold

2017 US$ Billion

8


Gold continues tobe the main

commodity ofinterest

Gold continues tobe the main

commodity ofinterest


3. LONG TERM OUTLOOK FOREXPLORATION EXPENDITURES

The level of exploration spend is set to rise by 65% (in real terms) over the next decade

9


Exploration spend varies with the commodity price : GoldGold price and exploration expenditures - World : 1975-2016

$0

$2

$4

$6

$8

$10

$12

$0

$500

$1,000

$1,500

$2,000

1975 1985 1995 2005 2015

2017 US$/oz Au 2017 US$ Billion

$0

$2

$4

$6

$8

$10

$12

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

2017 US$ Billion

2017 US$/oz AuYear

2016

Gold Price

ExplorationSpend

1985-2016

10

Source: MinEx Consulting © October 2017

See similarcorrelations for

other commodities

See similarcorrelations for

other commodities

1985


Historical and Predicted Exploration expendituresNon-Bulk mineral exploration – World : 1975-2016

$0

$5

$10

$15

$20

$25

1975 1985 1995 2005 2015 2025 2035


Note: Predicted spend is based on a set of multi-factor regression models for gold, copper,nickel, lead-zinc, uranium and other metals for the period 1985-2016

2017 US$ Billion

A Multi-Factor modelwas built to predict thelikely exploration spend

A Multi-Factor modelwas built to predict thelikely exploration spend

R2 = 0.91

PREDICTED

ACTUAL

11

The main driver isthe commodity price


Forecast Exploration expenditures by CommodityNon-Bulk mineral exploration – World : 1975-2040

$0

$5

$10

$15

$20

$25

1975 1985 1995 2005 2015 2025 2035

Other

Uranium

Lead/Zinc

Nickel

Copper

Gold

Note: Based on a long-run price (in constant 2017 US Dollars) of $1150/oz Au, $2.75/lb Cu,$7.30/lb Ni, $1.00/lb Zn, $0.85/lb Pb and $37/lb U3O8

2017 US$ Billion

Forecast ->>

$16.9 b

$9.1 bin 2016

$24.8 b

12

Expendituresare set to rise by

65% by 2027

Expendituresare set to rise by

65% by 2027

$15.5 bin 2027

Source: MinEx Consulting © October 2017Price forecast from Consensus Economics October 2017


4. LONG TERM TRENDS IN THE NUMBER OFDISCOVERIES MADE AND CONTAINED METAL

The number of discoveries has slowly risen over time

13


Number of discoveries by sizeMineral discoveries in the World: 1900-2016

0

20

40

60

80

100

120

140

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

Moderate

Major

Giant

Number


772

5797

1903

2953The number of discoveriesmade each year has been

slowly rising over time

The number of discoveriesmade each year has been

slowly rising over time

169

Note: Excludes Bulk Mineral discoveries (i.e. bauxite, potash, phosphate, coal and iron ore)“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

Includes anadjustment for

unreporteddiscoveries

Includes anadjustment for

unreporteddiscoveries

14

Its too early to tell whether the recent dropin the discovery rate is “real” or “apparent”


Number of discoveries by commodity typeMineral discoveries in the World: 1900-2016

0

20

40

60

80

100

120

140

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

Other

Uranium

Lead/Zinc

Nickel

Copper

Gold

Number

391

5797

370

920

169

1094

2485

368

15

Source: MinEx Consulting © October 2017Note: Excludes Bulk Mineral discoveries (i.e. bauxite, potash, phosphate, coal and iron ore)


Number of discoveries by commodity typeMineral discoveries in the World: 1900-2016

0%

20%

40%

60%

80%

100%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Other

Uranium

Lead/Zinc

Nickel

Copper

Gold

Percentage of Total

Note: Excludes Bulk Mineral discoveries (i.e. bauxite, potash, phosphate, coal and iron ore)“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

