Long term trends in gold exploration - MINEX CONSULTINGminexconsulting.com/wp-content/...Talk-Long-term-trends-in-gold-Ex… · Outlook for Australia– is the love affair still on

MinEx Consulting Strategic advice on mineral economics & exploration

Long term trends ingold exploration

Is the love affair over, or is it just warming up?

Richard SchoddeManaging Director, MinEx Consulting

Adjunct Professor, Centre for Exploration Targeting , UWA

Technical presentation to the Melbourne Branch of the AusIMM7th June 2016


Overview

1. Trends in exploration expenditure2. Key drivers for exploration spend3. Trends in the number of discoveries and ounces – How much found?

4. Trends in the location of discoveries – Where are the “hot spots”?

5. Size and grade of discoveries - Are we running out of “good” deposits?

6. Trends in discovery methods – Geochem versus Geophysics

7. Depth of cover for discoveries – What’s the average depth by Region?

8. Who made the discoveries? – Majors versus Juniors

9. Quality of the discoveries – What tonnes & grade are required for a Tier 1

10. Trends in unit discovery costs – $/oz costs are rising over time

11. Country-Risk issues – Is it worth exploring in riskier places?

12. Outlook for Australia– is the love affair still on?

13. Conclusions

2


1. TRENDS IN EXPLORATION SPENDExploration expenditures reached an all-time high in 2012

3


Gold Exploration Expenditures: World

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015

Rest of World

FSU + E Europe

China

Western Europe

Africa

Pacific / SE Asia

Latin America

USA

Canada

Australia

June 2015 US$ Billion

Sources: MinEx Consulting estimates, based on data fromABS, NRCan, MOLAR (China), Tilton (1988),Wallace (1992,93) and SNL © 2015

2012$10.5b

2015$4.2b

2002$1.2b

1997$4.8b

1987$4.0b

1993$1.5b

1975$0.32b

Expendituresdown by 60%Expenditures are extremely cyclicalExpenditures are extremely cyclical

63% 75%

… going on past trends the current spendcould fall a further 10%

4


Gold Exploration Expenditures: World

0%

20%

40%

60%

80%

100%

1975 1980 1985 1990 1995 2000 2005 2010 2015

Percentage of Total Spend

Sources: MinEx Consulting estimates, based on data fromABS, NRCan, MOLAR (China), Tilton (1988),Wallace (1992,93) and SNL © 2015

5

9% Australia

13% Canada

10% USA

27% Latin America

5% Pacific/SE Asia

13% Africa

3% Western Europe

13% China

6% FSU + E Europe

1% Rest of World

22%

28%

7%

Australia’s share hasdropped by 3x

Australia’s share hasdropped by 3x

China hasgrown rapidly

China hasgrown rapidly


2. KEY DRIVERS FOR EXPLORATIONSPEND

Commodity price is the main driver

6


Key Drivers

• Growth in metal demand (and the need to replace what’s been mined)

• Commodity prices• Availability of funds (especially for Junior Companies)

• Input costs (such as geos, drilling and land access)

• Changes in Business Risk (both good & bad)

• Exploration success & major discoveries– Main influence is at the local level

• Technical innovations– Geological models– Exploration tools– Processing methods

7


Key Drivers

• Growth in metal demand (and the need to replace what’s been mined)

• Commodity prices• Availability of funds (especially for Junior Cos)

• Input costs (such as geos, drilling and land access)

• Changes in Business Risk (both good & bad)

• Exploration success & major discoveries– Main influence is at the local level

• Technical innovations– Geological models– Exploration tools– Processing methods

8

Main DriverMain Driver


Exploration spend is closely linked to commodity pricesWorld gold exploration expenditures versus gold price

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Exploration Expenditures(June 2015 US$ billion)

Gold Price(June 2015 US$/oz)

Gold Price(RHS>)

ActualExplorationSpend

Sources: MinEx Consulting © June 2016, LME

$10.5Bin 2012

$1.2Bin 2002 $4.2B

in 2015

9

NOTE: Industry wasslow to respond to

the 1980 price spike

NOTE: Industry wasslow to respond to

the 1980 price spike

Needed more trained geologists plusinnovations in exploration methods(geochem) and processing (CIP)


