1. EMERGING RESOURCE COMPANIES:
THE CASE FOR EXPLORATION
AS STRATEGY
An ASX Top80 Mining and Metals
Case Study
Graham Arvidson
Curtin University – Mineral Economics Masters Program
CET Discovery Day
Fremantle, Australia: 24th Feb 2015

2. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Which strategy creates this kind of
value?
2
AverageAnnualisedReturnbyStrategy
Employed2010-2015,N=80
-30%
-23%
-15%
-8%
0%
8%
15%
23%
30%
6%
3%
12%
20%
59%
% of Total Value Add
by Strategy Employed,
2010-2015, N=20

3. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
3
Overview
• An ASX Top80 Mining and Metals Case Study
Separating the Best (Top 20) from the Rest (Top 80):
To set the scene:
– What did they invest in?
– Where did they invest?
– What financing method was preferred?
The gritty stuff:
– Horizons of Growth: What growth strategies were
utilised? Hint: Exploration Success as a driver of
superior shareholder returns?
• “The Best” (Top 20) – What makes them distinctive?

4. CET Discovery Day 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
AN ASX
TOP 80 MINING AND METALS
CASE STUDY
24 Feb 2015
4
January 2010 to January 2015

5. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Top 80 Selection Criteria
• Filtered ASX Metals and Mining focused resource
companies $50M< Market Cap <$1.1B (Source: S&P Capital IQ)
• Companies exceeding $1.1B market cap removed from
study: considered to be ‘established’
• Minimum market cap of $50M chosen to indicate nascent/
emerging success creating a data set of 80 companies
• Top 80 ranked by Total Shareholder Return (TSR) across
5 years (Jan 2010 - Jan 2015) (Source: Bloomberg Total Return)
5

6. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Critical Limitations of the Top 80 Study
• Does not take into account the failure rates by
strategy category – inherent positive bias
• Research data was compiled by trawling trends, ASX
announcements, and company presentations – not a
perfect science
• Only one timeline looked at: 5 years
• ASX players only – Australian market centric
• Misses ASX companies acquired during the period
(e.g. Papillon Resources)
6

7. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Top80 TSR Distribution - “The Rest”
7
Lots of losers… a few winners.
Median CAGR -12% (Loss) !
Only 27 of 80 companies
make a return

8. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
In stark contrast, Top 20 - “The Best”
8
CAGR TSR above 15% for 17 Companies!
Annualised TSR - Top 20: An impressive line-up

9. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Why are we interested in good strategy?
Top20 buck the trend
9
Returns linked to commodity price - swings/roundabouts -
Except in the Top 20? Good luck or good business?
Source: S&P Capital IQ
Study Period
Mining/metals
Everyone else

10. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Fe, Cu, Au popular with “The Rest”, Gold
the standout for “The Best” and…
10
Platinum
Zinc
Tungsten
Potash
Phosphate
Rare Earths
Manganese
Tin
Diamonds
Nickel
Lithium
Coal - Metallurgical
Iron Ore
9
Copper
15
Gold
26
Mineral Sands
Graphite
Top 80: Primary Commodity
Rare Earths
1
Manganese
1Tin
1
Diamonds
1
Nickel
1
Lithium
1
Coal - Metallurgical
1
Iron Ore
1
Copper
3
Gold
6
Mineral Sands
2
Graphite
1
Top 20: Primary Commodity

11. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
gold generated high returns most
frequently…
11
Who’s Who in the Top 20 - TSR by Commodity

12. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Location - does not determine magnitude
or likelihood of success
12
Australia is the
easy choice?Africa -
sovereign risk
not a deterrent?
Asia
2
Europe
1
Central Africa
4
East Africa
1
West Africa
7
Southern Africa
6
South Pacific
3
South America
6
Canada
1
South East Asia
10
Australia
39
Top 80: Location
East Africa
1
West Africa
2
Southern Africa
1
South Pacific
2
South America
2
Canada
1South East Asia
1
Australia
10
Top 20: Location

13. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Finance - Does not get you in the Top 20
13
Top 80 Primary Financing Methods
Equity
66
Debt
14
Top 20 Primary Financing Method
Equity
16
Debt
4

14. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Debt finance: higher returns a
self-fulfilling prophecy?
14
Top 80 Average Annualised TSR
Debt V Equity
AverageAnnualisedTSR
-7%
-5%
-4%
-2%
0%
Debt Equity
-6%-2%
Top 20 Average Annualised TSR
Debt V Equity
AverageAnnualisedTSR
0%
9%
18%
26%
35%
Debt Equity
30%
35%
Suggestion: Better project is required
to attain debt finance?
May inherently bias debt to higher
returns

15. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Location, commodity, and finance mostly
inconclusive… the real story: Strategy
15
Horizons of Growth - Top80 Strategy Framework
(Adapted from: Baghai, Coley, and White 2000 Alchemy of Growth)
Time (Years)
Profit
Horizon 1 – Extend and Defend Core Business
Horizon 2 – Build Emerging Businesses
Horizon 3 – Create Viable Options

16. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Top80 Strategy Categories
Strategy analysis was retrospective
16
COMMON STRATEGIES AMONG EMERGING RESOURCE COMPANIES
Exploration Discovery Significant mineral exploration discovery leading to substantial shareholder returns
Purchase and Produce Growth is realised by acquiring an existing resource asset (either operational or
previously operational) and rapidly moving the asset into full production (typically
less than 12 months and less than $50M).
Project Development Growth is realised by developing a green fields asset (typically a new-build) targeting
production from a previously defined resource. This strategy seeks to add
shareholder value by taking a well defined resource through the entire development
cycle and into production (typically greater than 12 months and greater than
$100M).
Mergers and Acquisitions Significant merger or acquisition leading to shareholder return
Strategic Investor / Strategic
Alliance
Attraction of a strategic investor leading to shareholder return
Unclear No clear evidence of successfully executed growth strategies during the study
period

17. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: Exploration Discovery
Example: Sirius Resources
17
Nova discovery
Source: S&P Capital IQ

18. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: Purchase and Produce
Example: Northern Star Resources
18
Purchase and
Produce Paulsens
Paulsens debt
paid off
Horizon 1:
Purchase and
Produce
Horizon 2:
Exploration
Discovery
Paulsens significant exploration results
Horizon 3:
M&A
Acquire Plutonic
Acquire Jundee
Source: S&P Capital IQ

19. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: Project Development
Example: Orocobre
19
Olaroz scoping
study released
DFS Complete
Project approvals
Patience required!
First lithium production
Source: S&P Capital IQ

20. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: M&A… success?
Example: Evolution Mining
20
Cracow and Mt
Rawdon
M&A
ASX:CAH
ASX: EVN
Source: S&P Capital IQ

21. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: Strategic Investor / Alliance
Example: Western Mining Network
21
Source: S&P Capital IQ
Strategic Alliance
formed with
Borneo Brothers
Ltd to attain
option on
Manganese
Tenement
Strategic
Investor
“Milestone” for
Tamboli
Prospective
Graphite
Tenement
Strategic Alliance/Investor can generate significant (speculative?)
near term investor returns with minimal capital commitment
Both strategic investors incentivised
based on WMN market cap

22. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Top 80 - Unsure what their strategy is or
which strategy to pursue
22
Unclear
19
Strategic Investor
2
Project Development
22
M&A
5
Purchase and Produce
8
Exploration Discovery
24
No clear
preference in
strategy
Top 80: 1st Horizon Strategy

23. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
How to add value? Exploration!
23
1st Horizon Growth Strategy by TSR -Top 80
Exploration and Purchase/Produce are the Winners
AverageAnnualisedTSRforTop80
EmergingResourceCompanies
-30%
-23%
-15%
-8%
0%
8%
15%
23%
30% Exploration
D
iscoveryPurchase
and
ProduceProjectD
evelopm
ent
Strategic
Investor
M
&
A
Note: Inherent positive
bias: study does not
take into account failure
rates!

24. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
“The Best” use Exploration as a Strategy
for Success…..
24
12 of the Top20 realised
high returns because of
Exploration Success!
Strategic Investor
1
Project Development
3
M&A
3
Purchase and Produce
1
Exploration Discovery
12
Top 20: 1st Horizon Strategy

25. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
And they reap the rewards….
25
Strategic Investor
3%
Project Development
12%
M&A
6%
Purchase and Produce
20%
Exploration Discovery
59%
Exploration Discovery
is the dominant driver
of shareholder return in
the Top 20.
59% of all value added
in the Top 20 was a
result of Exploration as
a primary strategy
Top 20: % of Total Value Added

26. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Want to maximise TSR? Exploration
delivers high returns most frequently
26
1st Horizon Growth Strategy by Average Annualised TSR - Top 20
AverageAnnualisedTSRforTop
20EmergingResource
Companies
0%
35%
70%
105%
140%
PurchaseandProduce
ExplorationDiscovery
ProjectDevelopment
StrategicInvestor
M&A
12Companies
3Companies
3Companies
1Company
1Company
(Northern
StarBias)
Of which
Exploration
contributed…..

27. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Multi-horizon more common among top
performers
27
Top 80
Unclear or No Horizons
19
Three Horizons
7
Two Horizons
14
One Horizon
40
Three Horizons
3
Two Horizons
7
One Horizon
10
Top 20
Note: Horizon review was
retrospective – ‘Unclear’ does not
mean that companies do not have a
strategy. It means no clear strategy
execution was evidenced across the
study period.
Of the 21 “multi-
horizon” companies
14 included
exploration as a
strategy.

28. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
The Case for Multiple Horizons
28
Average Top 20 Value Added - Annualised TSR Basis
Number of Horizons
Annualised5YearTSR-AverageAcrossTop20
0%
15%
30%
45%
60%
One Horizon Two Horizons Three Horizons
53%
33%
23%

29. CET Discovery Day 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
DISTINCTIVE CAPABILITIES
OF THE “TOP 20”
WHAT THE BEST APPEAR TO DO BETTER THAN
THE REST
24 Feb 2015
29
(Top20 Interviews from April 2013)

30. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Want to be in the Top 20?
Focus on People and Strategy
30
Asset
5%
Technology
5%
Finance
9%
Strategy
45%
People
36%
Note: Cited by leaders within the 2013 Top20 - interview results.
When asked what
distinctive
capabilities their
organisations
possess, their
responses were in
these categories.
Scientific
methodology? No….
but of some interest
nonetheless? Top 20: Leadership Cited
Distinctive Capabilities

31. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Strategy: Examples of Distinctive
Capabilities Cited by Top20 Leadership
31
• Asset Economics - Turn an idea on its head to see value
that others can't
• Synergy Insights - Combine multiple assets where together
their value far exceeds their value apart
• Make tough decisions - Don't fall in love with crappy
assets. Move on and recognise mistakes early
• Sector Insight – predict fundamental industry structure
changes and act early to create strategic advantage

32. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
People: Examples of Distinctive
Capabilities Cited by Top20 Leadership
32
• Well Connected - Its who you know - Gaining insight into
an asset’s potential through word of mouth
• Geological Insights – Expertise in exploration regions
• Smart incentives - E.g. ensure directors are incentivised
by share price increases and not market cap increases
• Value Chain – Distinctive capability to resource the right
people from exploration to production at the right time

33. CET Discovery Day 2015 24 Feb 2015
Emerging Resource Companies: The Case for Exploration as Strategy, An ASX “Top 80” Case Study
Conclusion: A great emerging company
will most likely look like this…
33
• Commodity – Gold most commonly delivered high
returns across the Top 80…
• Location – Agnostic no clear evidence that location
determines success. Africa and Australia popular.
• Finance - Debt (may inherently indicate better projects)
• 1st Horizon Strategy - Exploration Discovery!
• Also look for Purchase and Produce – second place but has short time
horizons and may open exploration opportunities (e.g. Northern Star
doubled down with Paulsens)
• Multi Horizon - The Top20 were more likely to execute multiple
strategies successfully and were rewarded by the market
• Distinctive Capabilities - People and Strategy - Clear and
credible advantage over competitors

34. THANK YOU
Contact information:
Graham Arvidson
Email: graham.arvidson@gmail.com
Special thanks to Professor Allan Trench for his support and
guidance.
Special thanks to Darren Martin of PCF for for assisting with data.
“We demand rigidly
defined areas of doubt
and uncertainty!”
-DOUGLAS ADAMS