Presentation On Exploration To RMG Conference Nov 2011 FINAL

Recent trends in mineral exploration
- are we finding enough ?
Richard Schodde
Managing Director, MinEx Consulting
Adjunct Professor, University of Western Australia
RMG 8th Annual Mining and Exploration Investment Conference

15th - 16th November Stockholm
MinEx Consulting Strategic advice on mineral economics & exploration

Overview
Trends in Exploration Expenditures
- Level of expenditure and key drivers
Current Hot Spots for Exploration
Trend in Discovery Rates
- Metal found, Unit Discovery Costs for Au, Cu and U3O8
Trends in conversion rates (from Discovery > Development)
- Not all discoveries get mined, and those that do may take many years
Impact of changes in cut-off grade on available resources
- Resources can significantly grow with lower cut-off grades ...needs economies
of scale, innovation in technology and higher prices to happen
Are we finding enough metal ?
Implications on long run commodity prices
Conclusions
MinEx Consulting Strategic advice on mineral economics & exploration 2

Spending on minerals exploration over the last 60 years
TRENDS IN EXPLORATION
EXPENDITURES

Exploration Expenditures: Western World
June 2011 US$m
$16,000
Other
Bulks
Gold is still the
Uranium
main game !
$12,000
Base Metals
Gold
$8,000
$4,000
$0
1950 1960 1970 1980 1990 2000 2010
Sources: MinEx Consulting estimates, based on data from

ABS, NRCan, Tilton (1988), Wallace (1992,93)
and Metal Economics Group 2010

Exploration Expenditures: Western World
100%
Other
Bulks
80% Uranium
60%
40%
Base Metals
Gold
20%
0%
1950 1960 1970 1980 1990 2000 2010
Sources: MinEx Consulting estimates, based on data from

ABS, NRCan, Tilton (1988), Wallace (1992,93)
and Metal Economics Group 2010

Exploration expenditures are driven by commodity prices
Gold price versus exploration on gold in the Western World : 1950-2010
Exploration Expenditures Gold Price

(June 2011 US$m) (June 2011 US$/oz)
In recent years there
$6,000 has been a strong $1,800
Exploration Spend
correlation between
Gold Price price and spend
$5,000 $1,500
$4,000 $1,200
$3,000 $900
$2,000 $600
$1,000 $300
$0 $0
1950 1960 1970 1980 1990 2000 2010
Sources: MinEx Consulting estimates. Post 1992 expenditure

data from Metal Economics Group 2010

Exploration expenditures are driven by commodity prices
U3O8 price versus exploration on uranium in the Western World : 1950-2010
Exploration Expenditures Uranium Price

(June 2011 US$m) (June 2011 US$/lb U3O8)
$2,500 $250
Exploration Spend
Uranium Price In recent years there
$2,000 has been a strong $200
correlation between
price and spend
$1,500 $150
$1,000 $100
$500 $50
$0 $0
1950 1960 1970 1980 1990 2000 2010
Sources: MinEx Consulting estimates Sept 2011,

based on OECD Red Book

Current Hot Spots for mineral exploration
RECENT DISCOVERIES AROUND THE

WORLD

Significant mineral deposits: World
All years
Base
Gold Metals Other
Major
Giant
Supergiant
Significant discoveries
N = 2280
have been made on
all continents
Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv

Giant >6Moz Au, >1Mt Ni, >5Mt Cu equiv
Major >1Moz Au, > 100Kt Ni, >1Mt Cu equiv
Note: Excludes bulk mineral deposits Source: MinEx Consulting Nov 2011

Discovered since 2000
Base
Gold Metals Other
Major
Giant
Supergiant
N = 223


Tier 1 deposits discovered since 2000
Pebble
(CuAu : 2002)
Detour Lake
(Au: 2005)
Cote Lake
Cortez Hills (Au: 2010) Oyu Tolgoi
(Au : 2002 (CuAu : 2002)
La Colosa Golpu Deeps

(Au : 2006) (CuAu : 2009)
Fruta del Norte
(Au : 2004) Tasiast Extension
Moto
(Au : 2010)
Lagunas Norte (Au : 2004)
(Au : 2001)
Vogue
Los Sulfatos
(Au : 2010)
(CuMo : 2007)
Eucla
(Min Sands : 2004)
N = 14