Exploration spend versus gold priceWorld: 1975-2015

$0

$2

$4

$6

$8

$10

$12

$0 $500 $1,000 $1,500 $2,000

2012

1997

1985

1975

1980

2015

Gold Price (June 2015 US$/oz)


Since the mid-1980sexploration spend has

moved in-line withgold prices

Since the mid-1980sexploration spend has

moved in-line withgold prices

With adjustments for otherfactors this can be used asa tool for predicting futureexploration expenditures

Source: MinEx Consulting © June 2016

1984

10

NOTE: have excluded data for1975-1984 because industry

was slow in responding tothe 1980 gold price spike

NOTE: have excluded data for1975-1984 because industry

was slow in responding tothe 1980 gold price spike


3. TRENDS IN THE NUMBER OFDISCOVERIES AND OUNCES FOUND

Discovery rates have plateaued (if not declining)

11


Number of Gold Discoveries: WorldPrimary Gold Deposits by Size : 1950-2014

0

20

40

60

80

1950 1960 1970 1980 1990 2000 2010 2020

Moderate (0.1-1 Moz)

Major (1-6 Moz)

Giant (>6 Moz)

Number of Deposits

Source: MinEx Consulting © October 2015Note: Discoveries are for Primary gold deposits >0.1 Moz Au

Excludes satellite deposits within existing camps

Over the last 2 decades industryhas been finding 35 to 45

significant deposits per year

Over the last 2 decades industryhas been finding 35 to 45

significant deposits per year

Drop-off in recentyears is artifact of

the how companiesreport discoveries

Drop-off in recentyears is artifact of

the how companiesreport discoveries

… of which 20 to 25 are >1 Mozand 3 to 5 are >6 Moz

12


Number of Gold Discoveries: WorldPrimary Gold Deposits by Size : 1950-2014

0

20

40

60

80

1950 1960 1970 1980 1990 2000 2010 2020

Est Unreported


Major (1-6 Moz)

Giant (>6 Moz)

Number of Deposits

Source: MinEx Consulting © October 2015Note: Discoveries are for Primary gold deposits >0.1 Moz Au

Excludes satellite deposits within existing campsData from 2005 onwards have been adjusted for unreported discoveries

Need to adjust forunreporteddiscoveries


13

Over the last decade , only 7% of thesignificant deposits found were >6 Moz

Over the last decade , only 7% of thesignificant deposits found were >6 Moz


Amount of Gold Discovered: WorldPrimary Gold by Size : 1950-2014

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020


Major (1-6 Moz)

Giant (>6 Moz)

Moz of Gold

Source: MinEx Consulting © October 2015Note: Excludes by-product gold associated with base metal and other discoveriesExcludes satellite deposits within existing campsData from 2005 onwards have been adjusted for unreported discoveries

14


Amount of Gold Discovered: WorldPrimary Gold by Size : 1950-2014

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

Est Unreported


Major (1-6 Moz)

Giant (>6 Moz)

Moz of Gold

Source: MinEx Consulting © October 2015Note: Excludes by-product gold associated with base metal and other discoveriesExcludes satellite deposits within existing campsData from 2005 onwards have been adjusted for unreported discoveries

15



Over the last decade , 46% of the ouncesfound were in deposits >6 Moz

Over the last decade , 46% of the ouncesfound were in deposits >6 Moz


Need to take into account by-Product Gold

Industry also finds gold in base-metal and other deposits

16


Amount of Gold Discovered: WorldPrimary & By-Product Gold : 1950-2014

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

Est Unreported

By-Product Gold

Primary Gold

Moz of Gold

Source: MinEx Consulting © October 2015Note: Excludes satellite deposits within existing campsData from 2005 onwards includes estimate for unreported discoveries

17


Amount of Gold Discovered: WorldPrimary & By-Product Gold : 1950-2014

0%

20%

40%

60%

80%

100%

120%

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

Est UnreportedBy-Product GoldPrimary Gold% By-Product (3 Yr Rolling Avg)

