John P. Sykes
Centre for Exploration Targeting
Provisional PhD Candidate, Department of
Mineral & Energy Economics, Curtin Graduate
School of Business
Adjunct Research Fellow, Department of
Geology & Geography, University of Western
Australia
Email: [email protected]
WHY IS DEVELOPING A NEW MINE
SO DIFFICULT?
Abstract
“Globally there have been problems in bringing new mine capacity on stream.
With little new greenfields exploration taking place at this time, the pipeline of
high-quality mine projects is not being replenished.
The problem for the mining industry is that minerals exploration takes place
over long timescales, however, “success” is judged along much shorter
timescales. Addressing this paradox is a challenge for all in minerals
exploration management.
This study has sought to address this topic by building on the author’s tacit
knowledge, gained through experience in the mining industry, combined with
a review of the business management and strategy literature.
Emergent from this research are multiple ways for examining mining industry
problems and a new approach to developing high-level strategies for
facilitating minerals exploration.”
15 October 2013
Why is developing a new mine so difficult?
Slide 2 of 48
Contents
• Background: a ‘discovery constrained’ mining industry
• A little bit on research philosophy & methodology
• Wasting assets & limited exploration search space
• Beginning with the end in mind
• Differing incentives of industry actors
• Focus on Horizon 2
• Sustainable mining?
• Changing value drivers with development stage
• Conclusions and further research
15 October 2013
Why is developing a new mine so difficult?
Slide 3 of 48
Background: a ‘discovery
constrained’ mining industry
Why is developing a new mine so difficult?
15 October 2013
Section 1
Why is developing a new mine so difficult?
Slide 4 of 48
Commodity prices at 50+ year highs
Chart: Jacks (2013)
15 October 2013
Why is developing a new mine so difficult?
Figure 1. Cumulative Changes in Prices
Relative to the Long-Run Trend
Commodity Cumulative change in price
from 1950
Copper 24.04%
Nickel 39.00%
Chromium 206.01%
Iron Ore 34.80%
Manganese 77.11%
Potash 26.72%
Gold 206.05%
Silver 123.68%
Metal and mineral commodities with half century
real price highs selected from Jacks (2013)
Slide 5 of 48
Growing resources indicates a
development problem?
15 October 2013
Why is developing a new mine so difficult?
Figure 2. Years of reserves until depletion
based on current mine production
Commodity Years until depletion
Copper 40.0 years
Nickel 35.7 years
Chromium >19.2 years
Iron Ore 56.7 years
Manganese 39.4 years
Potash 279.4 years
Gold 19.3 years
Silver 22.5 years
Calculations based on USGS 2013 estimates of
global reserves and mine production, from
Edelstein (2013), Kuck (2013), Papp (2013), Tuck
(2013), Corathers (2013), Jasinski (2013) and George
(2013a, 2013b)
“…the primary factors that govern whether a given project is developed will be social,
economic, and environmental in nature.” - Mudd, Weng, & Jowitt, 2013
Slide 6 of 48
Resources don’t have to be economic!
PROVEN
RESERVE
PROBABLE
RESERVE
MEASURED
RESOURCE
INDICATED
RESOURCE
INFERRED
RESOURCE
Consideration of
mining, processing,
metallurgical,
economic,
marketing, legal,
environmental,
infrastructure,
social and
government factors
(the “modifying
factors”)
15 October 2013
Mineral resource:
“reasonable
prospects for
eventual economic
extraction”
- JORC Code, 2012
Substantial portions of Australian mineral resources may not be economic “economic under current or
immediately foreseeable circumstances” and may “provide a potentially misleading
perspective on the future health of Australia’s precious and base metals mining industry”
- Cairns, Hronsky, and Schodde, 2010
Why is developing a new mine so difficult?
Slide 7 of 48
Discovery problem caused by time
paradox
15 October 2013
Why is developing a new mine so difficult?
“…disconnect between the very short term focus of the risk capital market compared to the
longer term gestation period required for well-conceived greenfields exploration
programmes…” - Cairns, Hronsky, and Schodde, 2010
Slide 8 of 48
A little bit on research
philosophy & methodology
Why is developing a new mine so difficult?
15 October 2013
Section 2
Why is developing a new mine so difficult?
Slide 9 of 48
Minerals, economics and consultancy
15 October 2013
Why is developing a new mine so difficult?
MINERAL ECONOMICS
IND
US
TR
Y
AC
AD
EM
IA
Geology, Engineering,
Science, Technical Classical economics,
Microeconomics, Decision
Theory, Finance, Concept
Tacit knowledge,
Practice, Results,
Focus?
