Global mining exploration in crisis, but not hopeless – report

30th June 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online


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JOHANNESBURG ( – 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,” said 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 on Monday, noted 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 highlighted 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 grew by almost 40% to record levels.

Koch noted that the crisis in mineral exploration had "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 explained 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 crystallised the insights on the causes of the crisis and offered their views on the essential ingredients governing exploration success.

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

“Leadership is paramount. Beyond that, four critical areas make the difference: exploration strategy – the operational approach to finding ore bodies; 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 suggested.

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

“Risk-averse companies often forgo greenfield exploration in favour of brownfield exploration. 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 center,” the report stated.

Further, it highlighted that talent made 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 noted.

Mineral discovery, according to Koch, was 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 commodity cycle," Koch said.

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

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

Edited by Tracy Hancock
Creamer Media Contributing Editor


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