Influencing exploration choices in copper at a strategic level - Sykes et al - Dec 2014 - Centre for Exploration Targeting / Curtin University / University of Western Australia

Image: holbox / Shutterstock.com

INFLUENCING EXPLORATION CHOICES IN

COPPER AT A STRATEGIC LEVEL

(THE HOLLYWOOD EDITION)

John P. Sykes Department of Mineral & Energy Economics, Curtin University

Centre for Exploration Targeting, Curtin University & The University of Western Australia

Centre for Exploration Targeting Member’s Day

Perth, Australia: December 2014

Centre for Exploration Targeting Corporate Members Day

Exploration is pointless!

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

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.”

Influencing Exploration Choices in Copper at a Strategic Level (The Hollywood Edition)

9th Dec 2014 Slide 2 of 47


My view is the opposite, BUT…

The future of copper mining is based on high quality, as yet, undiscovered deposits,

meeting the twin goals of economic and sustainable development. Exploration is

required to discover these deposits.*

NB: But we will have to change our strategic thinking about exploration and targeting, as we currently are not delivering this future, we are reacting to other futures.

Always read the small print!




SOME VIEWS ON THE FUTURE OF

MINING & EXPLORATION

Influencing exploration choices in copper at a strategic level




We’ve discovered lots of resources, so

exploration is not needed?

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).

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

world has a fixed amount of homogeneous mineral ‘resources’



Centre for Exploration Targeting Corporate Members Day 9th Dec 2014


The Hunger Games and resource depletion

Slide 6 of 47


But resources are not equal and we use the

‘best’ first

Source: Crowson (2012)

Weighted average percentage head grades of

copper mines, 1970 onwards




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

• 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

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





WALL-E on an unsustainable future

Slide 9 of 47


And 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

Source: Sykes & Trench, 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




Iron Man (2) on the technology and the future

“Everything is achievable through technology…

…I’m limited by the technology of my

time, but one day you’ll figure this out and when you do you will change

the world.

What is and always will be my greatest creation is you.”

- Howard Stark, Iron Man 2, 2010

9th Dec 2014


Slide 11 of 47


The prevailing ‘Hollywood’ view of the future of

copper mining

• We have abundant resources, but it does not feel like it?

• Because the quality of resources will decline into the future.

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

• Requiring heroic ‘above ground’ innovation.

• With exploration limited to just adding to inventory.

• In a fully explored world…





Avatar on the future of mining

Slide 13 of 47


MY VIEW: AN EXPLORATION PROBLEM

NOT A MINING PROBLEM





Not all ‘resources’ can be developed

economically

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

Total Economically Demonstrated

Copper Resources in Australia,

1975-2010




Not all resources can be developed sustainably

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




Thus we have a (reserve) ‘discovery’ problem,

not a ‘development’ problem

Source: Schodde (2012)




AN EXPLORATION PROBLEM REQUIRING

AN EXPLORATION SOLUTION!





Resource quality will not inevitably decline into

the future

Chart: Lagos, 2010

Images: BHP Billiton & John P. Sykes




The best resources are discovered first…

but only where no one has looked before…

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.




The ‘best’ resources dominate the industry…

and change its future…

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)




…but what ‘best’ means is a complex and

unpredictable issue

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

Regime change




A potential alternative ‘explorers’ 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’.




SETTING A STRATEGIC EXPLORATION

CHALLENGE





Explorers 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

?

We should now be

able to detect quality

earlier here?

But can we

predict quality

here?

And link

the two?




Focused system with

little lateral dispersion –

high quality ore formed

Broad halo, metal

anomalism, no high quality

ore

Main ore events are transient in a

larger magmatic/hydrothermal

event

McCuaig and Hronsky, 2014

This is a job for scientists as well as industry!




But what is high quality?

It is certainly more than just high grade…

0

200

400

600

800

1000

1200

1400

1600

1800

2000

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00

All i

n S

usta

inin

g C

osts

($A

U)

Operating Grade Q4 (g/t)

Open Pit Underground

Kanakis, 2014




To target ‘quality’ three strategic challenges

need to be overcome

• Considering economics by targeting “reserves” from

the earliest stages of exploration.

• Incorporating sustainable development principles into

the concept of “reserves” from the earliest stages of

exploration.

• Dealing with an uncertain future marked by complex

interactions of technology, innovation, discoveries and

external changes leading to rapid and complex,

paradigmatic change.