Subjectivity?
Explicit knowledge,
Theory, Broad?
Objectivity?
Observe
Interpret
Disaggregate
Focus
Theorise
Sources: Frodeman (1995), Maxwell & Guj (2013)
Slide 10 of 48
Wasting assets & limited
exploration search space
Why is developing a new mine so difficult?
15 October 2013
Section 3
Why is developing a new mine so difficult?
Slide 11 of 48
Wasting assets and constant renewal
15 October 2013
Why is developing a new mine so difficult?
“Earth rise” from Apollo 11 Image: The Guardian/NASA
Old Geevor tin mine, Cornwall, UK,
operated late 18th century to 1990
Slide 12 of 48
Limited search space, infinite concepts
15 October 2013
Why is developing a new mine so difficult?
Sources:
Hronsky &
Wellborn
(2013),
Hronsky
(2009)
Slide 13 of 48
Beginning with the end in mind
Why is developing a new mine so difficult?
15 October 2013
Section 4
Why is developing a new mine so difficult?
Slide 14 of 48
Overcoming “active inertia”
15 October 2013
Why is developing a new mine so difficult?
Habit 2:
“Begin with the
End in Mind” - Stephen R. Covey
Source: www.stephencovey.com
Image: www.amazon.com
NB: Stephen Covey does not endorse this presentation.
However, I do endorse his book!
Source: Sull (1999)
Slide 15 of 48
Life-cycle of a mine project
Concept Exploration Discovery Economics Development Mining
Value
Time
MINING
High Risk – High
Potential
Lowered risk Full Value
Speculation Orphan Period
Speculators Leave
Institutional
Investment
EXPLORATION DEVELOPMENT
15 October 2013
Why is developing a new mine so difficult?
Source:
Cook
(2010)
Slide 16 of 48
What makes a successful mine
project?
“Mineable” “Undiscoverable”
(we tend not to
find these!)
“Unmineable”
(usually discovered at
the production stage)
Success
“Undevelopable”
(usually get stuck in the
economics)
15 October 2013
Why is developing a new mine so difficult?
Slide 17 of 48
Differing incentives of industry
actors
Why is developing a new mine so difficult?
15 October 2013
Section 5
Why is developing a new mine so difficult?
Slide 18 of 48
McKinsey’s 3 Horizons of Growth
Horizon 3
Create viable options
Horizon 2
Build emerging businesses
Horizon 1
Extend and defend core businesses
Time (years)
Pro
fit
15 October 2013
Why is developing a new mine so difficult?
Source: Coley (2009),
Baghai, Coley, and
White (1999)
Slide 19 of 48
Differing risk horizons? R
isk
Corporate Risk
Technical Risk
Majors better at
handling this?
Juniors better at
handling this?
15 October 2013
Why is developing a new mine so difficult?
Source: Trench &
Packey (2012)
Slide 20 of 48
The development “space” appears
to be smaller
“Mineable” “Undiscoverable”
(we tend not to find
these anyway)
Fewer “Unmineable” projects
(only the best make it into production)
Less success?
More “undevelopable”
projects
(many getting stuck in the
economics)
15 October 2013
Why is developing a new mine so difficult?
Slide 21 of 48
Development triangle for global
copper projects
Raw
Prospects &
Early
Exploration:
2,759 projects
Advanced
Exploration:
633 projects
Pre-
Feasibility: 84
projects
Feasibility: 72
projects
Development:
63 projects
Data: Infomine (2013)
15 October 2013
Why is developing a new mine so difficult?
Slide 22 of 48
Focus on Horizon 2
Why is developing a new mine so difficult?
15 October 2013
Section 6
Why is developing a new mine so difficult?
Slide 23 of 48
Life cycle “bow-tie” for global
copper mines & projects
Data: Infomine (2013), Ali (2010)
& Manning (1998)
Ra
w P
rosp
ects & E
arly
Exp
lora
tion
: 2,7
59
pro
jects
Ad
va
nced
Exp
lora
tion
: 63
3
pro
jects
Pre- F
easib
ility:
84
pro
jects
Fea
sibility
:
72
pro
jects
Dev
elop
men
t: 63
pro
jects
Production &
Recently
Closed: 566
mines
Long Closed:
100,000s
mines?
Development
“niche” point
(“Barrier to entry”)
15 October 2013
Why is developing a new mine so difficult?