Moz of Gold

Source: MinEx Consulting © October 2015Note: Excludes satellite deposits within existing campsData from 2005 onwards includes estimate for unreported discoveries

% By-Product Gold

On average , over the lastdecade 17% of all gold found

is a by-product ofexploration for other metals

On average , over the lastdecade 17% of all gold found

is a by-product ofexploration for other metals

18


Amount of Gold Discovered: WorldPrimary Gold plus associated By-Product Credits : 1950-2014

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

Est Unreported

By-Product Credits

Primary Gold

Moz-eq of Gold

Source: MinEx Consulting © October 2015Note: Excludes by-product gold associated with base metal and other discoveriesIncludes gold –equivalent value of base metal and other credits associated with the primary gold depositData from 2005 onwards have been adjusted for unreported discoveries

… And gold can have its own by-productcredits (of silver and copper)

… And gold can have its own by-productcredits (of silver and copper)

… these are worth 11%of the primary gold found

19


4. TRENDS IN THE LOCATION OFDISCOVERIES

There has been a progressive geographic shift in where gold isbeing discovered in the World

20


Ounces discovered by RegionPrimary Gold deposits found : 1950-2014

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

FSU + China + E Europe

Rest of the World

Western Europe

Pacific / SE Asia

Africa

Latin America

Australia

USA

Canada

Note: Includes an adjustment for unreported discoveries in recent yearsExcludes by-product credits Source: MinEx Consulting © October 2015

Moz of Gold

21


Ounces discovered by RegionPrimary Gold deposits found : 1950-2014

0%

20%

40%

60%

80%

100%

1950 1960 1970 1980 1990 2000 2010 2020

FSU + China + E Europe

Rest of the World

Western Europe

Pacific / SE Asia

Africa

Latin America

Australia

USA

Canada

Note: Includes an adjustment for unreported discoveries in recent yearsExcludes by-product credits

Percentage of ounces found

In the last decade,there have been

several largediscoveries in

Canada

In the last decade,there have been

several largediscoveries in

Canada

Source: MinEx Consulting © October 2015

22


Gold discoveries in the world: 2005-Present

Alaska/Yukon NorthernOntario

Latin America

Ten current“Hot Spots”Ten current“Hot Spots”

West Africa

China

WesternAustralia

SW USA/ Mexico

Turkey /Carpathian Belt

Central /NEAfrica

Source: MinEx Consulting © October 2015Note: Based on deposits containing >0.1 Moz of gold

N = 410

Far East Russia

23


Recent Tier 1 discoveries

• Red Hill/Goldrush– Discovered in 2011 by Barrick next to its existing operation in

Nevada. Current Resource is 96 Mt @ 5.0 g/t Au = 15.4 Moz

• Cote– Discovered in 2010 by Trelawney Mining & Exploration in Ontario.

Current Resource is 331 Mt @ 0.80 g/t Au = 9.0 Moz

• Haiyu– Discovered in 2011 by Laizhou Ruihai in Shandong Province in

China. Reported to contain 67 Mt @ 7.0 g/t = 15.1 Moz• A further 10 Moz has been found along strike in the district

24


5. TRENDS IN THE SIZE & GRADE OFGOLD DISCOVERIES

There has been a slow decline in the size of deposits found.Grades have remained fairly constant

25


Trend in the average size of gold deposit discoveredAll primary gold discoveries >1 Moz in the World: 1950-2014

1

10

100

1000

1950 1960 1970 1980 1990 2000 2010 2020

Note: Excludes deposits where gold is a by-product.No adjustment made for growth in recent discoveries

N = 932

Moz

Average size ofdeposits >1 Moz3 year rolling average

1960-69: 6.7 Moz1970-79: 6.5 Moz1980-89: 4.9 Moz1990-99: 5.2 Moz2000-09: 4.6 Moz2010-14: 2.9 Moz

Average size has declined in recent years… though this may be simply a function of maturityAverage size has declined in recent years… though this may be simply a function of maturity


