Finding the copper mine of the 21st century - Sykes & Trench - Sep 2014 - Society of Economic Geologists

FINDING THE COPPER MINE

OF THE 21ST CENTURY:

Conceptual exploration

targeting for hypothetical

copper reserves

John P. Sykes & Allan Trench Centre for Exploration Targeting,

Department of Mineral & Energy Economics, Curtin University

School of Earth & Environment, The University of Western Australia

Society of Economic Geologists

Keystone, USA: October 2014

Society of Economic Geologists Conference

Exploration is pointless!

“…new copper resources are effectively not worth exploring for.”

Slide 2 of 37

Finding the Copper Mine of the 21st Century: Conceptual Exploration Targeting for Hypothetical Copper Reserves

Dobra & Dobra, 2014

Tilton, 1996

“…it is frequently cheaper to add to reserves via new technology than via exploration and discovery.”

Mudd, Weng & Jowitt, 2013

“…there are abundant copper resources already identified that can meet growing global demands for some decades to come;

the primary factors that govern whether a given project is developed will be social, economic, and environmental in

nature.”

Oct 2014


My view is the opposite, BUT…

Exploration in concert with technology and innovation can deliver new copper projects which

can be developed in both an economic and sustainable manner, but only via exploration

targeting high-quality copper deposits.

In this case, the “copper mine of the 21st century” is a high quality, as yet, undiscovered deposit,

meeting the twin goals of economic and sustainable development.*

Slide 3 of 39


NB: But we will have to change how we think about exploration and targeting, as we currently are not delivering this future.

Always read the small print!

Oct 2014


SOME VIEWS ON THE FUTURE

OF MINING & EXPLORATION

Finding the copper mine of the 21st century

Slide 4 of 39


Oct 2014


We’ve discovered lots of resources, so

exploration is not needed?

Slide 5 of 37

0

5

10

15

20

25

30

35

40

45

50

0

100

200

300

400

500

600

700

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Copper Reserve (Mt) Depletion (yrs)

Source: Edelstein (2004-13).


Oct 2014

NB: This is known as ‘fixed stock’ theory, i.e. assuming the

world has a fixed amount of homogeneous mineral ‘resources’


But resources are not equal and we use

the ‘best’ first

Slide 6 of 37

Source: Crowson (2012)

Weighted average percentage head grades of

copper mines, 1970 onwards


Oct 2014


Causing development problems

(particularly social & environmental)

• Falling ore grades

• Increasing depth

• Shrinking size

• Technological problems

• Underground mining

• Equipment shortages

• Raw material shortages

• Underinvestment

• Energy prices

• Labour shortages

• Operating costs

• Capital cost overruns

• Project financing

Oct 2014

• Infrastructure costs

• Environmental legislation

• Increased mine waste

• Water shortages

• Pollution

• Complicated regulations

• Labour unrest

• Land use conflict

• Political problems

• Resource nationalism

• Taxation

• Exchange rates

• Peace & security

Slide 7 of 75


NB: This is ‘sustainable development’ theory, i.e. it is the finite nature of the world and its

environmental and social resources that matter.

KEY

Geological

Technical

Economic

Environmental

Socio-political


And/or rising costs (and prices) without

technology and innovation

0

2000

4000

6000

8000

10000

12000

14000

Long Term Real & Nominal Copper Prices: 1914-2013 (US$/tonne)

Nominal Copper Price Real Copper Price

Slide 8 of 37

Source: Sykes & Trench, 2014


Oct 2014

NB: This is ‘opportunity cost’ theory, i.e. in a world where all scarce resources are being

consumed it is the relative cost of consuming one resource compared to another that matters


The prevailing view of the future of

copper mining: Development problems

• Contradicting views on resource abundance.

• Assumed declining quality of resources into the future.

• Increasing mine costs and/or ‘development’ problems.

• Requirement for ‘above ground’ innovations.

• Minimal role for exploration (just adding to inventory).

Slide 9 of 39


Oct 2014


OR IS IT A DISCOVERY

PROBLEM?