Average overlast 5 years


26%

3%

4%

4%

15%

48%

16


Gold continues tomake up half of all of

the discoveries

Gold continues tomake up half of all of

the discoveries


Number of discoveries by regionMineral discoveries in the World: 1900-2016

0

20

40

60

80

100

120

140

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

Rest of World

China

FSU + E Europe

Western Europe

Africa

Pac / SE Asia

Latin America

United States

Canada

Australia

Number

649

5797

211

169

233

691

573

827

566

733

304

841

17




0%

20%

40%

60%

80%

100%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Rest of World

China

FSU + E Europe

Western Europe

Africa

Pac / SE Asia

Latin America

United States

Canada

Australia

Percentage of Total



15%

9%

2%

11%

4%

6%

22%

6%

9%

17%

18




0%

20%

40%

60%

80%

100%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Rest of World

China

FSU + E Europe

Western Europe

Africa

Pac / SE Asia

Latin America

United States

Canada

Australia

Percentage of TotalRise of China and

the return of AfricaRise of China and

the return of Africa

Australia continuesto holds its share

Australia continuesto holds its share

The relative importance ofeach Region changes over time

The relative importance ofeach Region changes over time

In the early 1900’s USAwas dominant …

In the early 1900’s USAwas dominant …

… followedby Canada… followedby Canada

Russia dropped out following thecollapse of the Soviet Union in 1991

Russia dropped out following thecollapse of the Soviet Union in 1991

… is driven by geological maturity, technology,infrastructure and Country Risk

19


Note: Excludes Bulk Mineral discoveries (i.e. bauxite, potash, phosphate, coal and iron ore)


Amount of Metal discovered : CopperWorld: 1900-2016

0

50

100

150

200

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

<1 Mt Cu

>1Mt Cu

Mt Cu Much of the metal found isassociated with the episodic

discovery of a super-giant

Much of the metal found isassociated with the episodic

discovery of a super-giant

Chucuicamata1910 : 167 Mt

Escondida1981 : 137 Mt

El Teniente1904 : 129 Mt

Andina1955 :120 Mt

Olympic Dam1975 : 84 Mt

Collahuasi1991 : 80 Mt

Lubin1957 : 55 Mt

Grasberg1988 : 55 Mt

20



Amount of Metal discovered : CopperWorld: 1900-2016

0

50

100

150

200

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Cu

3270

3650 Mt Cu

247

106

By-Product Cumakes up 8%of the total

By-Product Cumakes up 8%of the total

21



Amount of Metal discovered : GoldWorld: 1900-2016

0

50

100

150

200

250

300

350

400

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

409 MozMoz Au

8306

10,572 Moz Au

1828

438

By-Product Aumakes up 18%

of the total

By-Product Aumakes up 18%

of the total

22



Amount of Metal discovered : ZincWorld: 1900-2016

0

10

20

30

40

50

60

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Zn

726

1048 Mt Zn

263 #

59

By-Product Znmakes up 27%

of the total

By-Product Znmakes up 27%

of the total

# Note: Includes 23 Mt of Zn associated with Lead deposits

23



Amount of Metal discovered : LeadWorld: 1900-2016

0

10

20

30

40

50

60

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Pb

125

405 Mt Pb

264 #

16

By-Product Pbmakes up 68%

of the total

By-Product Pbmakes up 68%

of the total

# Note: Includes 191 Mt of Lead associated with Zinc deposits

24



Ratio of Zinc + Lead discoveredWorld: 1900-2016

0%

20%

40%

60%

80%

100%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

% By-Product Zn

% Primary Zn

% Primary Pb

% By-Product Pb

Total Zn+Pb discovered

54% #

# Note: In this case, Primary includes Zn found in Pb deposits, and visa versa

100%

23% #

5%

17%

These ratios mean that 1t of Primary Zn+Pb will (on average) contain 0.70t Zn + 0.30t Pb.In addition, for every 1t of Primary Zn+Pb found, an additional 0.23t by-product Zn and 0.07t of by-product Pbwill be found in other deposits

25



Amount of Metal discovered : NickelWorld: 1900-2016

0

5

10

15

20

25

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Ni

288

317 Mt Ni

24

6

By-Product Nimakes up 8%of the total

By-Product Nimakes up 8%of the total

# Note: Includes 23 Mt of Zn associated with Lead deposits

26



Amount of Metal discovered : Nickel Laterite & SulphideWorld: 1900-2016

0

5

10

15

20

25

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Nickel Laterite

Nickel Sulphide

Mt Ni

114

317 Mt Ni

24

6

Ni Lat makes up 60% of theprimary total

Ni Lat makes up 60% of theprimary total

174

Note: By-Product credits make up 20% of Ni S, and 0% of Ni Lat

27



Amount of Metal discovered : MolybdenumWorld: 1900-2016

0

2

4

6

8

10

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Mo

42.9

85.4 Mt Mo

40.9

1.6

By-Product Momakes up 49%

of the total

By-Product Momakes up 49%

of the total

Most of this is associated withcopper deposits

Several largeMo discoveries

in China

Several largeMo discoveries

in China

28



Amount of Metal discovered : CobaltWorld: 1900-2016

0

1

2

3

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

Est Unreported

By-Product

Primary

Mt Co

0.97

23.26 Mt Co

22.21

0.08

By-Product Comakes up 96%

of the total

By-Product Comakes up 96%

of the total

Most of this is associated withnickel deposits

29



5. LONG TERM TRENDS IN UNITDISCOVERY COSTS

For many commodities the unit cost (per Oz or lb found) has risen over time

30


Exploration Expenditures and amount of Primary Metal discovered : CopperWorld: 1975-2016