26


Trend in average ore gradesAverage ore grade for all primary gold discoveries >1 Moz in the World

versus average head grade of ore mined

0.1

1

10

100

1950 1960 1970 1980 1990 2000 2010 2020

Note: Excludes deposits where gold is a by-product.Also excludes artisanal mines and retreatment of waste dumps

g/t Au

1.75 g/tin 2014

Average grade of goldmined in the World

Average grade of gold mined inUSA + Canada + Australia + South Africa

5.17 g/tin 1985

1.47 g/tin 2014

Average grade of gold discovered in the World(3-Year rolling average for discoveries >1 Moz)

Sources: MinEx Consulting © October 2015Mudd (2010) for production data 1950-2000MinEx Consulting for production data 2000-2014

1.54 g/tin 1985

27


6. TRENDS IN DISCOVERY METHODS

28


Trends in exploration methodsThe preferred search method used varies by commodity type, depth of cover and “scale”

Continental-Scale

Province-Scale

District-Scale

Project-Scale

Prospect-ScaleMinEx has carried out a detailed analysisof the discovery history of 1381 primary

gold deposits at these two scales

MinEx has carried out a detailed analysisof the discovery history of 1381 primary

gold deposits at these two scales

29


Primary search method used at the project-scaleGOLD discoveries (>0.1 Moz) in the World: 1900-2014

0%

20%

40%

60%

80%

100% Serendipity

Prospector

Other

Visual

Conceptual/Geological

Geological Mapping

Extrapolated from KnownMineralisationGeochem

Geophysics + Geochem

Geophysics

Percentage of total discoveries

Note: Analysis based on detailed analysis of 1381 primary gold projects (out of 2179 known discoveries)

ie What method was used todecide where to peg the leases

ie What method was used todecide where to peg the leases


30


Primary search method used at the prospect-scaleGOLD discoveries (>0.1 Moz) in the World: 1900-2014

0%

20%

40%

60%

80%

100% Serendipity

Prospector

Other

Drilling (Sole Method)

Visual

Conceptual/Geological

Geological Mapping

Extrapolated from KnownMineralisationGeochem

Geophysics + Geochem

Geophysics

Percentage of total discoveries

Note: Analysis based on detailed analysis of 1381 primary gold projects (out of 2179 known discoveries)Source: MinEx Consulting © October 2015

31

ie What method was used todecide where to drill the first hole

ie What method was used todecide where to drill the first hole


7. TRENDS IN THE DEPTH OF COVERWe are progressively looking under deeper cover

32


We are exploring under progressively deeper coverDepth of cover for discoveries in World: 1900-2014

-200

0

200

400

600

800

1000

1200

1400

1900 1920 1940 1960 1980 2000 2020

World (excl Sth Africa) : Greenfield World (excl Sth Africa) : Brownfield

South Africa : Greenfield South Africa : Brownfield

Depth of Cover(Metres)

Note: Primary gold deposits > 0.1 Moz. Bubble size refers to Moz of pre-mined ResourceExcludes satellite deposits within existing Camps.

… even so, most of the golddiscoveries are still beingmade under shallow cover

… even so, most of the golddiscoveries are still beingmade under shallow cover

The depth of cover isgradually increasing

over time

The depth of cover isgradually increasing

over time

Discovery Year

… the exceptions areBrownfield discoveries,

especially in theWitwatersrand in Sth Africa

… the exceptions areBrownfield discoveries,

especially in theWitwatersrand in Sth Africa

Average depth overlast decade (2005-14)

= 64 metres


33


Average depth of cover for gold discoveriesWorld: 2005-2014

174

120

7465

3026430

64

0

20

40

60

80

100

120

140

160

180

200

16

WorldAverage

LatinAm

Africa(excl Sth Africa)

AustWEurope

CanadaUSAPacificSE Asia

Restof World

Metres

If you exclude Shandong Province in Chinawhere 4 very deep (+1000m) brownfield

deposits were found, the average depth ofcover falls from 174 to 16 metres

If you exclude Shandong Province in Chinawhere 4 very deep (+1000m) brownfield

deposits were found, the average depth ofcover falls from 174 to 16 metres

Note: Based on 300 Primary gold deposits with reported depths and > 0.1 moz AuExcludes satellite deposits in existing Camps

