Boston Consulting Group’s report Tackling the Crisis in Mineral Exploration says miners which shift their focus from productivity to an integrated approach that restores greenfield exploration would come out ahead.
Over the 30-year period from 1975-2005, discoveries tracked exploration expenditure closely, but despite exploration spending reaching an all-time high of $US23 billion in 2012, annual discoveries (excluding bulk commodities) declined by more than half over 2010-13.
The report shows that the cost of discovery is rising, with the average discovery cost for a moderate-sized gold or base metals deposit rising from $44 million in the 1980s to $77 million between 2000-09 and has escalated since then.
According to BCG, the most worrying trend is that the rate of “giant” discoveries, which is down to only one or two globally a year.
Exploration expenditure in Australia, Canada and the US has halved over the past 20 years.
BCG partner and co-author, Perth-based Alexander Koch, said the exploration crisis was beneath the radar for most of the mining industry.
“Since the end of the resources boom, most mining companies have now shifted their focus to productivity and cut back sharply on exploration spending, which has exacerbated the depletion of resources and reserves,” he said.
BCG spoke to six of the world’s exploration “legends” – former Anglo American base metals exploration head Graham Brown, Oyu Tolgoi discoverer Douglas Kirwan, Olympic Dam finder Jim Lalor, veteran Sig Muessig, Columbus Gold president Andy Wallace, and Dan Wood, the man who led the discovery of Newcrest Mining’s Cadia deposits.
The aim was to compile the men’s insights on the crisis in the exploration sector and get their views on the steps to exploration success.
The experts determined that leadership was the single most important factor in exploration success.
Beyond that, the legends determined the four key areas were: exploration strategy; exploration management; innovation; and talent development and people management.
The report also observes that science has its place, but is no substitute for field work; a balance of greenfields and brownfields exploration is less risky than a sole brownfields focus; exploration should be run as a profit centre; and talent makes the difference in exploration success.
Koch said discovery was a key factor in superior value creation for shareholders.
“The downturn in prices has highlighted the importance of mineral discovery – especially in greenfield settings – as a source of high-value deposits that can pay their way through almost all parts of the commodity cycle,” he said.
“One of the key findings is that mining companies can turn their exploration performance around. Finding orebodies is not all about luck, and success is not unpredictable.
“And while some companies struggle to replace depleted reserves, those that act in a countercyclical way – that build world-class exploration capabilities – will be rewarded with disproportionate returns.”