Slide 10 of 39


Oct 2014


Not all ‘resources’ can be developed

economically

Slide 11 of 37

Chart: Cairns, Hronsky, and Schodde, 2010

“…investigate an

alternative, less capital-

intensive design of the

Olympic Dam open-pit

expansion… align with

the Company’s cost

control strategy in the

current economic

environment…”

- BHP Billiton, 6th Dec 2012


Oct 2014

Total Economically Demonstrated

Copper Resources in Australia,

1975-2010


Not all resources can be developed

sustainably

Slide 12 of 37

Photo: John P. Sykes

“Anglo American

has given notice

that it is

withdrawing from

the Pebble copper

project in

Alaska.”

- Anglo American, 16th Sept

2013

“Rio Tinto gifts

stake in

Northern

Dynasty

Minerals to

Alaskan

charities.”

- Rio Tinto, 7th April 2014


Oct 2014


Thus we have a (reserve) ‘discovery’

problem, not a ‘development’ problem

Slide 13 of 39


Oct 2014

Source: Schodde (2012)


REQUIRING AN

EXPLORATION SOLUTION!


Slide 14 of 39


Oct 2014


Resource quality will not inevitably

decline into the future

Slide 15 of 37

Chart: Lagos, 2010

Images: BHP Billiton & John P. Sykes


Oct 2014


The best resources are discovered

first… only where we haven’t looked!

Slide 16 of 37

Chart: Hronsky & Groves, 2008


NB: This is ‘search space’ theory, i.e. that by looking conceptually and physically where no one

else has that resource base can be replenished by high quality discoveries.

Oct 2014


The ‘best’ resources dominate the

industry and change the future

Slide 17 of 37

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sh

are

of

Glo

ba

l C

u M

ine

pro

du

cti

on

United Kingdom Chile USA Other

0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0

Glo

ba

l C

u M

ine

Pro

du

cti

on

(K

t)

United Kingdom Chile USA Other

Decline of UK

mining, rise

of Americas

Resurrection

of Chilean

industry

Decline of UK

mining, rise

of Americas

Resurrection

of Chilean

industry

Data: Crowson,

2012

…in 1898.. Bingham Canyon… was something of a joke… only barren quartz rock flecked with a trace

of copper. Nobody could make money out of so little. …the world’s most famous mining man [Chief

Engineer for the Guggenheims] turned up his nose. It was ridiculed by the most respected mining

journal of the day. …The shovels started… in June 1906. (Lynch, 2002)


Oct 2014


…but what ‘best’ (size & quality) actually

means is a complex issue

Slide 18 of 37

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Cu

ore

gra

de

(%

)

Cornwall (UK) Average

UK Average

Michigan (USA) Average

USA Average

Western World Average

World Average

Change from high

grade underground

mining in UK to low

grade open pits in

USA

Data estimated from:

Crowson, 2012

Further low grade

copper mining

innovations

20th century copper

mining technology,

innovation &

discovery package

Dynamite

Steam power

The corporation

Mechanisation

Major public

infrastructure

Flotation

Improved

smelting &

refining

Airborne

geophysics

Porphyry

geological

model

Better

work

practices

SXEW

Computation

Low cost

drilling

Globalisation Sources: Schodde, 2010; Lynch,

2002 & various personal

communications to the author


Forward contracts

Free trade

New geographies

Oct 2014


A potential alternative view of the future

of copper mining

• Resource scarcity due to poor economics & sustainability

issues: a discovery problem.

• Exploration in new ‘search space’ has the potential to

increase overall resource quality into the future.

• More high quality discoveries will help mitigate rising costs

and sustainable development problems.

• Working in concert with ‘above ground’ technology and

innovation to deal with uncertainties relating to economic,

environmental and societal factors – ‘quality’.

Slide 19 of 39


Oct 2014


SETTING A CONCEPTUAL

EXPLORATION CHALLENGE


Slide 20 of 39


Oct 2014


Explorationists need to be able to

predict ‘presence’ and ‘quality’

McCuaig et al., 2010

LOW

BROAD REGIONAL

PREDICTION

HIGH

PROSPECT SCALE

SCALE

RE

LA

TIV

E

EF

FE

CT

IVE

NE

SS

DETECTION

Camp scale decision

COST

FLEXIBILITY

Alteration halos

High definition

geophysics

Drilling

Geochemistry

?

