Better technology, better economy

A report from the Australian Bureau of Agricultural and Resource Economics (ABARE) provides powerful support for the recommendations of three government studies that called for greater investment in research in an effort to reinvigorate mineral exploration.

The ABARE report, Research and Development in Exploration and Mining: Implications for Australia’s Gold Industry, suggests that research advances in gold exploration could return Australia an additional A$3.6 billion a year in exports by 2015.

This would lift gold exports from the current level of A$4.7 billion a year to a projected A$8.3 billion a year (at constant prices).

The progressive growth of that figure suggests there would be cumulative additional exports of more than A$20 billion over those 12 years. That represents a significant return on the proposed 7-year Deep Ore Discovery research program recommended by the Mineral Exploration Action Agenda, which is expected to cost a total of A$140 million.

Conversely, failure to develop new technologies could see exports decline by A$1.4 billion a year, the report suggests.

The ABARE study, commissioned by the Commonwealth Scientific & Industrial Research Organisation (CSIRO), supports the federal parliament’s Prosser Inquiry into Impediments to Exploration, the federal minister’s Strategic Leaders Group report (as part of the Mineral Exploration Action Agenda) and the West Australian government’s Bowler Report, each of which recommended substantial increased investment in exploration technology.

The studies were initiated in response to a dramatic decline in mineral exploration in Australia — a 49% slump in real terms between 1996 and 1997 and between 2001 and 2002 to the lowest level recorded since 1978-79.

Despite a modest recovery since, activity is still at historically low levels, and this raises concerns about the future of the industry, which provides 30% of Australia’s earnings from the export of goods and services.

The ABARE report did not forecast what form the advances in technology might take or the likely returns from any particular breakthrough. Instead it took a historical perspective and traced the increases and decreases in exploration success each year from 1980 to 2001.

This revealed that throughout this period there were marked differences in the efficiency of exploration, as measured by the additional gold ore discovered per million dollars spent on exploration.

While there were other contributing factors (including, at times, pure luck), the most significant influence on these changes in efficiency was technology — improved knowledge about the occurrence of gold ores, improved exploration tools and improved extraction methods.

The improved exploration theory and technology increased the effectiveness of exploration activity, and also tended to attract substantial additional investment in exploration because of the increased success rate.

This was spectacularly demonstrated during the 1980s. Higher gold prices led to generally increased exploration activity around the world. However, Western Australia and Nevada experienced startling increases in production, far ahead of the rest of the world. In Australia, production rose from a mere 17 tonnes of gold a year in 1980 to 244 tonnes a year by 1990.

Natural endowment was an essential precondition for discovery, but another key differentiator between Australia and the rest of the world was greatly improved understanding of the way in which gold deposits are formed, in particular improved knowledge of weathering and the structural control of deposits and the role of carbonate alteration haloes.

These additional clues were particularly relevant to the geology of Western Australia and to parts of Nevada, and help explain the extraordinary resurgence of discoveries in both those regions, which were previously considered mature and/or relatively well-explored.

By studying the varying efficiencies of exploration at different times during the review period, the ABARE team, led by senior economist Lindsay Hogan, was able to develop three scenarios for Australian gold exploration in the period leading up to 2015.

The first assumed a discovery rate of 0.3 tonne of gold per million dollars of exploration expenditure. This is consistent with minimum returns achieved during the review period.

The second assumed a discovery rate of 1.2 tonnes of gold per million dollars spent and is consistent with average success rates between 1990 and 2001.

The third assumed a success rate of 2.1 tonnes per million — equivalent to the discovery rates achieved during peak success periods.

This third scenario — which is the one that would result in exports rising to A$8.3 billion a year by 2015 — would almost certainly require significant research progress. The first scenario, which sees a loss of production of A$1.4 billion a year by 2015, would, in all probability, be valid only if there are no advances in understanding or technology. It is this A$5-billion annual difference between export gains of A$3.6 billion a year by 2015 and a reduction of A$1.4 billion a year that makes the case for investment in mineral exploration technology and theory so compelling.

The ABARE report also makes a strong case for this research to be publicly funded, rather than left to the industry. The reason is that the gold sector is characterized by a relatively large number of explorers and operators, most of which do not have the capacity or incentive to fund sustained research.

The ABARE report is available by visiting www.abare.gov.au.

— The preceding is from Earthmatters, a quarterly publication of the Commonwealth Scientific & Industrial Research Organisation.