FSU+EE+China

16


34


0

100

200

300

400

500

0% 25% 50% 75% 100%

Cumulative Moz

Cumulative distribution of depth for primary golddeposits > 0.1 Moz found in the World in 2005-2014

0

100

200

300

400

500

0% 25% 50% 75% 100%

Cumulative Number

88%

94%

95%

96%

97%

52% of alldiscoveries

(by number)outcrop


(by number)outcrop


(by Moz)outcrop


(by Moz)outcrop

87%

92%

93%

94%

96%

Average depthis 64 metres




Depth of Cover (Metres) Depth of Cover (Metres)

Note: Analysis based on 300 deposits with known depth data and >0.1 Moz.Includes both Greenfield and Brownfield discoveries Source: MinEx Consulting © October 2015

35


8. WHO MADE THE DISCOVERIES ?Majors versus Juniors

36


Number of discoveries made by Company TypeModerate+Major+Giant primary gold discoveries in Western World: 1975-2014

Number ofDiscoveries

Note: Figures are adjusted for shared discoveriesExcludes satellite deposits within existing Camps Source: MinEx Consulting © November 2015

In recent years JuniorCompanies have foundmost of the deposits

In recent years JuniorCompanies have foundmost of the deposits

37


Percentage of discoveries made by Company TypeModerate+Major+Giant primary gold discoveries in Western World: 1975-2014


Note: Figures are adjusted for shared discoveriesExcludes satellite deposits within existing Camps

Junior Companies nowaccount for 65-75% of alldiscoveries (by number)

in the Western World

Junior Companies nowaccount for 65-75% of alldiscoveries (by number)

in the Western World

Source: MinEx Consulting © November 2015

38


Percentage of Ounces found by Company TypeModerate+Major+Giant primary gold discoveries in Western World: 1975-2014


Note: Figures are adjusted for shared discoveriesExcludes satellite deposits within existing Camps

Junior Companies nowaccount for 60-70% of alldiscoveries (by ounces)in the Western World

Junior Companies nowaccount for 60-70% of alldiscoveries (by ounces)in the Western World


39


Value created made by Company TypeModerate+Major+Giant discoveries in Australia: 1975-2014

Value ofDiscoveries

Note: Figures are adjusted for shared discoveriesExcludes satellite deposits within existing CampsAssumes an average value of US$2000m for Tier-1, $500m for Tier-2, $80m for Tier-3 and $10m for Other discoveries

Junior Companies nowaccount for 55-65% of alldiscoveries (by value) in

the Western World

Junior Companies nowaccount for 55-65% of alldiscoveries (by value) in

the Western World


40


Majors versus JuniorsWestern World: 2005-2014

Note: Figures are adjusted for shared discoveriesExcludes satellite deposits within existing CampsExploration expenditures are approximate only

~24%12%

28%

~66% 72%59%

~6%

9%

7%

5%

14%22%

7%

67% 64%


41


9. TRENDS IN THE QUALITY OFDISCOVERIES

Tier 1 discoveries are rare but valuable

42


Number of Tier 1 & 2 Gold Discoveries: WorldPrimary Gold Deposits: 1950-2014

0

2

4

6

8

10

1950 1960 1970 1980 1990 2000 2010 2020

Tier 2: Economic & Large

Tier 1: World Class

Number of Deposits

Source: MinEx Consulting © October 2015Note: Primary gold deposits onlyCaution: No adjustment made for unreported discoveries

N Tier 1 = 56

N Tier 2 = 172

43

On average, only 2-3 Tier1&2 discoveries are made

each year in the World

On average, only 2-3 Tier1&2 discoveries are made

each year in the World


10. TRENDS IN UNIT DISCOVERY COSTSDiscovery cost per ounce has doubled in the last decade

44


Exploration Expenditures and Gold DiscoveredPrimary Gold : 1950-2014

$0

$2

$4

$6

$8

$10

$12

0

50

100

150

200

250

300

1950 1960 1970 1980 1990 2000 2010 2020

Moz-eq - FSU+EE+China

Moz-eq - Western World

Expenditures - Western World

Expenditures - FSU+EE+China

Moz-eq of Gold

Note: Primary gold discoveries only, adjusted for Cu, Ag and Other by-product creditsData from 2005 onwards have been adjusted for unreported discoveriesNo expenditure data available for The FSU + Eastern Europe + China prior to 1975