Slide 21 of 39


Oct 2014

We should now be

able to detect quality

earlier here?

But can we

predict quality

here?


INCORPORATING ECONOMIC

POTENTIAL


Slide 22 of 39


Oct 2014


Exploration should consider economics

(reserves) from the beginning

Based on: CRIRSCO (2013); Sykes & Trench 2014

RESOURCES

RESERVES

GEOLOGICAL CERTAINTY E

CO

NO

OM

IC F

EA

SIB

ILIT

Y

‘McKelvey” Reserve Theoretical Reserve

RESOURCES

GEOLOGICAL CERTAINTY

EC

ON

OO

MIC

FE

AS

IBIL

ITY

RESERVE

S RESERVES

Slide 23 of 23


Oct 2014


As value creation occurs at the early

stages of projects, not later

VALUE

Front End Loading


Source: Bell (2014)

Slide 24 of 33 Oct 2014


But we’ve always known this!

“Now a miner, before he begins to mine the veins must consider

seven things, namely:- the situation, the conditions, the water, the roads, the climate,

the right of ownership and the neighbours.”

- Agricola, 1556

Image: Wikipedia

Slide 25 of 23


Oct 2014

So what is different nowadays?


INCORPORATING

SUSTAINABLE DEVELOPMENT


Slide 26 of 39


Oct 2014


Sustainable development as

‘accessibility’ & social licence


Slide 27 of 39

The Tatshenshini-Alsek Park in

British Columbia, also home to the

Windy Craggy, one of the largest

undeveloped VMS copper deposits in

the world

Image: BC Parks

Oct 2014

Rebel forces outside the

Bougainville copper mine in 1996,

which has since civil war in 1989

miners have been unable to access.

Image: Ben Bohane, The Australian


Conceptually a ‘reserve’ should consider

geology, economics & accessibility

McKelvey Reserve Accessible Reserve


Slide 28 of 39

RESOURCES

RESERVES

GEOLOGICAL CERTAINTY E

CO

NO

OM

IC F

EA

SIB

ILIT

Y

RESOURCES

ACCESSIBLE

RESERVE


EC

ON

OO

MIC

FE

AS

IBIL

ITY

Oct 2014


DISCOVERED

ECONOMIC but

INACCESSIBLE

UNDISCOVERED

INACCESSIBLE but

ECONOMIC

DISCOVERED ACCESSIBLE

but UNECONOMIC

UNDISCOVERED

UNECONOMIC but

ACCESSIBLE


EC

ON

OM

IC F

EA

SIB

ILIT

Y

DISCOVERED

ACCESSIBLE

and ECONOMIC

(Behind)

DISCOVERED but

INACCESSIBLE

UNECONOMIC UNDISCOVERED

INACCESSIBLE and

UNECONOMIC

UNDISCOVERED

but

ACCESSIBLE

ECONOMIC

Thus exploration needs to focus on

undiscovered, accessible reserves

Slide 29 of 23


Source: Sykes & Trench (2014)

Oct 2014


But what will an ‘accessible reserve’

look like in 20 years time?

Source: Schodde (2014)

What will

copper mines

(accessible

reserves) look

like in 2035?

Slide 30 of 23


Oct 2014


Forecasting is not possible in highly

uncertain environments

"Scythia has an abundance of soothsayers who foretell the

future. They are judged by results and the losers are loaded on to oxcarts which are set on fire.“

- Herodotus, 440BC

(NB: This is a paraphrasing by a former colleague at CRU – John Tomlinson)

Slide 31 of 75


Oct 2014


UNDERSTANDING AN

UNCERTAIN FUTURE


Slide 32 of 39


Oct 2014


Taking a “multiple working hypothesis”

approach to the future instead

Thomas Chowder Chamberlin

(1843-1928)

“The method of the working hypothesis”

Under the working hypothesis, the facts are sought for the purpose of ultimate induction…”

“…a controlling idea”

“…the method… has its defects … the ease with which the hypothesis becomes a controlling idea. To

guard against this, the method of the multiple working hypotheses is urged.”