$0

$1

$2

$3

$4

$5

$6

$7

0

50

100

150

200

1975 1985 1995 2005 2015

Est Unreported Primary

Primary

Exploration Expenditures

Mt Cu 2017 US$b

31



Unit Discovery Cost : CopperWorld: 1975-2016

0

5

10

15

1975 1985 1995 2005 2015

2017 US c/lb Cu

FORECAST3 c/lb Cu

going forward

FORECAST3 c/lb Cu

going forward

3-Year rolling average

32



Exploration Expenditures and amount of Primary Metal discovered : GoldWorld: 1975-2016

$0

$2

$4

$6

$8

$10

$12

0

50

100

150

200

250

1975 1985 1995 2005 2015


Primary


Moz Au 2017 US$b

33



Unit Discovery Cost : GoldWorld: 1975-2016

$0

$20

$40

$60

$80

$100

1975 1985 1995 2005 2015

2017 US $/oz AuFORECAST$45/oz Au

in 2017 andrising by $10/oz

per decade

FORECAST$45/oz Au

in 2017 andrising by $10/oz

per decade


34



Exploration Expenditures and amount of Primary Metal discovered : Zn+PbWorld: 1975-2016

$0.0

$0.5

$1.0

$1.5

$2.0

0

10

20

30

40

50

60

1975 1985 1995 2005 2015

Est Unreported Primary Zn+Pb

Primary Pb

Primary Zn

Exploration Expenditures Zn+Pb

Mt Zn+Pb 2017 US$b

Average metal split is70% Zn and 30% Pb

Average metal split is70% Zn and 30% Pb

35


Have combined Zn & Pbtogether because of

common explorn targets

Have combined Zn & Pbtogether because of

common explorn targets


Unit Discovery Cost : Zinc+LeadWorld: 1975-2016

0

5

10

15

1975 1985 1995 2005 2015

2017 US c/lb Zn+Pb

FORECAST3 c/lb Zn+Pb

going forward

FORECAST3 c/lb Zn+Pb

going forward


36



Exploration Expenditures and amount of Primary Metal discovered : Nickel SulphideWorld: 1975-2016

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

0

2

4

6

8

10

1975 1985 1995 2005 2015


Primary


Mt Ni 2017 US$b

37



Unit Discovery Cost : Nickel SulphideWorld: 1975-2016

0

20

40

60

80

100

1975 1985 1995 2005 2015

2017 US c/lb NiFORECAST28 c/lb Ni

in 2017 andrising by 4 c/lb

per decade

FORECAST28 c/lb Ni

in 2017 andrising by 4 c/lb

per decade


38



Exploration Expenditures and amount of Primary Metal discovered : Nickel LateriteWorld: 1975-2016

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

0

2

4

6

8

10

1975 1985 1995 2005 2015


Primary


Mt Ni 2017 US$b

39



Unit Discovery Cost : Nickel LateriteWorld: 1975-2016

0

5

10

15

20

1975 1985 1995 2005 2015

FORECAST5 c/lb Ni

going forward

FORECAST5 c/lb Ni

going forward

2017 US c/lb Ni


40



6. FORECAST AMOUNT OF METAL DISCOVERED

Estimates are made of the amount of Au, Cu, Zn, Pb and Ni likely to be found overthe next 25 years. This is then compared against the likely future amount required tosustain the projected mine production

41


Methodology used to forecast the future amountof gold discovered

Based on a forecast gold price of US$1125/oz …

The multi-factor regression model predicts that global spend on gold exploration in ten years time(i.e. in 2027) will be around $6000 million

Based on past trends the likely unit cost of discovery in 2027 will be US$55/oz

On this basis, the likely amount of primary gold discovered will be [6000/55 =] 109 Moz

In addition, it is assumed the by-product gold makes up 18% of the total gold found (i.e. 24 Moz)

On this basis, the total amount of gold discovered in 2027 should be [109/(1-0.18) = ] 133 Moz

42


Forecast Discovery Rate versus Mine Production : GoldWorld: 1975-2040

0

50

100

150

200

250

300

1975 1985 1995 2005 2015 2025 2035

Est Unreported Discoveries

By-Product Discoveries

Primary Discoveries

Mine Production

Forecast Mine Production

Moz Au


Forecast ->>

Note: Forecast discovery rate is based on long-run gold price of US$1150/oz in constant 2017 US Dollars, and aunit discovery cost of US$45/oz rising by $10/oz per decade.

