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 2014Slide 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%
ShareofGlobalCuMineproduction
United Kingdom Chile USA Other
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
14000.0
GlobalCuMineProduction(Kt)
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
Cuoregrade(%)
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
RELATIVE
EFFECTIVENESS
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
AllinSustainingCosts($AU)
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
ECONOOMICFEASIBILITY
JORC Reserve Theoretical Reserve
RESOURCES
RESERVE
S
RESERVES

As value creation occurs at the early stages of
projects, not later
V
A
L
U
E
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: WikipediaSo 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
Geological
Factors
Financial
Engineering
Future Energy
Prices
Operating
Factors
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
RESOURCES
ACCESSIBLE
RESERVE
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
ECONOMICFEASIBILITY
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”
ECONOMICFEASIBILITY
“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
Economic
“Accessible Resource”
Accessible Geological
CONSIDERING
ECONOMIC
POTENTIAL
INCORPORATING
SUSTAINABLE
DEVELOPMENT
Economic
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: johnpaul.sykes@postgrad.curtin.edu.au
For more information:
Centre for Exploration Targeting: 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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