“The method of the multiple working hypotheses”

“The effort is to bring into view every rational explanation of new phenomena, and to develop every tenable hypothesis respecting their

cause and history.”

Image: Wikipedia

Slide 33 of 75


Oct 2014


From “multiple working hypotheses” to

“multiple hypothetical reserves”


EC

ON

OM

IC F

EA

SIB

ILIT

Y

“CONCEPTUAL

RESERVE”

MULTIPLE

“HYPOTHETICAL

RESERVES”

MULTIPLE

“HYPOTHETICAL

RESERVES”

MULTIPLE

“HYPOTHETICAL

RESERVES”

“HYPOTHETICAL

RESERVE”

DISCOVERED UNDISCOVERED


Slide 34 of 75


Oct 2014


IN SUMMARY


Slide 35 of 39


Oct 2014


The copper mine of the 21st century • Prevailing view of the future of copper mining:

– Some assumptions of resource abundance.

– Broad assumption of declining quality of resources into the future.

– Increasing mine costs and/or ‘sustainable development’ problems.

– Requirement for ‘above ground’ innovations.

– Minimal role for exploration (just adding to inventory).

• A potential alternative view of the future of copper mining: – A discovery problem: resource scarcity due to poor economics & sustainability

issues.

– An exploration solution: Exploration in new ‘search space’ has the potential to

increase overall resource quality into the future.

– More high quality discoveries will help mitigate rising costs and sustainable

development problems.

– But working in concert with ‘above ground’ technology and innovation to deal

with uncertainties relating to economic, environmental and societal factors –

‘quality’.

Slide 36 of 39


Oct 2014


The 21st century conceptual exploration

challenge: targeting ‘quality’

Slide 37 of 37

CRISCO (2013)

Compliant

“Resource”

Geological “Theoretical Reserve”

Geological

Ec

on

om

ic

“Accessible Resource”

Ac

ce

ss

ible

Geological

CONSIDERING

ECONOMIC

POTENTIAL

INCORPORATING

SUSTAINABLE

DEVELOPMENT

Ec

on

om

ic

Geological

“Accessible

Reserve”

“Multiple Hypothetical

Reserves”

CONSIDERS

UNCERTAINTY



Oct 2014

THANK YOU

Acknowledgements

CET colleagues: Dan Packey, Cam McCuaig, Jon

Hronsky, John Vann, Sandy Bell, Richard Schodde,

Pietro Guj & many others.

Funding: Curtin International Postgraduate Research

Scholarship (CIPRS)

SEG paper editors & reviewers: Karen Duttweiler

Kelley, Howard Golden, Don Schissel & John Clifford

Source authors: Simon Jowitt, Gavin Mudd, John

Tilton, Rod Eggert, Philip Crowson & many others.

Contact information:

John P. Sykes: [email protected]

Allan Trench: [email protected]

For more information:

Centre for Exploration Targeting: www.cet.edu.au

Or visit us at Booth 11

mailto:[email protected]

mailto:[email protected]

http://www.cet.edu.au/


Further reading

• Sykes, J.P., & Trench, A., 2014. Finding the copper mine of the 21st

century: Conceptual exploration targeting for hypothetical reserves.

Society of Economic Geologists Conference. Colorado, USA.

September.

• Sykes, J.P., & Trench, A., 2014. Resources versus Reserves: Towards

a systems-based understanding of exploration and mine project

development and the role of the mining geologist. AusIMM Ninth

International Mining Geology Conference. Adelaide, Australia. August.

• McCuaig T.C., Vann, J., & Sykes, J.P., 2014. Mines versus

Mineralisation: Deposit Quality, Mineral Exploration Strategy and the

Role of ‘Boundary Spanners’. AusIMM Ninth International Mining

Geology Conference. Adelaide, Australia. August.

• Trench, A., Packey, D., & Sykes, J.P., 2014. Non-technical risks and

their impact on mining. AusIMM Monograph 30 on Mineral Resource &

Ore Reserve Estimation. Chapter 7: Risk in Resource and Reserve

Estimation.

Slide 39 of 75


Oct 2014

Finding the copper mine of the 21st century - Sykes & Trench - Sep 2014 - Society of Economic Geologists

Economy & Finance