INCORPORATING ECONOMIC

POTENTIAL INTO TARGETING STRATEGY





Exploration should consider economics

(reserves) from the beginning

Based on: JORC (2012); Sykes & Trench 2014

RESOURCES

RESERVES

GEOLOGICAL CERTAINTY E

CO

NO

OM

IC F

EA

SIB

ILIT

Y

JORC Reserve Theoretical Reserve

RESOURCES

GEOLOGICAL CERTAINTY

EC

ON

OO

MIC

FE

AS

IBIL

ITY

RESERVE

S RESERVES




As value creation occurs at the early stages of

projects, not later

VALUE

Front End Loading

Source: Bell (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 So what is different nowadays?




INCORPORATING SUSTAINABLE

DEVELOPMENT PRINCIPLES





Incorporating sustainable development via

‘accessibility’ & ‘social licence’

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

Rebel forces outside the

Bougainville copper mine, which

miners have been unable to access

since civil war began in 1989.

Image: Ben Bohane, The Australian, 1996




Social licence has to be embedded into

targeting strategy Four Key Elements to

Value Realisation

If we do not satisfy 1, 2, 3 and

4, then the positive value

realisation at 5 is impossible :

the project cannot progress –

e.g. we have no social license

– or there is value destruction

– e.g. some combination of 2,

3 and 4 renders the

operational cash-flow

insufficient to deliver positive

NPV.

Production

Rate

kWh/tonne

Depth

Geometry

Social

Licence

Recovery

Future

Commodity

Prices

Geometallurgy Capex

Opex G

eo

log

ical

Fa

cto

rs

Fin

an

cia

l

En

gin

ee

ring

Future Energy

Prices

Op

era

ting

Fa

cto

rs

Mineral Deposit

Value Realisation

1 2

3

4

5

Water and

Geotech

A high

quality

deposit

successfully

links these

elements to

deliver value

Source: McCuaig, Vann & Sykes (2014)




Conceptually a ‘reserve’ should consider

geology, economics & accessibility

JORC Reserve Accessible Reserve

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


9th Dec 2014

Source: Sykes & Trench (2014)

Slide 36 of 47


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





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?




UNDERSTANDING & PLANNING FOR AN

UNCERTAIN FUTURE





The X-Files on finding things & the future

“Whatever happened to playing the hunch, Scully?

The element of surprise. Random acts

of unpredictability. If we fail to anticipate the unforeseen or expect the

unexpected in a universe of infinite possibilities, we may find ourselves at the mercy of anyone or anything that

cannot be programmed, categorised or easily referenced.”

- Fox Mulder, The X-Files Movie: Fight The Future, 1998

9th Dec 2014


Slide 40 of 47


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





IN SUMMARY (FINAL SCENE?)





The strategic role of exploration in the future of

copper mining

• Prevailing ‘Hollywood’ view of the future of copper mining: – Situation of resource abundance.

– But, broad assumption of declining quality of resources into the future.

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

– Requirement for ‘above ground’ innovations in mining, processing & value chain.

– Minimal role for exploration in just adding to inventory.

– Exploration is geographically limited by the fact we have looked everywhere!

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

– An exploration solution: Exploration in new (conceptual & physical) ‘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’.

– We may not have to leave the planet…




The strategic exploration challenge:

targeting ‘quality’

JORC (2012)

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




Image: holbox / Shutterstock.com

THANK YOU

Acknowledgements

CET & DMEE colleagues: Allan Trench, Dan Packey, Cam

McCuaig, Jon Hronsky, John Vann, Sandy Bell, Richard

Schodde, Pietro Guj & many others.

Funding: Curtin International Postgraduate Research

Scholarship (CIPRS)

Contact information:

John P. Sykes: [email protected]

For more information:

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

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.




Film clips

Hunger Games Movie: 0.12:17 – 0.14:00 mins

WALL-E Trailer: 0.0:00 – 0.0:45 mins

Iron Man 2 Movie: 1.14:45 – 1.15:58 mins

Avatar Extended Trailer: 0.0:39 – 0.1:10 mins

X-Files Movie: 0.12:11 – 0.14:20 mins

9th Dec 2014


Slide 47 of 47

Influencing exploration choices in copper at a strategic level - Sykes et al - Dec 2014 - Centre for Exploration Targeting / Curtin University / University of Western Australia

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