June 2015 US$ Billion

ExpendituresFSU+EE+China

DiscoveriesFSU+EE+China

ExpendituresWestern World

DiscoveriesWestern World


45


Unit Discovery Costs for Gold : 1950-2014

$0

$20

$40

$60

$80

$100

1950 1960 1970 1980 1990 2000 2010 2020

3 Year Rolling Average

2015 US$/oz-eq

Note Includes value of by-product credits from other metals associated with the primary gold depositData from 2005 onwards have been adjusted for unreported discoveries

Former SovietUnion + EasternEurope + China

Western World

World

Estimate

$82

$73

$39


46

Even after adjusting for non-reporteddiscoveries, unit discovery costs haverisen dramatically in the last decade

Even after adjusting for non-reporteddiscoveries, unit discovery costs haverisen dramatically in the last decade


Trend in Unit Discovery costs: 1975-2014Western World Primary Gold Deposits > 0.1 Moz

47

$0

$50

$100

$150

$200

$250

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Average Cost per Discovery(2015 US$m)

Note: Discoveries are for Primary gold deposits >0.1 Moz AuData from 2005 onwards have been adjusted for unreported discoveries

Weighted Average for1995-2004 = $70m


Estimated

Unit costs nowrunning at ~$200m

per discovery

Unit costs nowrunning at ~$200m

per discovery




Discovery performance by Region: 2005-2014

Region Explorn Spend(2015 $b)

Adjusted No ofDiscoveries

Adjusted Moz found Avg SizeMoz-eq

CostUS$/oz-eq

Australia $5.3 9% 48 11% 83 4 86 6% 1.8 $61

Canada $11.6 19% 46 11% 306 75 380 27% 8.3 $31

USA $5.7 9% 19 4% 78 3 80 6% 4.2 $71

Latin America $14.4 24% 82 19% 275 78 353 25% 4.3 $41

Pacific/SE Asia $4.0 7% 10 2% 10 2 12 1% 1.2 $334

Africa $9.5 16% 128 30% 252 1 252 18% 2.0 $38

W Europe $1.4 2% 16 4% 31 5 36 3% 2.3 $38

FSU+EE+China $8.2 14% 64 15% 196 17 213 15% 3.3 $38

Rest of World $0.5 1% 7 2% 18 3 21 1% 2.9 $26

----- ------ ------ ------- ------ ------ ------- ------- ------- -------

TOTAL $60.5 100% 420 100% 1246 187 1433 100% 3.4 $42


Canada had lowest discovery costs, PAC/SEA was highestCanada had lowest discovery costs, PAC/SEA was highest

Au BP Credits Moz-eq

Note:.Includes adjustment for unreported discoveries

48


Discovery performance by Region: Spend & performance by Region:

2005-2014

Region ExplorationSpend (2014 $b)

No ofDiscoveries #

Tier 1+2Discoveries

Estimated Value(2015 $b)

Value /Spend

Australia $5.3 9% 48 11% 5 14% $4.6 11% 0.87

Canada $11.6 19% 46 11% 9 24% $11.1 27% 0.96

USA $5.7 9% 19 4% 3 8% $2.8 7% 0.49

Latin America $14.4 24% 82 19% 10 27% $8.3 20% 0.57

Pacific/SE Asia $4.0 7% 10 2% 0 0% $0.4 1% 0.09

Africa $9.5 16% 128 30% 6 16% $6.3 16% 0.67

W Europe $1.4 2% 16 4% 0 0% $0.5 1% 0.36

FSU+EE+China $8.2 14% 64 15% 4 11% $6.7 16% 0.82

Rest of World $0.5 1% 7 2% 0 0% $0.2 1% 0.43

----- ------ ------ ------- ------ ------- ------- ------- -------

TOTAL $60.5 100% 360 100% 79 100% $40.9 100% 0.68

i.e. “Bang-per-Buck”i.e. “Bang-per-Buck”PAC/SEA was below average. Canada performed bestPAC/SEA was below average. Canada performed best