Slide 24 of 48
Development criteria narrowing the
exploration search space
Wide
Exploration
Search Space
Wide “Mineable”
Space
Narrow
“Developable”
Space
Explorationists should
target “developable”
space plotting onto
exploration search space
Miners looking to buy advanced projects should
seek projects in the “developable” space that
plots onto the “mineable” space.
3D Truncated Cones
courtesy of Nova Scotia
Learning Resources and
Technology Resources
(2013)
15 October 2013
Why is developing a new mine so difficult?
Slide 25 of 48
Sustainable mining?
Why is developing a new mine so difficult?
15 October 2013
Section 7
Why is developing a new mine so difficult?
Slide 26 of 48
Modern “Wonders of the World”?
Source:
Martin &
Morrison
(2012)
15 October 2013
Why is developing a new mine so difficult?
“…meeting the needs of
the present without
compromising the
ability of future
generations to meet
their own needs…”
- World Commission on Environment &
Development (1987)
Slide 27 of 48
A successful mine project is a
sustainable one?
“Undevelopable”
(usually get stuck in
the economics)
“Unmineable”
(usually discovered at
the production stage)
“Unexplorable”
(we tend not to
find these) “Unsustainable”
(problems
significant post-
production)
Success
15 October 2013
Why is developing a new mine so difficult?
Slide 28 of 48
Changing value drivers with
development stage
Why is developing a new mine so difficult?
15 October 2013
Section 8
Why is developing a new mine so difficult?
Slide 29 of 48
Research, Development, Market
Exploration Development Mining
15 October 2013
Why is developing a new mine so difficult?
Research Development Market
Slide 30 of 48
So
urc
e: S
ch
wa
b
(20
13
)
Global development competiveness
15 October 2013
Why is developing a new mine so difficult?
Slide 31 of 48
A development stage based profile
Source: Schwab (2013)
15 October 2013
Why is developing a new mine so difficult?
Slide 32 of 48
“Active
waiting” as a
mine
exploration
strategy
15 October 2013
Why is developing a new mine so difficult?
Source: Sull (2005)
Slide 33 of 48
Conclusions and further
research
Why is developing a new mine so difficult?
15 October 2013
Section 9
Why is developing a new mine so difficult?
Slide 34 of 48
De-risking as value drivers R
isk
Corporate Risk
Technical Risk
Majors better at
handling this?
Juniors better at
handling this?
15 October 2013
Why is developing a new mine so difficult?
Source: Trench &
Packey (2012)
Slide 35 of 48
Uncertainty & risk value drivers
15 October 2013
Why is developing a new mine so difficult?
Sources: Hronsky & Wellborn (2013), Guj (2013)
Slide 36 of 48
Life-cycle of a mine project
Concept Exploration Discovery Economics Development Mining
Value
Time
MINING
High Risk – High
Potential
Lowered risk Full Value
Speculation Orphan Period
Speculators Leave
Institutional
Investment
EXPLORATION DEVELOPMENT
15 October 2013
Why is developing a new mine so difficult?
Source:
Cook
(2010)
Uncertainty
driven Risk
driven
Slide 37 of 48
Conclusions
• Why are mine projects so difficult?
• Finiteness, time & methodological paradoxes
• Moving into new “search space” – concept,
proactivity, “Beginning with the End in Mind”
• Development stages – “3 Horizons of Growth”
• Problems with “Horizon 2” – development
• Dealing with sustainability development
• Both conceptual & analytical approaches suggest
the same framework
15 October 2013
Why is developing a new mine so difficult?
Slide 38 of 48
BUT (or “further research”)
• What are all the factors that affect mine projects?
• How do we deal with time (again)?
• How do we go from “concept” to the “real world”?
15 October 2013
Why is developing a new mine so difficult?
“Be a philosopher; but, amidst all your
philosophy, be still a man”
– David Hume, An Enquiry Concerning Human Understanding, 1748
Slide 39 of 48
Acknowledgements
• Curtin International Postgraduate Research Scholarship
• Centre for Exploration Targeting, Curtin Graduate School of
Business & University of Western Australia
• Professors Daniel Packey, Allan Trench, Campbell
McCuaig, Jon Hronsky, Richard Schodde & Pietro Guj
• Fellow PhD students Jon Bell & Atul Chandra
• Mike Gershon (friend/amateur philosopher) & Kataryna
Sykes (wife/editor)
15 October 2013
Why is developing a new mine so difficult?
The author respectfully acknowledges the Indigenous
Elders, custodians, their descendants and kin of this
land past and present.
Slide 40 of 48
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