finding the copper mine of tomorrow - sykes - aug 2014 - ausimm new leaders conference

FINDING THE COPPER

MINE OF TOMORROW:

Exploration targeting for

copper reserves, not

resources

John P. Sykes MAusIMM

PhD Candidate / Adjunct Research Fellow

Centre for Exploration Targeting

Curtin University / The University of Western Australia

Email: [email protected]

Supervisors: Prof. Daniel Packey & Prof. Allan Trench

AusIMM New Leaders Conference, 12-13th August 2014

mailto:[email protected]

Finding the copper mine of tomorrow: Exploration targeting for copper reserves, not resources

The problem with forecasting

"Scythia has an abundance of soothsayers who foretell the

future. They are judged by results and the losers are

loaded on to oxcarts which are set on fire.“

- Herodotus, 440BC

(NB: This is a paraphrasing by a former colleague at CRU – John Tomlinson)

12 August 2014 AusIMM New Leaders Conference, Perth, Australia Slide 2 of 37


The problem with the future

“My interest is in the future because I am going to spend

the rest of my life there”

- Charles F. Kettering

(American engineer, inventor of the electric starter, 1876-1958)



So where now?

12 August 2014 AusIMM New Leaders Conference, Perth, Australia

Source: Sykes & Trench, 2014; Data from United States Department of Labour (2014); Historical nominal copper prices 1914-2011 from

the United States Geological Survey (2012) and 2012-13 from Metal Pages (2014)

0

2000

4000

6000

8000

10000

12000

14000

Long Term Real & Nominal Copper Prices: 1914-2013 (US$/tonne)

Nominal Copper Price Real Copper Price

Slide 4 of 37


Start with someone “very smart”*

“If I had one hour to save the world, I would spend 55

minutes defining the problem and only five minutes finding

the solution.”

- Albert Einstein†


* According to Steve Beresford (First Quantum Minerals / Centre for Exploration Targeting † Also with thanks to Steve Beresford for introducing me to this quote

Image: Shock Mansion (http://www.shockmansion.com/2013/03/28/video-back-to-the-future-forever-michael-j-fox-forgets-what-movie-hes-in/)

Slide 5 of 37


Contents

• Finite world, finite deposits

• Future via resource depletion:

– Fixed stocks

– Opportunity costs

– Sustainable development

• Controlling idea:

– Declining quality resources

– Higher costs

– Sustainable development problems

– Exploration cannot help

• But what about “search space”

– Not all resources economic

– Not all resources sustainable

– Resource quality can increase

• Fresh exploration required!

• Three conceptual challenges

– Economics from early stages

– Incorporating sustainability

– Considering uncertainty



Finite world, finite deposits


“Earth rise” from Apollo 11 Image: The Guardian/NASA

Old Geevor tin mine, Cornwall, UK, operated

late 18th century to 1990 Image: Shutterstock

Slide 7 of 37


The “fixed stock” paradigm


Source: Edelstein (2004-13).

0

5

10

15

20

25

30

35

40

45

50

0

100

200

300

400

500

600

700

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Copper Reserve (Mt) Depletion (yrs)

Slide 8 of 37


The future via fixed stock theory

Dobra & Dobra, 2014

“…new copper resources are effectively not worth

exploring for.”

“…mining companies will treat exploration as an

inventory control problem.”



The “limits” to “fixed stock”


Source: Sykes & Trench, 2014; Data from United States Department of Labour (2014); Historical nominal copper

prices 1914-2011 from the United States Geological Survey (2012) and 2012-13 from Metal Pages (2014)

0

2000

4000

6000

8000

10000

12000

14000



Slide 10 of 37


The “opportunity cost” paradigm


Source: Sykes & Trench, 2014; Data from United States Department of Labour (2014); Historical nominal copper

prices 1914-2011 from the United States Geological Survey (2012) and 2012-13 from Metal Pages (2014)

0

2000

4000

6000

8000

10000

12000

14000



Slide 11 of 37


The future via opportunity cost

Tilton, 1996

“First, exploration can discover previously unknown but economic

deposits. Second, new technology and other developments can make

previously known but uneconomic resources profitable to exploit.”