Discovered since 2000
Northern
Alaska/Yukon
Ontario
China
Latin America
West Africa Central Africa
Base
Gold Metals Other
Major
Giant
Supergiant
Current
Hot Spots


Estimated unit finding costs for various metals
TRENDS IN DISCOVERY COSTS

Discovery costs for gold are rising
Primary gold in Western World: 1950-2010
Discovery Cost (June 2011 US$/oz) Assume ~$30/oz

$50 3 Year rolling average for next decade
2000-09
$25/oz
1990-99
$40 $21/oz
1980-89
$16/oz
$30 Weighted Average cost 1970-79
$9/oz
1970-79
$6/oz
$20
1970-79
$2/oz
$10 Estimate
$0
1950 1960 1970 1980 1990 2000 2010
Source: MinEx Consulting Nov 2011

Discovery costs for uranium are rising
Uranium in Western World: 1950-2010
Discovery Cost (June 2011 US$/lb U3O8)

5 Year rolling average
$8
Assume ~$4/lb U3O8
for next decade
$6
$4
$2
Estimate
$0
1950 1960 1970 1980 1990 2000 2010
Note: Based on all primary uranium deposits >0.5 kt U3O8. Source: MinEx Consulting Sept 2010
Includes adjustment for deposits with no reported discovery year

Until recently, discovery costs for copper
have been fairly steady
Copper in Western World: 1950-2010
Discovery Cost (June 2009 US c/lb)
3 Year rolling average
Between 1950-2000, the

Assume 2c/lb Cu for
discovery cost for copper
next decade
averaged 1 c/lb of resource
Estimate
Note: The reported costs exclude credits for by-product metal

Source: MinEx Consulting Sept 2009

How many discoveries turn into mines, and how long does it take?
TRENDS IN CONVERSION RATES

Conversion factors for exploration
Not all discoveries are developed into mines

Historically only 50-70% are mined
The conversion rate depends on project economics,
business risk and social issues
Even for those that do get developed, there is often a
delay of 10-15 years between discovery and
commencement of mining
Key factors on the likelihood and speed of conversion are;

the size, quality and location of the discovery

Current status of gold deposits
Primary gold deposits found in the World: 1950-2011
Current Project Status
100% On average only
60-70% of gold
deposits get developed
80%
60%
40% Advanced Exploration

Feasibility
Stalled
20% Construction
Operating Mine
Closed Mine
0%
1950-54
1955-59
1960-64
1965-69
1970-74
1975-79
1980-84
1985-89
1990-94
1995-99
2000-04
2005-09
2010+
Discovery Year
Analysis based on 1209 Primary gold deposits >0.1 Moz Source: MinEx Consulting Oct 2011

Current status of copper deposits
Copper deposits found in low-risk countries: 1950-2011
Current Project Status
100% On average only
50-60% of copper
deposits get developed
80%
Speculate that the lower

60% conversion rate is due to the
high infrastructure requirements
for base metal projects
40% Advanced Exploration

Feasibility
Stalled
20% Construction
Operating Mine
Closed Mine
0%
1950-54
1955-59
1960-64
1965-69
1970-74
1975-79
1980-84
1985-89
1990-94
1995-99
2000-04
2005-09
2010+
Discovery Year
Analysis based on 556 copper deposits >0.1 Mt Cu found in Australia, North America, Western Europe and Chile Source: MinEx Consulting July 2011

Development time for successful copper projects
Copper projects in low risk countries: 1950-2011
Time Discovery and Bigger projects tend to take longer to

Development (Years) get into production.
70
The variation in development time
For copper, it typically takes 5 with size is influenced by the amount
60 to 25 years (average 12 years) of pre-existing infrastructure available
from discovery to mine start up and the amount of Government red-
tape involved. Many of the smaller
50 projects are near existing mining
operations (ie are brownfield projects).
40
30 >5 mt Cu
1-5 mt Cu
20
0.1-1 mt Cu
10 <0.1 mt Cu
Time Frontier
0
1950 1960 1970 1980 1990 2000 2010
Discovery Year
Analysis based on 556 copper deposits >0.1 Mt Cu found in Australia, North America, Western Europe and Chile Source: MinEx Consulting July 2011