Note: Forecast production rate assumes a 1% pa growth rate post 2022

301 Moz

43

At first “glance” the industryappears to be in-balance …

At first “glance” the industryappears to be in-balance …


… however, not all of the gold discovered will be producedBased on past trends, it is likely that only 70% of the gold discovered will have a mine built onthem. And the average delay between discovery and development is likely to be 15-20 years

Due to mining and processing losses only 90% of the contained metal in the primary golddeposits will be recovered as gold-bars

The recovery rates for by-product gold (in say, a copper deposit) is estimated to be lower at ~80%

On this basis, the forecast amount of gold produced from discoveries made in 2027 will be …

109 Moz x 70% x 90% + 24 Moz x 70% x 80% = 82 Moz

In practice, the amount of gold produced could be less than this … as not all of the reportedresource is economic to mine

Global gold production in 2027 is forecast to be 119 Moz

The forecast rate of discovery isinsufficient to support this level of mining

The forecast rate of discovery isinsufficient to support this level of mining

44


Cumulative Metal in Discoveries that become mines: GOLDAll Discoveries in the World >=100 koz

0%

20%

40%

60%

80%

100%

0 10 20 30 40 50 60 70

Cumulative %

Years from Discovery

1950-59

1960-69

1970-79

1980-89

1990-99

2000-16

Discovery Period99% #

65%

78%

86%

29%

69%

Cumulative % refers to those deposits that (eventually) turn into mines.Caution: Even if the deposit does get mined, not all of the contained metal will be extracted /covered.

# Note: The very high metal conversion rate in the 1950s is due to very large (and economic) gold discoveries in the Witwatersrand in South Africa

Source: MinEx Consulting © September 2017

The overall conversionrate for Gold is getting

lower and slower

The overall conversionrate for Gold is getting

lower and slowerSee similar trends forthe other commodities

45


Cumulative Metal in Discoveries that become mines: GOLDAll Discoveries in the World >=100 koz

0%

20%

40%

60%

80%

100%

0 10 20 30 40 50 60 70

Cumulative %

Years from Discovery

1950-59

1960-69

1970-79

1980-89

1990-99

2000-16

FORECAST

Discovery Period99%

65%

78%

86%

29%

69%

Caution: Not all of the gold contained in the deposit will be mined / recovered.Source: MinEx Consulting © September 2017

for more details see MinEx’s presentation at the 2017 China Mining Conference

FORECAST that 70% of the goldfound will have a mine built within

50 years from discovery

FORECAST that 70% of the goldfound will have a mine built within

50 years from discovery

70%

46

Weighted average delay betweendiscovery and development is 20 years


Estimated Replacement Rate versus Mine Production : GoldWorld: 1975-2040

0

50

100

150

200

250

300

1975 1985 1995 2005 2015 2025 2035

Est Unreported Discoveries (Adjusted)

By-Product Discoveries (Adjusted)

Primary Discoveries (Adjusted)

Mine Production


Moz Au


Forecast ->>

After adjusting for theconversion rate and processingloss, it is clear that we are not

finding enough new gold tosustain future production

After adjusting for theconversion rate and processingloss, it is clear that we are not

finding enough new gold tosustain future production

Note: Assumes a long-run gold price of US$1150/oz in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 70% conversion rate for mining, anda 10% loss for mining & processing (and 20% loss for by-product metal)

ADJUSTED NUMBERS

47


Forecast Discovery Rate versus Mine Production : CopperWorld: 1975-2040

0

50

100

150

1975 1985 1995 2005 2015 2025 2035



Primary Discoveries

Mine Production


Mt Cu

Forecast ->>

Note: Forecast discovery rate is based on long-run copper price of US$2.75/lb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb

Note: Forecast production rate assumes a 1.8% pa growth rate post 2022

48



Estimated Replacement Rate versus Mine Production : CopperWorld: 1975-2040

0

50

100

150

1975 1985 1995 2005 2015 2025 2035




Mine Production


Mt Cu

Forecast ->>

Note: Assumes a long-run gold price of US$2.75/lb Cu in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)

