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SMEG-AIG Presentation April 01. ppt SMEDG – AIG Symposium : Sydney : April 27, 2001 EXPLORATION STRATEGIES : Simple Observations, Significant Implications.

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Presentation on theme: "SMEG-AIG Presentation April 01. ppt SMEDG – AIG Symposium : Sydney : April 27, 2001 EXPLORATION STRATEGIES : Simple Observations, Significant Implications."— Presentation transcript:

1 SMEG-AIG Presentation April 01. ppt SMEDG – AIG Symposium : Sydney : April 27, 2001 EXPLORATION STRATEGIES : Simple Observations, Significant Implications John R Parry Executive General Manager - Exploration WMC Resources Ltd

2 SMEG-AIG Presentation April 01. ppt Most of the mineral industry's wealth is captured by a handful of giant deposits OBSERVATION 1 : Most of the mineral industry's wealth is captured by a handful of giant deposits Cumulative 8% discount rate Source : Derived from Mackenzie Deposits with total value of US$32Billion in 1994 dollars Base Metal Mines discovered in Canada & Australia to 1988 BASE METALS 2/3rds of wealth comes from 10% of all projects

3 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : Giant Deposits Need to focus on finding giant deposits, as only these : –Are of the right scale to make a significant impact on the company’s business –Provide a sufficiently large return to pay for ongoing exploration costs For Major Companies For Junior Companies Small deposits can give good IRRs, but NPV will be small Finding a giant deposit can be a “Company-Maker” (ie as the Carlin District was for Barrick and Newmont)

4 SMEG-AIG Presentation April 01. ppt OBSERVATION 2 : Within a district, most of the endowment is tied up in handful of deposits Junction Leviathan Revenge Argo Victory 35 Deposits 8.1 moz Au Gold Endowment (koz) at St Ives Endowment = Current Reserves + Cumulative Production Source : WMC Dec 1999

5 SMEG-AIG Presentation April 01. ppt OBSERVATION 3 : In a given district, t he largest deposits tend to be found first Mararoa 1160 koz Royal 1940 koz Crown 1080 koz Harlequin 270 koz Bullen 270 koz OK 180 koz Gold Discoveries at Norseman (koz) Year of Startup Source : WMC Dec 1998 Deposit Size discovered

6 SMEG-AIG Presentation April 01. ppt OBSERVATION 3 : In a given district, t he largest deposits tend to be found first … and for the least explorn $ Year of Startup Exploration Expenditures Yr 2000 A$m Source : WMC Dec 1998 Note : Excludes “Extensional” exploration Gold Discoveries at Norseman (koz) Deposit Size discovered

7 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : Big deposits are found first Avoid grassroots exploration in mature districts. If you are not first or second, you are probably too late Need to continuously assess the maturity of the district (a good indicator is the discovery cost per unit of metal). At some point in time, brownfields exploration for medium-sized deposits becomes uneconomic For Major Companies

8 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : Deposit size-frequency Should have a large tenement package as this : –Raises the probability that the largest deposit is on your tenement – Facilitates incremental discoveries – even smaller mines feeding into a large central mill can be financially attractive For Major Companies For Junior Companies Small deposits are often found near giants and there are a lot more of them to find Small discoveries may end up being sold to a larger operator next door (key issue – will you get a fair price ?) or operated on their own

9 SMEG-AIG Presentation April 01. ppt OBSERVATION 4 : New concepts/technology can help reinvigorate a mature district … Cumulative Copper Resources Discovered in Chile (mt Cu) Chuquicamata El Teniente Year Discovered La Escondida Outcropping ore bodies Porphyry model applied to outcrop Persistant explorn in known camps New Process Technology SXEW Covered ore zones … but the pay-off gets smaller each time Source : WMC 1997

10 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : Be Innovative Remember that Observations 1 to 3 still apply In a mature district, must have a new concept/technology to be a “new” first mover For Major Companies For Junior Companies Innovation can be in several forms : –New search methods (Airborne Gravity) –New conceptual models (Olympic Dam) –New process technologies (SXEW for Cu, Heap Leaching for Au) –New financing methods (gold loans, project finance) –Strong relationships with local communities & governments Can be a fast follower, but must understand the strategic implications/limitations

11 SMEG-AIG Presentation April 01. ppt OBSERVATION 5 : In terms of finding big deposits, the majors have a better track record than the juniors 63% 17% 25% 37% 70% 78% Source : Metals Economic Group July 2000 note : Based on Western World discoveries in of gold and base metals with an in-situ value >US$1B 5% Discovery Performance for Majors vs. Juniors : )

12 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : On average, perception doesn’t match reality for large deposits Risky to rely on juniors to be your de facto exploration team –As always, the right partner is critical For Major Companies For Junior Companies Success of juniors in finding “small” deposits has led to a false impression with respect to large discoveries

13 SMEG-AIG Presentation April 01. ppt OBSERVATION 6 : Average cost of finding big deposits appears to be rising Exploration Cost per Large Discovery : June 2000 US$m na Average for was US$560m per Major Discovery note : Rise may be due to lack of recent data Source : Metals Economic Group July 2000 note : Based on Western World discoveries of gold and base metals with an in-situ value >US$1B

14 SMEG-AIG Presentation April 01. ppt IMPLICATIONS : Rising finding costs Corporate view that it is “cheaper” to buy than to find is leading to : –General cutback in grassroots exploration –Increased reliance on acquiring other company’s discoveries For Major Companies For Junior Companies General issues for the Industry : On average, exploration doesn’t seem to pay its way Replacement of existing mines More difficult to raise risk money : –Risk capital has shifted to the technology sector –Increased reliance on majors for funding

15 SMEG-AIG Presentation April 01. ppt SUMMARY : Simple Observations Most of the minerals industry’s wealth is captured by a handful of giant deposits Within a district, most of the endowment Is tied up in handful of deposits In a given district, the largest deposits tend to be found first … and for the least exploration cost New concepts can help reinvigorate a mature district In terms of finding giant deposits, the majors have a better track record than the juniors Average cost of finding giant deposits appears to be rising

16 SMEG-AIG Presentation April 01. ppt CONCLUSIONS : Significant Implications For a given Company the “correct” exploration strategy will depend upon : Relationships with others Financial resources Technical capabilitiesExisting operations Time horizonAttitude to risk A strategy based on exceptions will fail on average There is more than one good strategy If you have a strategy but don’t follow it, you don’t have a strategy Can’t afford to be “average” at exploration Majors must focus on exploring for (and developing) world-class deposits The observation is that there are plenty of options, however ….


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