London, U.K. – There are only three ways a mining company can provide growth, contends Graham Brown, head of geosciences and exploration for Anglo American (AAL-L), in a recent presentation at the Mines and Money conference in London.
You can discover, you can acquire, or you can innovate. Discovery, Brown says, is all about creating value by finding new deposits or expanding existing ones. Acquisition is recognizing value and trying to quantify the blue-sky potential that justifies the premium paid. Innovation is unlocking value through technology developments. His job is all about the first.
As the world’s fourth-largest iron ore producer, the largest platinum producer and the leading diamond producer through its soon-to-be 85% interest in the De Beers Group, Anglo American has made 15 major discoveries over the last 10 years, eight of which were greenfield discoveries and seven of which were brownfield. While the mining industry’s average rate of discovery is one mineable deposit for every 1,000 targets tested, Brown pegs his company’s record of discovery at something like 1 to 100.
And not just any kind of discoveries, Brown asserts. They are often Tier 1 deposits, the rare type of long-life, low-cost projects that capture most of the industry’s value. For those kinds of deposits, the industry’s average rate of discovery is closer to one for every 3000 targets, Brown stresses.
“I’m often asked what are the key discovery tools,” the Scottish geologist says with a grin. “I tell them there are four. The first is a hammer, which you hit rocks with. The second is a hand lens, so you can identify the minerals. The third is a big red crayon, which you use to mark a big circle on the map. And most importantly, the last one is a rotary lie detector, commonly known as a drill rig, which you use to test your target with.”
According to Brown, exploration spending across the world is at an all-time high, with over $17 billion spent looking for non-ferrous metals last year. His company was responsible for $136 million of that, spread across 17 countries in six regions worldwide. Nevertheless, grassroots exploration spending by the mining industry as a whole is at an all-time low, with as little as 20% of overall exploration budgets actually spent on grassroots regional programs. The focus for many juniors has been on brownfield and more advanced projects, and recycling old properties.
“The reality is we’re finding fewer Tier 1 deposits, in general at greater depths and declining grades. And it’s taking longer, and costing more in terms of lead time,” Brown says. There are only 1 or 2 Tier 1 discoveries made each year globally, and it is taking a minimum of 1 to 2 decades to find and develop new mines.
For Anglo American, competing globally requires a global footprint. That means staffing more than a dozen country offices and regional offices, which enables vital access to key networks. It also requires funding, talent and time, with a focus on where to explore rather than how.
“When I started in this business, a 1-million-oz. gold deposit was seen as a viable target. The target for many companies today is 5 million oz.” Today, there is no shortage of resources, Brown argues; it is quality that is the real challenge.
His company offsets the high cost of exploration by selling off non-core assets, like zinc and gold projects, as well as projects that fail to meet its minimum investment criteria. After combining these proceeds with a value given to resources delivered, the company can come up with a net exploration cost, which it says has averaged about $25 million a year over the last decade.
“It’s all about people,” Brown says in summary. “They will get you in the right place at the right time using the right tools. It’s also about funding. You need it to be consistent, long-term and non-discretionary. Lastly, it’s about time. You need to build knowledge and you need to build capacity, anywhere between 5 and 10 years as a realistic time for a new grassroots discovery.”
Oh, to be a major.
Folks read that again. #1 a hammer (Graham forgot the boots), #2 hand lens!
Grass roots discoveries come from observant geologists in the field understanding what the rocks are saying. Computer generated maps and fancy regurgitated models are only good for clipping investors.
Graham has it right but did forget the one non-physical intangible that makes a discovery possible “serendipity” and the best explorationists make that work for them.