Note:.Estimated values are indiciative only Source: MinEx Consulting © November 2015

49


11. TRENDS IN COUNTRY RISK

The expectation is that companies should generate abetter return from operating in riskier countries

50


Policy Perception Index: March 2015122 jurisdictions around the world

0

20

40

60

80

100

Source: Fraser Institute March 2015

PPI

PPI is a measure of how “easy” it is to do business in the Country… a high score is better

PPI is a measure of how “easy” it is to do business in the Country… a high score is better

Honduras

Ireland

51


Policy Perception Index: March 2015122 jurisdictions around the world

0

20

40

60

80

100

Source: Fraser Institute March 2015

PPI

Low RiskModerate RiskHigh RiskV High Risk

Note: Ratings will change from year to year

52


Country Risk versus RewardWestern World: 2005-2014

Note: Excludes FSU and China

27%12%

44%

72%

22%25%

23%

5%

26% 32%

32%

18% 14%19% 17%

33% 19%30%

20%


53

This is a surprising result… normally expect

higher returns fromriskier investments

This is a surprising result… normally expect

higher returns fromriskier investments


12. OUTLOOK FOR AUSTRALIA

54



$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020



Gold Price(RHS>)



$10.5Bin 2012

$1.2Bin 2002 $4.2B

in 2015

55



$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$0

$2

$4

$6

$8

$10

$12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020


Gold Price(RHS>)



BrokersForecasts

(May 2016)

BrokersForecasts

(May 2016)

US$10.5Bin 2012

$1.2Bin 2002 US$4.2B

in 2015


56


Forecast exploration expenditures: Australiaby Commodity : 1975-2025

$0

$1,000

$2,000

$3,000

$4,000

$5,000

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Other

Coal

Iron Ore

Uranium

Base Metals

Gold

2015 A$ Million

Note: Forecast based on a Multiple-Regression analysis of datafrom 1990-2015 with R2 = 0.82

Gold is projected torise 27% then flat lineGold is projected to

rise 27% then flat line

Source: MinEx Consulting estimates © June 2015, based oncommodity price forecasts from BREE March 2016

~A$1670min 2025

Down63%

Spend on uranium isprojected to increaseSpend on uranium isprojected to increase

A$3898min 2012

Spending on BaseMetals to reboundSpending on BaseMetals to rebound

CAUTION: TheForecast doesn’t

capture the short-term volatility

in spend

CAUTION: TheForecast doesn’t

capture the short-term volatility

in spend

Coal exploration isset to shrink furtherCoal exploration is

set to shrink furtherA$1438min 2015

BREE forecasts that the nominal gold price will dropto A$1400/oz (= A$1253/oz in real terms) by 2021


57

Forecast


Forecast exploration expenditures: AustraliaGOLD : 1975-2025

$0

$500

$1,000

$1,500

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

2015 A$ Million

Note: Forecast based on a Multiple-Regression analysis of datafrom 1990-2015 with R2 = 0.82

Source: MinEx Consulting estimates © June 2015, based oncommodity price forecasts from BREE March 2016

A$790min 2012



58

Forecast

A$2500/ozA$2000/ozA$1500/ozA$1000/oz

~A$580min 2025 based on BREE gold

price forecastbased on BREE gold

price forecast

CAUTION: Forecastexpenditures are

sensitive to the gold price

CAUTION: Forecastexpenditures are

sensitive to the gold price

A$476min 2015

Forecast based onlong run gold priceForecast based onlong run gold price

A$383min 2014


The next boom has already started !

Source: Lion Selection Group © May 2016

59


Summary / Conclusions : 1/41. Trends in exploration expenditures

– Gold exploration expenditures are extremely cyclical– Global spend was US$4.2 b in 2015, down 60% from its peak in 2012 (of $10.5b)– Expenditures are mainly driven by commodity prices and availability of funds

