Comparative Case Study of the

Economics of Exploration
Purpose and Aim

 To Understand Historic Exploration

Expenditure and Methodology in order to
Increase Future Exploration Effectiveness.

 Create a method by which targets can be

assessed objectively
 Financially
 Geologically
Method
 Understand Exploration Spending
 Contrast successful with less successful
 Realise where most cost/discovery benefits can be
achieved
 Identify critical factors associated with lost opportunity
costs
 Determine Exploration progression statistics
 Understand where exploration methodology needs
improvement
 Aid decision point exploration process
Understanding Exploration
Expenditure

 Review of historic exploration to

determine statistics of exploration
 Probabilities of progression
 Average exploration stage costs
 Economic Case Studies
 Estimated NPV Calculations of Selected
Targets
 Compared with known deposit NPV’s
Comparative Statistics
Cost / Exploration Probability of Number of
Expenditure Stage Progression Prospects
Granny Granny Granny Granny
Stage Smith Kidston Smith Kidston Smith Kidston Smith Kidston
Generative 2.7M 3.9M 9K 23K 1 in 2 1 in 2 290 169

Reconnaissance 11.3M 4.6M 70K 56K 1 in 6 1 in 2 158 83

Drill Testing 6.3M 3.8M 230K 268K 1 in 2 1 in 20 27 46

Delineation 6.8M 11.6M 460K 5.8M 5 in 6 1 in 1 15 2

Feasibility 27.5M 2.1M 9 in 10 1 in 1 13 2

Mines 10 of 12 1 in 1 12 2

Total 54.6M 23.9M

Comparative Statistics
120
Granny Smith
Kidston
100 Kidston Campex
Kidston FGR

80

60

40

20

0
Generative Reconnaissance Drill Testing Delineation Feasibility
Comparative Statistics:
Key Points

Generative
 9K Granny Smith vs 23K Kidston per prospect
 Result of larger total area, with resultant data
acquisition costs and on costs at Kidston

 290 Granny Smith vs 169 Kidston Targets

 More tightly constrained exploration Model at
Kidston
Comparative Statistics:
Key Points

Reconnaissance
 1:6 Granny Smith vs 1:2 Kidston Probability of
Progression
 Less ground cover at Kidston
 More ‘smoke’ at Granny Smith as a result of
regional Au endownment.
 More tightly constrained exploration model at
Kidston
Comparative Statistics:
Key Points

Drill Testing
 1:2 Granny Smith vs 1:20 Kidston Probability of
Progression
 More tightly constrained exploration model at
Kidston
 Less regional Au Endownment
Comparative Statistics:
Implications

Granny Smith
 Need to increase conversion rate from
Reconnaissance to Drill testing
 Better target/model definition
 Increased understanding of the necessary
economics of a target
Comparative Statistics:
Implications

Kidston
 Need to increase conversion from drill
testing to Delineation
 Understanding the highly controlled nature of
regional mineralisation
 Exploring for Stand-alone deposits
Deposit Resources vs NPV
5 500

4.5 Resource (M Oz) 450

NPV ($M)
4 400

3.5 350

3 300

2.5 250

2 200

1.5 150

1 100

0.5 50

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Lost Opportunity Costs

 Lost opportunity costs resulted from

failure to test valid targets in timely
fashion.
 Wallaby at Granny Smith
 Eldridge at Kidston
 Test targets in a timely fashion.
Increasing Exploration
Effectiveness

 Better exploration model

 Objectively ranking targets and
expenditure
 Understanding the potential economics of
a target
Method
 Determine a simple generic exploration model
 Based on critical criteria
 Use with a bayesian probabilistic method to
objectively rank targets

 Calculate NPV based on estimated target

parameters to assess target potential
 Understand exploration parameters
Critical Parameter
Exploration Model

 Four critical points

 Source of mineralizing fluids

 Active Geological Structure

 Evidence of the presence of fluids

 Trap site for fluids

Granny Smith Model

 Prospective Structure (Historically

Productive)
 Presence of Intrusive (Correct age and
composition)
 Fluid Trap (Structural complexity, rheology
contrast)
 Presence of Auriferous Fluid (Drill/soil
anomalism)
Kidston Model