ADJUSTED NUMBERS

49

Copper supplies aresustainable

Copper supplies aresustainable



Forecast Discovery Rate versus Mine Production : ZincWorld: 1975-2040

0

10

20

30

40

50

1975 1985 1995 2005 2015 2025 2035



Primary Discoveries

Mine Production


Mt Zn

Forecast ->>

Note: Forecast discovery rate is based on long-run zinc price of US$1.00/lb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb for Zn+Pb (with a 70:30 split between Zn and Pb)


50.7 Mt

50



Estimated Replacement Rate versus Mine Production : ZincWorld: 1975-2040

0

10

20

30

40

50

1975 1985 1995 2005 2015 2025 2035




Mine Production


Mt Zn

Forecast ->>

Note: Assumes a long-run zinc price of US$1.00/lb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)

ADJUSTED NUMBERS

51

Severe shortfallin new Zinc resources

Severe shortfallin new Zinc resources



Forecast Discovery Rate versus Mine Production : LeadWorld: 1975-2040

0

5

10

15

1975 1985 1995 2005 2015 2025 2035



Primary Discoveries

Mine Production


Mt Pb

Forecast ->>

Note: Forecast discovery rate is based on long-run price of US$1.00/lb Zn and $0.85/lb Pb in constant 2017 US Dollars, and aunit discovery cost of US 3.0 c/lb for Zn+Pb (with a 70:30 split between Zn and Pb)


16.5 Mt

52



Estimated Replacement Rate versus Mine Production : LeadWorld: 1975-2040

0

5

10

15

1975 1985 1995 2005 2015 2025 2035




Mine Production


Mt Pb

Forecast ->>

Note: Assumes a long-run price of US$1.00/lb Zn and $0.85/lb Pb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 60% conversion rate for mining, anda 12% loss for mining & processing (and 20% loss for by-product metal)

ADJUSTED NUMBERS

53

Major shortfallin new Lead

resources

Major shortfallin new Lead

resources



Forecast Discovery Rate versus Mine Production : NickelWorld: 1975-2040

0

2

4

6

8

10

1975 1985 1995 2005 2015 2025 2035



Primary Discoveries - NiLat

Primary Discoveries - NiS

Mine Production


Mt Ni

Forecast ->>

Note: Forecast discovery rate is based on long-run nickel price of US$7.30/lb in constant 2017 US Dollars, and aunit discovery cost of US 5 c/lb for Nickel Laterites and 28 c/lb for Nickel Sulphides, rising by 4c/lb per decade

Note: Forecast production rate assumes a 2% pa growth rate post 2022

54



Estimated Replacement Rate versus Mine Production : NickelWorld: 1975-2040

0

2

4

6

8

10

1975 1985 1995 2005 2015 2025 2035



Primary Discoveries - Ni Lat(Adjusted)Primary Discoveries - Ni S (Adjusted)

Mt Ni

Forecast ->>

ADJUSTED NUMBERS

Note: Assumes a long-run nickel price of US$7.30/lb in constant 2017 US Dollars.The Replacement rate is based on adjusting the Discovery Rate for a 65% conversion rate for mining NiS (45% for NiLat), anda 12% loss for mining & processing (15% for NiLat) and 20% loss for by-product metall

55

Severe shortfallin new Nickel

resources

Severe shortfallin new Nickel

resources



Implications

In the short- to medium-term, industry will draw down on existing inventory ofundeveloped resources. However to be sustainable in the longer term weneed to either spend more on exploration or be much better at discovery.

If not, the gold price will need to rise …- so as to stimulate additional exploration, and- encourage marginal projects to be developed.

Higher gold prices will also …- help grow the resource base through lowering the cut-off grade, and- reduce overall consumer demand (and reduce mine production)

56


Cautionary Note

It should be emphasised the above analysis of the long term sustainabilityof the mining industry involves several simplifying assumptions :

Ignores the dynamic and uncertain nature of exploration Assumes steady commodity prices Doesn’t take into consideration the time lag between discovery

and development No consideration is made of the current inventory of

undeveloped projects Doesn’t model the effect of changes in prices and costs on output

from existing mines Doesn’t adjust for potential changes in metal demand

“Health”warning“Health”warning


Many of these issues were addressed in a recent report by MinEx Consultingassessing the 40 year production outlook for the Australian gold industry