Development time for successful gold projects
Primary gold projects in the World: 1950-2011
Time Discovery and
Development (Years)
70
For gold, it typically takes 5 to
60 20 years (average 10 years)
from discovery to mine start up
50
40
30 >10 Moz
5-10 Moz
20
1-5 Moz
10 <1 Moz
Time Frontier
0
1950 1960 1970 1980 1990 2000 2010
Discovery Year
Analysis based on 571 Primary gold deposits >0.1 Moz Source: MinEx Consulting Nov 2011

Much of the recent growth in resources is due to lower cut-off grades
IMPACT OF CUT-OFF GRADE

Impact of using a lower cut-off grade
Most deposits have a halo of low grade ore

surrounding a high-grade core
The reported size of the deposit will depend

on the cut-off grade used
As a rule of thumb, lowering the cut-off grade by 50%, increases
the ore tonnes by 4-8x and the contained metal by 2-4x
The ratio varies with the type of deposit
The cut-off grade is driven by economics .... which, in turn, are

driven by commodity prices, costs and level of business risk
Costs are influenced, energy & labour-intensity, innovations

in mining and processing methods and economies of scale

Impact of changes in grade on resource size (Example 1)
Shahuindo Gold Deposit in Peru
Moz
4 3.41 Moz
Estimate that 40% of the 3

Grade (g/t Au) growth in resources for this 2
discovery came from 0.65 Moz
1.5
lowering the cut-off grade 1
18 Mt @ 1.14 g/t
= 0.65 Moz 0
0 5 10 15 20
1.0 Years after Discovery
Tonnes-Grade Curve
Moz - isobars
(June 2011)
5
0.5
182 Mt @ 0.58 g/t 4
= 3.41 Moz 3
2
1
0.0
0 50 100 150 200 250 300
Resource (Mt Ore)
Source: Company Reports

Impact of changes in grade on resource size (Example 2)
12 giant porphyry deposits: 1929-2008
Top 12 Porphyry Mines in 1929

Mt Cu
Chuquicamata Estimate that of the Total 378 mt Cu
400 Braden (El Teniente) growth in resources (from 47 (61,000 mt @ 0.62% Cu)
Morenci
Utah (Bingham Canyon) to 378 Mt Cu) in these
Ray existing mines came from
Chino
Remaining
lowering the cut-off grade Resource
300 Miami
Nevada (Ely/Robinson) 242 mt Cu
Inspiration
Andes (Potrerillos)
New Cornelia
Copper Queen
200
Estimated additional 13 Mt
Cu from technology
improvements + mine site Total 60 mt Cu
100 Total 47 mt Cu exploration 1930-2008 (3880 mt @ 1.55% Cu) Mine to-date
(3068 mt @ 1.55% Cu) 136 mt Cu
Pre-Mined Resource at
37mt Cu Remaining Reserve higher cut-off grade
0
1929 . Estimated Adjusted
2008 pre-mined
2008resource 2008
Mined to-date using a higher cut-off grade to
10mt Cu achieve a 1.55% Cu average grade
Sources: Parsons (1933) and MinEx Consulting March 2010

Trends in the finding and mining rates for selected metals
ARE WE FINDING ENOUGH METAL ?

Are we finding enough metal ?
Key drivers
Current discovery rates ... is slowing down
Conversion rates (from discovery to operating mine) ... only 60-80%
Lag between discovery and development ... typically 10-15 years
Likely losses on mining ... typically 5-10%
Current and (more importantly) future mining rates
Given the long delays to convert a
discovery into a mine, need to
consider size of market at that time
Modifying factors
Current inventory of undeveloped projects (and their quality)
Ability to increase resources through lowering the cut-off grade
Long term costs
Impact of environmental and social factors)
Long term prices Given the feedback loops, is this an input or an output ??