“…it is frequently cheaper to add to reserves via new technology than via

exploration and discovery.”



Fixed stock to sustainability


Source: Crowson (2012)

Weighted average percentage head grades of copper

mines, 1970 onwards

Slide 13 of 37


The future via sustainability

Mudd, Weng & Jowitt, 2013

“…there are abundant Cu resources already identified that

can meet growing global demands for some decades to come; the

primary factors that govern whether a given project is

developed will be social, economic, and environmental in nature.”


Image from the movie

“Avatar” courtesy of

blu-raystats.com

Slide 14 of 37


Controlling idea of the future


Fixed Stock Resource

abundance

Fixed

quality

Exploration

not required

(now)

Exploration

required

(eventually)

As

before

Opportunity

Cost Resource

scarcity

Declining

quality

Exploration

of less use

Innovation

‘above

ground’

Higher

costs

Sustainable

Development Resource

abundance

Declining

quality

Exploration

not required /

of less use

Innovation

‘above

ground’

Development

problems

Slide 15 of 37


Not all resources economic


Chart: Cairns, Hronsky, and Schodde, 2010

“…investigate an alternative,

less capital-intensive design

of the Olympic Dam open-pit

expansion… align with the

Company’s cost control

strategy in the current

economic environment…”

- BHP Billiton, 6th Dec 2012

Slide 16 of 37


Not all resources are sustainable


Photo: John P. Sykes

“Anglo American has

given notice that it is

withdrawing from the

Pebble copper project

in Alaska.”

- Anglo American, 16th Sept

2013

“Rio Tinto gifts

stake in Northern

Dynasty Minerals

to Alaskan

charities.”

- Rio Tinto, 7th April 2014

Slide 17 of 37


Resources can increase in quality


Chart: Lagos, 2010

Images: BHP Billiton & John P. Sykes

Slide 18 of 37


Best resources discovered first…


Chart: Schodde & Hronsky, 2006

Slide 19 of 37


…but in new “search space”…


Chart: Hronsky & Groves, 2008

Slide 20 of 37


…and dominate the industry…


Chart: Schodde & Hronsky, 2008

Slide 21 of 37


…causing rapid change…

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sh

are

of

Glo

bal C

u M

ine p

rod

ucti

on

United Kingdom Chile USA Other


0.0

2000.0

4000.0

6000.0

8000.0

10000.0

12000.0

14000.0

Glo

ba

l C

u M

ine

Pro

du

cti

on

(K

t)

United Kingdom Chile USA Other

Decline of UK

mining, rise

of Americas

Resurrection

of Chilean

industry

Decline of UK

mining, rise

of Americas

Resurrection

of Chilean

industry

Data: Crowson, 2012

…in 1898.. Bingham Canyon… was something of a joke… only barren quartz rock flecked with a trace of copper. Nobody could

make money out of so little. …the world’s most famous mining man [Chief Engineer for the Guggenheims] turned up his nose. It

was ridiculed by the most respected mining journal of the day. …The shovels started… in June 1906. (Lynch, 2002)

Slide 22 of 37


…but complex change

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Cu

ore

gra

de (

%)

Cornwall (UK) Average UK Average

Michigan (USA) Average USA Average

Western World Average World Average


Change from high grade

underground mining in UK to

low grade open pits in USA

Data estimated

from: Crowson,

2012

Further low grade copper

mining innovations

20th century copper

mining technology,

innovation &

discovery package

Dynamite

Steam power

The corporation

Mechanisation

Major public

infrastructure

Flotation

Improved

smelting &

refining

Airborne

geophysics

Porphyry

geological

model

Better work

practices

SXEW

Computation

Low cost

drilling

Globalisation Sources: Schodde, 2010; Lynch, 2002 &

various personal communications to the author

Slide 23 of 37


Explore where no one else has


All “search space”

Known “search

space”

Corporate

“search

space”

New mining

technology

New

exploration

technology

New

geographies

At depth

New deposit

types Changing

politics

Focus usually on here

(brownfields, secondary

evaluation greenfields,

low risk greenfields,

greyfields etc)

Focus should

be on here

(first mover

greenfields)

Based on: Hronsky (2009)

Slide 24 of 37


Fresh exploration required!


