MinEx’s Schodde: Canadian explorers still have their ‘mojo’

VANCOUVER — The recent decline in worldwide exploration activity has offered Richard Schodde, managing director of MinEx consulting, an opportunity to investigate just how well Canada’s mineral exploration industry has performed over the past decade in what has overall been a time of discovery and good fortune.

“There’s been a concern that the industry has lost its ‘mojo’ in finding ore deposits, but that’s simply not true,” Schodde tells The Northern Miner during a phone interview, fresh from presenting his findings during a talk at the Prospectors & Developers Association of Canada mining convention in Toronto.

According to his review, the discovery rates in Canada have remained constant since the 1960s. On average, the industry finds three tier-1, seven tier-2, and forty tier-3 deposits every decade that reflect a deposit’s size and profitability.

Canada accounts for 14% of the 336 discoveries made across the globe since 2005 — ranking third in the world behind Africa and Australia.

Schodde says 19% of the 86 deposits are what he’d call “company-makers,” or “robustly economic.”

At the top of his list are gold deposits at Brucejack in B.C.; Detour Lake in Ontario; Canadian Malartic in Quebec; and the potash deposit KP 405 found in Saskatchewan. 

Honorable mentions include the Coffee gold deposit in the Yukon; the Snowfield gold and Murray River coal deposits in B.C.; the Amaruq gold deposit in Nunavut; the Black Thor chromite deposit in Ontario; and the Patterson Lake South, Roughrider and Wheeler River uranium discoveries, and Kronau potash deposit in Saskatchewan.

But the biggest difference he’s noticed over this past decade is the sheer volume of money the companies have put towards finding these deposits.

Exploration spending in 2011 hit an all-time high of US$4.3 billion, reaching over 10 times the value in comparison to the dollars spent in 2001. 

Normally, Schodde observes a correlation between exploration spending and discoveries made, but since 2005, this has broken down: explorers are now spending twice as much in Canada for only half the gain.

“I suspect there’s also a business cycle in the data stream that hasn’t been taken into account,” he suggests. “Geologist salaries, drilling rates, administration fees … everything has gone up. It basically costs double to do your job nowadays.”

Another big change in the past decade has been the strong performance by the junior sector. They’ve accounted for 54% of total expenditures spent, and more importantly, 71% of the discoveries made. 

But much to Schodde’s surprise, the juniors were found to be five times more effective at returning value for every dollar spent on brownfield projects, rather than the greenfield plays.

“All of the big discoveries have been in mature districts, and it’s not a global-norm to find tier-1 deposits there. Canada has been exceptionally lucky in that regard,” he adds.

Schodde reckons the juniors’ winning streak reflects their opportunistic nature.

“The major companies aren’t that comfortable with entering into other people’s camps, whereas the juniors are happy to do so,” he says. “They envisaged large, open-pit bulk tonnage opportunities spurred by the high metal prices, but what they found was worth so much more.”

Exploration spending in Canada reached its peak in 2011, and since then it has nosedived 54% to $1.9 billion in 2014. Schodde points out that Canada is particularly sensitive to changes in market conditions, given that a large percent of the industry is made up of juniors who rely on a steady inflow of investment dollars.

According to previous trends, there’s typically a 40-60% drop in expenditures between cycles. But given the current market conditions, he predicts those numbers may fall another 10%.

“This will be bad for some juniors who struggle with low market capital and don’t have a lot of money in the bank,” he says, speculating that 20-40% of Canadian juniors may close depending on how long current conditions last.

But his biggest worry is the recent shift towards brownfield projects.

“What concerns me is the poor performance in the greenfield sector … those are the discoveries that really influence the long-term future of the Canadian mining industry,” he says.

Canada’s market share in global spending has gone down by half over the past three decades, but not for lack of opportunity. Instead, Schodde points out that companies have been spending their money elsewhere, such as Africa and Asia. 

“The world has become a much bigger place,” he adds.

On a positive note, he reckons there are still opportunities for Canadian explorers to make discoveries without exploring too deep undercover. Over the past decade, 22% of the biggest deposits were found outcropping at surface. 

But technology is still needed to explore deep deposits, which Schodde speculates could come with some risk.

“When you look back 30 years in Canada, the majors were making all the discoveries, and now it’s the juniors who lead in that regard. I worry if it’s partly because they’ve outsourced a lot of their targeting efforts and gave up that in-house knowledge,” he says. “In the ideal world, it’s a balance of both in-house and external sourcing of information.”

He adds that the downturn may encourage companies to trim their project portfolio and focus on the projects that serve their objectives best.

“It’s just unfortunate that they don’t have enough money right now to go into the field and test them.”