How much metal do we need to find ?
To ensure no supply interruptions in the longer term the industry

needs to be finding 2-3x as much metal as it currently mines

Mining & Discovery rates for Copper
Amount of copper mined and copper found in the World: 1950-2009
Mt Cu CAUTION: Not all

discoveries get turned Discoveries
180 into mines, and not all of World Production
the metal is recovered
150
120
90
60 Estimate
30
0
1950 1960 1970 1980 1990 2000 2010
Note: Chart include minor adjustment for deposits missing from the database Sources: MinEx Consulting Feb 2010.
Is based on discoveries > 0.1 Mt Cu Production data from USGS

Mining & Discovery rates for Gold
Amount of gold found and mined in the World: 1950-2010
Moz
400
Discoveries
World Production
300
Estimate
200
100
0
1950 1960 1970 1980 1990 2000 2010
Note: Chart include minor adjustment for deposits missing from the database Sources: MinEx Consulting Nov 2011.
Is based on discoveries > 0.1 Moz Production data from USGS

Mining & Discovery rates for Uranium
Amount of Primary U3O8 found and mined in the World: 1950-2010
kt U3O8
600
Discoveries
World Production
400
200
Estimate
0
1950 1960 1970 1980 1990 2000 2010
Note: Chart excludes Olympic Dam (Cu-U-Au deposit) found in 1975 contains 2517 kt U3O8
Note: Chart include minor adjustment for deposits missing from the database Sources: MinEx Consulting Sept 2010.
Is based on discoveries > 0.5 kt U3O8 Production data from USGS

Mining & Discovery rates for Nickel
Amount of nickel found and mined in the World: 1950-2009
Mt Ni 23.2mt
20
Ni Laterite Discoveries
Ni Sulphide Discoveries
Production
15
10
5 Caution:
Incomplete data
0
1950 1960 1970 1980 1990 2000 2010
Caution: Chart excludes deposits with unknown discovery date, or deposits not captured in the database
Sources: MinEx Consulting Aug 2010.
Production data from USGS

Estimated Discovery/Production ratios
Gold Copper Uranium
Unit discovery costs ~$30/oz ~2 c/lb ~$4/lb
World exploration spend rate [A] = $2800m [A] = $1400m [A] = $470m
(2011 US$m pa) [P] = $5300m [P] = $2400m [P] = $900m
Expected amount of metal to [A] = 93 Moz [A] = 32 Mt [A] = 53 kt

be found [P] = 177 Moz [P] = 54 Mt [P] = 102 kt
Mine Production 2010 = 78 Moz 2010 = 16 Mt 2010 = 60 kt

2020 = 90 Moz 2020 = 21 Mt 2020 = 90 kt
Discovery/Production Ratios [A] [P] [A] [P] [A] [P]

At 2010 Production Rate 1.2x 2.3x 2.0x 3.4x 0.9x 1.7x
At 2020 Production Rate 1.0x 2.0x 1.5x 2.6x 0.6x 1.1x
Target is >2x
[A] = Average exploration spending rate over last decade (2001-10)
[P] = Peak exploration spending rate (in 2010) Source: MinEx Consulting Nov 2011

Implications for the future
In order to meet future needs for new mines:
Need to maintain exploration spending at current high levels
(it cant revert back to the10 year historic average)
The Gold sector is tight ironically saved by fact that expected
growth in production is flat #
Expected strong growth in Uranium mining will put that sector
under a lot of stress
To offset increasing unit discovery costs, the industry need to
find new ways and places to explore
Ultimately the supply/demand problem will be solved through higher prices and/or
improvements in mining & processing technologies (both of which allow the use
of lower cut-off grades, and allow marginal projects to be developed)
# It could be argued that the current lack of good gold projects is the reason why the industry isnt growing

The future for Exploration
SUMMARY/CONCLUSIONS

Summary / Conclusions (1/2)
Exploration Expenditures are cyclical
- Industry is currently spending ~$14 billion up from $8b pa over the last decade
The current hot spots for exploration success are Latin America,
Yukon/Alaska, Northern Ontario, West Africa, East Africa and China
Discovery Rates are rising for many commodities (especially gold)
- Over next decade the average rate is projected to be $30/oz Au,
2 c/lb Cu and $4/lb U3O8
Not all discoveries turn into mines
Conversion rates are only 60-80%, depending on the metal, size, quality and
location
For the successful projects, there is a lag of 10-15 years between
discovery and development
Even at current (high) exploration expenditure rates, many industry sectors
(particularly uranium) struggle to find sufficient deliver good projects