Fixed Stock Resource

abundance

Fixed

quality

Exploration not

required (now)

Exploration

required

(eventually)

As before

Opportunity

Cost

Resource

scarcity

Declining

quality Exploration of

less use

Innovation

‘above ground’ Higher costs

Sustainable

Development Resource

abundance

Declining

quality

Exploration not

required / of

less use

Innovation

‘above ground’

Development

problems

Ignores

discovery &

economics

Ignores

sustainability

Ignores

discovery

Search

Space Resource

scarcity

Improving

quality

Exploration

critical (with

technology)

Innovation

‘below & above

ground’

Reduced costs

& development

problems

Incorporates

discovery,

economics &

sustainability

Slide 25 of 37


Three conceptual challenges Better conceptual exploration therefore required:

• Targeting “reserves” from the earliest stages of exploration

• Incorporating sustainable development principles into

“reserves”

• Dealing with an uncertain future – complex interactions of

technology, innovation, discoveries and external changes



Bringing it altogether…


CRISCO (2013)

Compliant

“Resource”

Geological “Theoretical Reserve”

Geological

Eco

no

mic

“Accessible Resource”

Accessib

le

Geological

CONSIDERS

ECONOMIC

POTENTIAL

INCORPORATES

SUSTAINABLE

DEVELOPMENT

Eco

no

mic

Geological

“Conceptual

Reserve”

“Multiple Hypothetical

Reserves”

CONSIDERS UNCERTAINTY

Source: Sykes & Trench (2014)

Slide 27 of 37


How do we measure this?



How do we plan for this?



Thank you



Further reading • Sykes, J.P. 2014. Finding the copper mine of tomorrow: Exploration targeting for copper reserves, not

resources. AusIMM New Leaders Conference. Perth, Australia. August. [ABSTRACT]

• Sykes, J.P., & Trench, A., 2014. Resources versus Reserves: Towards a systems-based

understanding of exploration and mine project development and the role of the mining geologist.

AusIMM Ninth International Mining Geology Conference. Adelaide, Australia. August.

• Sykes, J.P., & Trench, A., 2014. Finding the copper mine of the 21st century: Conceptual exploration

targeting for hypothetical reserves. Society of Economic Geologists Conference. Colorado, USA.

October.

• Trench, A., Packey, D., & Sykes, J.P., 2014. Non-technical risks and their impact on mining. AusIMM

Monograph 30 on Mineral Resource & Ore Reserve Estimation. Chapter 7: Risk in Resource and

Reserve Estimation.



Other references [1] • Agricola, Georgius. 1556. De Re Metallica. 1950 Translation from the First Latin Edition of 1556. Translated by Herbert C. Hoover and Lou H. Hoover. New York, USA:

Dover Publications.

• Ali, Saleem H. 2010. Treasures of the Earth: Need, Greed, and a Sustainable Future. New Haven, USA: Yale University Press.

• Anglo American. 2013. Anglo American statement re: Pebble project. 16th September. http://www.angloamerican.com/media/releases/2013pr/2013-09-16.

• Bayes, Thomas , and Richard Price. 1765. "An Essay Towards Solving a Problem in the Doctrine of Chance. By the Late Rev. Mr. Bayes, Communicated by Mr. Price, in

a Letter to John Canton, MA and FRS." Philosophical Transactions of the Royal Society of London 53 (0): 370-418. doi: http://dx.doi.org/10.1098/rstl.1763.0053.

• BHP Billiton. 2012. Olympic Dam Update. 6th December. http://www.bhpbilliton.com/home/investors/news/Pages/Articles/Olympic-Dam-Update.aspx.

• Cairns, Chris, Jon Hronsky, and Richard Schodde. 2010. Market Failure in the Australian Mineral Exploration Industry: The Case for Fiscal Incentives. Perth, Australia:

Australian Institute of Geoscientists.