 Crustal Structure of right age

 Presence of rhyolitic intrusion of right age

 Presence of dilation site

 Presence of Au bearing fluid

Bayesian Probabilistic
Ranking

 Critical Factors
 Typically four
 Ranked between 0 and 1
 0 indicates factor not present
 1 indicates factor definitely present
 0.5 indicates a lack of knowledge
 Multiplied to produce a number
Correlation of Statistics
with Bayesian result
 In theory, Bayesian should correlate directly
with defined statistical results
 ie Target with .2 or 20% Bayesian probability is more
likely to add value than destroy if the probability of
progression from stage B to C <= 0.17 or 17%
 As Target progresses, Bayesian Probability should
increase to reflect increase in understanding
 Allows reasonable exploration decision process.
Probabilities of
Progression
Stage Conversion Ratio Prospects
Generative 54% : 1 in 2 290

Reconnaissance 17% : 1 in 6 158

Drill Testing 56% : 1 in 2 27

Delineation 87% : 5 of 6 15

Feasibility 92% : 9 of 10 13

Mines 83% : 10 of 12 12
Bayesian Probabilistic
Ranking: Example

Target Prospective Fluid Auriferous

Name Structure Granitoid Trap Fluid Ranking
Tanekaha 0.5 0.4 0.3 0.9 5.4
Jubilee 1 0.8 0.7 0.9 50.4
Wallaby 1 0.7 0.7 0.5 24.5
Ares 0.5 0.7 0.65 0.7 15.925
Bayesian Method:
Strengths and Weaknesses
 Highlights targets requiring more information prior to
full evaluation
 Ultimate strength of method by forcing evaluation of
each target.
 Allows continuous, objective ranking
 Bayesian probabilities reach same conclusion with
various combinations of factors
 May artificially down-grade target due to lack of
information (0.54=0.0625)
 Could be used a Black Box
Estimated NPV Calculation

 Allows entry of mining critical factors

 Gives broad indication of necessary target
size to produce economic result
 Exploration can be tailored to estimated
parameters.
Example NPV’s

Distance
from Existing Estimated
Estimated Estimated Estimated Mine Haul Reserve Calculated
Target Name Tonnes Grade Strip Ratio (km) Road Oz NPV $A
Tanekaha 160K 3 10:1 31 0 13K -0.75M
Jubilee 2.2M 2.5 8:1 25 21 140K +9.5M
Wallaby 4.0M 2.5 5:1 12 0 350K +23M
Ares 1.2M 1.8 5:1 31 0 57K -1.2M
Sensitivity Analysis
SENSITIVITY ANALYSIS
Abs olute Dollar Ter ms
Template DEPOSIT

-15% -10% -5% 0% 5% 10% 15%

Gr ade (g/ t)

Tonnage (Mt)

Mining Costs ($ / t)

Str ip Ratio (waste:ore)

Or e Blend (% oxide)

Haulage Costs ($ / t/ km)

Milling Costs ($ / t)

VARIABLE (% CHANGE)
Reasonable Exploration
Stage Expenditure

Exploration Stage Average Cost at Stage

A: Generative 9K
B: Reconnaissance 70K
C: Systematic Drill Testing 230K
D: Resource Delineation 460K
E: Feasibility 2.1M
Conclusions

 Defined exploration model essential

 Campex more likely to yield economic
resources and add value to company
 Early testing of targets avoids lost
opportunity costs
 Large deposits don’t necessarily yield high
NPV
Conclusions

 Bayesian ranking allows:

 ongoing ranking tool
 highlights lacking data.
 Aids decision point exploration
 Indicative, not definitive; should be used in
geological context.
 Early NPV calculation indicates exploration
parameters
Recommendations

 Targets should continue to be entered into

database
 Maintains target awareness, decreases
likelihood of lost opportunity costs.
 In conjuction with progressinve ranking ideally
diminishes recent results driven exploration
 Use method to highlight targets with
‘reasonable’ economic potential