Summary / Conclusions (2/2)
In the longer term the market will balance itself through the
complex interplay between:
Level of exploration spending
Efficiency and effectiveness of exploration activities
Speed of converting discoveries into mines
The current inventory of undeveloped projects (quality & number)
Proportion of new projects that are economically viable
Innovations in technology (that make marginal projects viable)
Changes in mining costs and business risk
Change in cut-off grades (which can increase/decrease available resources)
Growth in primary metal demand
Commodity Prices
Given the long delays between discovery and development , there

is a real risk that some industry sectors could face supply
constraints in the short term
This is both a challenge
and an opportunity !

Contact details
Richard Schodde
Managing Director
MinEx Consulting
Melbourne, Australia
Email: Richard@MinExConsulting.com
Website: MinExConsulting.com

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Recent trends in mineral exploration

- are we finding enough ?

RMG 8th Annual Mining and Exploration Investment Conference

MinEx Consulting Strategic advice on mineral economics & exploration

MinEx Consulting Strategic advice on mineral economics & exploration 2

MinEx Consulting Strategic advice on mineral economics & exploration 3

June 2011 US$m

Sources: MinEx Consulting estimates, based on data from

MinEx Consulting Strategic advice on mineral economics & exploration 4

Sources: MinEx Consulting estimates, based on data from

MinEx Consulting Strategic advice on mineral economics & exploration 5

Exploration Expenditures Gold Price

Sources: MinEx Consulting estimates. Post 1992 expenditure

MinEx Consulting Strategic advice on mineral economics & exploration 6

Exploration Expenditures Uranium Price

Sources: MinEx Consulting estimates Sept 2011,

MinEx Consulting Strategic advice on mineral economics & exploration 7

RECENT DISCOVERIES AROUND THE

MinEx Consulting Strategic advice on mineral economics & exploration 8

Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv

MinEx Consulting Strategic advice on mineral economics & exploration 9

Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv

MinEx Consulting Strategic advice on mineral economics & exploration 10

La Colosa Golpu Deeps

MinEx Consulting Strategic advice on mineral economics & exploration 11

Note:Supergiant >60Moz Au, >10Mt Ni, >25Mt Cu equiv

MinEx Consulting Strategic advice on mineral economics & exploration 12

TRENDS IN DISCOVERY COSTS

MinEx Consulting Strategic advice on mineral economics & exploration 13

Discovery Cost (June 2011 US$/oz) Assume ~$30/oz

Source: MinEx Consulting Nov 2011

MinEx Consulting Strategic advice on mineral economics & exploration 14

Discovery Cost (June 2011 US$/lb U3O8)

MinEx Consulting Strategic advice on mineral economics & exploration

Between 1950-2000, the

Note: The reported costs exclude credits for by-product metal

MinEx Consulting Strategic advice on mineral economics & exploration 16

TRENDS IN CONVERSION RATES

MinEx Consulting Strategic advice on mineral economics & exploration 17

Not all discoveries are developed into mines

Key factors on the likelihood and speed of conversion are;

MinEx Consulting Strategic advice on mineral economics & exploration 18

40% Advanced Exploration

MinEx Consulting Strategic advice on mineral economics & exploration

Speculate that the lower

40% Advanced Exploration

MinEx Consulting Strategic advice on mineral economics & exploration

Time Discovery and Bigger projects tend to take longer to

MinEx Consulting Strategic advice on mineral economics & exploration

MinEx Consulting Strategic advice on mineral economics & exploration

IMPACT OF CUT-OFF GRADE

MinEx Consulting Strategic advice on mineral economics & exploration 23

Most deposits have a halo of low grade ore

The reported size of the deposit will depend

The cut-off grade is driven by economics .... which, in turn, are

Costs are influenced, energy & labour-intensity, innovations

MinEx Consulting Strategic advice on mineral economics & exploration 24

Estimate that 40% of the 3

MinEx Consulting Strategic advice on mineral economics & exploration 25

Top 12 Porphyry Mines in 1929

MinEx Consulting Strategic advice on mineral economics & exploration 26

ARE WE FINDING ENOUGH METAL ?

MinEx Consulting Strategic advice on mineral economics & exploration 27