Long-term forecast of Australia’s mineral production and revenueThe outlook for gold: 2017-2057

By Richard SchoddeOctober 2017

It uses a Monte-Carlo approach to model the effect of uncertainty of thelikelihood of existing mines, new projects and exploration success

A copy of this reportcan be downloaded

from my website

A copy of this reportcan be downloaded

from my website


Forecast gold price and exploration expenditures - Australia : 1995-2057

$0

$500

$1,000

$1,500

$2,000

$2,500

1995 2005 2015 2025 2035 2045 2055

2017 AUD$/oz

$1524/oz

5-95% Confidence Interval

$1471

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

1995 2005 2015 2025 2035 2045 2055

2017 AUD$ Million

$677m

Predicted

Actual

GOLD Price(in Australian Dollars)

GOLD EXPLORATIONEXPENDITURES

(in Australian Dollars)

Forecast ->>Forecast ->>

59



Long term outlook for the Australian gold industry : 1995-2057

0

20

40

60

80

100

120

1995 2005 2015 2025 2035 2045 2055

A: NUMBER OF MINES

$0

$5

$10

$15

$20

$25

1995 2005 2015 2025 2035 2045 2055

D: REVENUE

0

10,000

20,000

30,000

40,000

1995 2005 2015 2025 2035 2045 2055

C: EMPLOYMENT 2017 A$ Billion

Number

No of Workers

47 Mines

71 minesin 2017

8,300Workers

27,980in 2017

$7.3b

$16.6bin 2017

0

2

4

6

8

10

12

14

1995 2005 2015 2025 2035 2045 2055

Historical

Forecast

B: PRODUCTION

Moz pa

68% & 90%Confidence

Intervals

68% & 90%Confidence

Intervals

4.69 Moz

9.70 Mozin 2017

60



0

2

4

6

8

10

12

14

1995 2005 2015 2025 2035 2045 2055

Exploration Success

New Projects

Existing Mines

Historical

Forecast sources of Gold ProductionAustralia: 1995-2057

Moz pa

Note: Mean/Average forecast only. Due to uncertainty in commodity prices and exploration successthe likely forecast figure (at a 90% Confidence Interval) will vary by +/-40%.

4.1 Moz

9.7 Mozin 2017

0.3 Moz0.4 Moz

4.7 Mozin 2057

Forecast ->>


In 40 years time, 80%of gold production

will come from newdiscoveries

In 40 years time, 80%of gold production

will come from newdiscoveries

In 15 years time, halfof gold production

will deposits yet to bediscovered

In 15 years time, halfof gold production

will deposits yet to bediscovered

Of concern is that the averagedelay between discovery anddevelopment is 13 years


Key take-aways from the Australian Gold study

• Even under a wide range of possible scenarios, it is clear that the long termsustainability of the industry critically depends on sustained explorationsuccess

• Due to the long lead times between discovery and development –Government & Industry need to support exploration now … to offset the realrisk of a supply disruption in the medium term


7. SUMMARY /CONCLUSIONS

63


Summary / Conclusions [1/2]

1. The Business Case for exploration- Over the next 26 years the World will produce as much copper as that mined in all history. To sustain theindustry we need to find new deposits

2. Long term trend in exploration expenditures- The industry is highly cyclical. Even so over the last 50 years, exploration expenditures (in real terms) haveincreased 3-fold

3. Long term outlook for exploration expenditures- Expenditures are strongly linked to commodity prices. MinEx forecasts that global exploration expenditureswill rise by 65% (in real terms) over the next decade

4. Number of discoveries made and contained metal

- Number of discoveries made has slowly risen over time. However it there has been recent drop-off in therate of discovery


Summary / Conclusions [2/2]

5. Long Term trends in Unit Discovery Costs- The unit cost of discovery for gold is projected to be US$45/oz (and rising). Copper is 3c/lb, Zinc & Lead is 3

c/lb, nickel laterites is 5 c/lb and nickel sulphides are 28 c/lb (and rising)

6. Forecast amount of metal discovered- After adjusting for the likelihood of discovery being converted into a mine, and factoring in mining & processing

losses it appears that the industry is finding enough copper to sustain itself. But this is not the case for gold andlead. Severe shortfall s projects for zinc an nickel

In the short- to medium-term, industry will draw down on existing inventory of undeveloped resources.However to be sustainable in the longer term we need to either spend more on exploration or be muchbetter at discovery.

If not, the gold price will need to rise …


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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