Global mineral exploration is in crisis, but mining companies can turn their exploration performance around.

“Finding orebodies is not all about luck, and success is not unpredictable. And while some companies struggle to replace depleted reserves, those that act in a countercyclical way – that build world-class exploration capabilities – will be rewarded with disproportionate returns,” says The Boston Consulting Group (BCG) partner Alexander Koch, coauthor of a new report by the management consulting firm, titled ‘Tackling the Crisis in Mineral Exploration’.

The report, which was released last week, notes that from 2010 to 2013, the yearly number of discoveries, excluding bulk commodities, declined by more than half, even after adjusting for discoveries yet to be drilled out.

The report highlights that the sharp decline in discoveries occurred despite a period of significant increases in exploration spending, with “giant” discoveries dropping to only one or two a year. At the height of the recent resources boom, average yearly exploration expenditure has grown by almost 40% to record levels.

Koch notes that the crisis in mineral exploration has “flown under the radar” for much of the mining industry.

“Since the end of the resources boom, most mining companies have now shifted their focus to productivity and cut back sharply on exploration spending, which has exacerbated the depletion of resources and reserves.”

Cyclical increases in drilling costs and the depletion of easy pickings only partly explain the discovery drought.

To shed light on the more fundamental reasons for the exploration crisis, BCG recently worked with six of the world’s most “illustrious mineral exploration legends” – the individuals responsible for such historic finds as Minera Escondida, in Chile, Oyu Tolgoi, in Mongolia, and Olympic Dam and Cadia, in Australia.

The report crystallises the insights on the causes of the crisis and offers its views on the essential ingredients governing exploration success.

The interviewed parties insist that the crisis is not the result of external factors, such as geology, industry economics, or other macroeconomic forces, or that successful discovery depends on luck or funding.

“Leadership is paramount. Beyond that, four critical areas make the difference: exploration strategy – the operational approach to finding orebodies; exploration management – the principles companies follow in running exploration; innovation – in ideas and approaches, as well as technology; and talent development and people management,” the report states.

It has also been found that, while science has its place, it is “no substitute for field observation and drilling”.

“Risk-averse companies often forgo greenfield exploration in favour of brownfield explo- ration. But, in doing so, they incur more risk than if they had balanced the two types of exploration in a portfolio approach. Exploration should be run as a profit centre,” the report states.

Further, it highlights that talent makes the critical difference in exploration success. “Yet, many companies overlook the people management practices that are crucial to exploration success. These include recruiting ore finders, mentoring young geologists, balancing the mix of staff and contract geologists, and creating employment stability,” it notes.

Mineral discovery, according to Koch, is a key factor in superior value creation for shareholders. “The downturn in prices has highlighted the importance of mineral discovery – especially in greenfield settings – as a source of high-value deposits that can pay their way through almost all parts of the commodities cycle,” Koch says.

To optimise exploration, address the pro- ductivity challenge and improve the long- term value of exploration to the corporate portfolio, mining companies need to apply an integrated approach that tackles the four critical performance areas, namely explora- tion strategy, exploration management, innovation, and talent development and people management.

The report also suggests that mining companies need to recognise the ways in which decisions and actions in any one area can counteract (or augment) performance in the others. “Companies can, thus, prioritise interventions and apply organisation resources in the most efficient, high-impact way,” explains BCG principal and report coauthor Dale Schilling.