2. Trends in the number of discoveries and ounces– The number of deposits and contained ounces found in the last decade (2005-2014) were at the

same level as that of the boom period of the 1980s and 1990s– Over the last decade 1246 Moz was found in 420 primary gold deposits (>0.1 Moz). This

includes an adjustment for unreported discoveries– 46% of the ounces found were in deposits >6Moz, but these only accounted for 7% by number– In addition, 250 Moz was found as by-product gold associated with base metal and other

deposits … that’s 17% of all gold found in the decade

3. Trends in the location of discoveries– Over the last decade Canada did well (at the expense of Latin America)– By number, 11% of the discoveries were in Canada, 11% in Australia and 30% in Africa– In terms of contained gold, 27% was found in Canada, 6% in Australia and 18% in Africa– Top 10 “Hot Spots” are Alaska/Yukon, SW USA/Mexico, Northern Ontario, Latin America, West

Africa, NE/Central Africa, Turkey / Carpathian Belt, China, Far East Russia and Western Australia

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Summary / Conclusions : 2/4

4. Size and grade of discoveries– Average size of discovery is falling (3.4 Moz in last decade versus ~5 Moz in 1980s and 1990s)– Average grade was steady at ~1.5 g/t – but improved in last 5 years to 1.7 g/t due to some last

high grade discoveries (Red Hill/Gold Rush 15.4 Moz @ 5.0 g/t, and Haiyu 15.1 Moz @ 7.0 g/t)– Average grade mined has been steadily declining (1.7 g/t in last decade versus 3.3 g/t in 1990s)

5. Trends in discovery methods– At the Project-scale level (i.e. deciding where to peg leases), the main targeting method is based

on the presence of prior known mineralisation … i.e. targeting is based on “nearology”– At the Prospect-scale level (i.e. deciding where to drill the first hole) the two main methods are

geochemistry (35%) and extrapolation from known mineralisation (23%). As we go deeper,geophysics becomes more important (13% versus 5% in the 1990s)

6. Depth of cover for discoveries– Depth is gradually increasing over time.– Over the last decade the average depth of cover was 64 metres (and 65 metres in Australia)

… but half of the deposits found were outcropping (and most of these were in Africa)

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7. Who made the discoveries?– Over the last decade Junior companies accounted for 69% of the exploration spend, 67% of gold

discoveries (by number), 64% of the ounces and 59% of the value created– Major companies were mainly focused on finding giant deposits. Over the last decade, they

accounted for 24% of the spend, 14% of the discoveries, 22% of the ounces and 28% of the value

8. Quality of the discoveries– Most of the value created was tied-up in Tier-1 and -2 discoveries. These are rare – with only 2-3

being found each year in the World

9. Trends in unit discovery costs– Unit discovery costs have progressively risen over time - from US$14/oz Au-eq in the 1980s to

$20/oz in the 1990s and $25/oz in 2000s. It is currently running at ~$60/oz– Discovery costs vary widely by Region – the lowest was Canada (US$31/oz) & Africa ($38/oz), and

the highest was US ($71/oz) & Pacific SE Asia (>$300/oz). Australia was US$61/oz– In terms of Value/Cost (i.e. “Bang-per Buck”) over the last decade the industry created $0.68 worth

of value per each Dollar spent on Exploration. Australia was $0.87. Hopefully this will improveover time – as costs come down and recent discoveries grow in size

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10. Country Risk issues– Over the last decade 51% of the total exploration expenditures were in High-Risk and Very-

High Risk countries. These accounted for 49% of the discoveries by number, 37% of theounces but only 33% of the value

This is a surprising result – as one would expect a higher return to compensate for thehigher business risk associated with exploring there.

11. Outlook for gold exploration in Australia– Exploration spending is now bottoming out. The low-point was in 2014 when spending dropped

to A$383m. Based on BREE’s gold price forecast, expenditures are set to rise from A$476m in2015 to $608m in 2017 then flat-line at ~$575m pa in the longer term. Note: These figures arevery sensitive to commodity price assumptions and exploration success.

63

IN SUMMARY … The gold exploration sector has bottomed out andpositioning itself for the next boom.

The love affair with gold continues !!


Contact details

Richard SchoddeManaging DirectorMinEx ConsultingMelbourne, Australia

Email: [email protected]: MinExConsulting.com

Copies of this and other similarpresentations can be downloaded

from my website

Copies of this and other similarpresentations can be downloaded

from my website

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