• Chamberlin, T. C. 1890. "The Method of Multiple Working Hypotheses." Science ns-15 (366): 92-96. doi: http://dx.doi.org/10.1126/science.ns-15.366.92.

• Cleland, Carol. E. 2002. Methodological and Epistemic Differences between Historical Science and Experimental Science. Philosophy of Science, 69 (September). pp.

474–496. 0031-8248/2002/6903-0000

• Committee for Mineral Reserves International Reporting Standards (CRIRSCO). 2013. International Reporting Template for the Public Reporting of Exploration Results,

Mineral Resources and Minerals Reserves. London, UK: International Council of Mining & Metals (ICMM). http://www.crirsco.com/crirsco_template_may2013.pdf.

• Cook, Peter J., and Daniel Sheath. 1997. "World Mineral Resources and Some Global Environmental Issues." Nature & Resources 33 (1): 26-33.

http://www.unesco.org/ulis/cgi-bin/ulis.pl?catno=109603&set=52B2ABC1_0_167&gp=1&lin=1&ll=1.

• Crowson, Phillip. 2012. "Some Observations on Copper Yields and Ore Grades." Resources Policy 37 (1): 59-72. doi: http://dx.doi.org/10.1016/j.resourpol.2011.12.004.

• Dobra, John, and Dobra, Matt. 2014. “Another look at non-renewable resource exhaustion." Mineral Economics 27: 33-41. doi: http://dx.doi.org/10.1007/s13563-014-

0044-x.


http://www.angloamerican.com/media/releases/2013pr/2013-09-16





http://dx.doi.org/10.1098/rstl.1763.0053

http://www.bhpbilliton.com/home/investors/news/Pages/Articles/Olympic-Dam-Update.aspx





http://dx.doi.org/10.1126/science.ns-15.366.92



http://www.crirsco.com/crirsco_template_may2013.pdf

http://www.unesco.org/ulis/cgi-bin/ulis.pl?catno=109603&set=52B2ABC1_0_167&gp=1&lin=1&ll=1



http://dx.doi.org/10.1016/j.resourpol.2011.12.004










Other references [2] • Edelstein, Daniel L. 2004. Mineral Commodity Summaries: Copper. Reston, USA: United States Geological Survey (USGS).

http://minerals.usgs.gov/minerals/pubs/commodity/copper/coppemcs04.pdf.

• Edelstein, Daniel L. 2005. Mineral Commodity Summaries: Copper. Reston, USA: United States Geological Survey (USGS).







http://minerals.usgs.gov/minerals/pubs/commodity/copper/mcs-2008-coppe.pdf.

• Edelstein, Daniel L. 2009. Mineral Commodity Summaries: Copper. Reston, USA United States Geological Survey (USGS).










• Eggert, Roderick G. 2013. "Chapter 13: Mining, Sustainability and Sustainable Development." In Monograph 29: Mineral Economics, eds Philip Maxwell and Pietro Guj,

215-230. Melbourne, Australia: Australian Institute of Mining & Metallurgy.


http://minerals.usgs.gov/minerals/pubs/commodity/copper/coppemcs04.pdf




http://minerals.usgs.gov/minerals/pubs/commodity/copper/mcs-2008-coppe.pdf































Other references [3] • Elkington, John. 1999. Cannibals with Forks: The Triple Bottom Line of 21st Century Business. New ed. Oxford, UK: Capstone.

• Herodotus. 2012. The Histories (440BC). eBook edition. Start Publishing.

• Hronsky, Jon M. A. 2009. "The Exploration Search Space Concept: Key to a Successful Exploration Strategy." Centre for Exploration Targeting Quarterly News (8): 14-15.

http://www.cet.edu.au/research-outcomes/newsletters/june_newsletter_09_web.

• Hronsky, Jon M. A., and David I. Groves. 2008. "Science of Targeting: Definition, Strategies, Targeting and Performance Measurement." Australian Journal of Earth

Sciences 55 (1): 3-12. doi: http://dx.doi.org/10.1080/08120090701581356.

• International Copper Study Group (ICSG). 2012. The World Copper Factbook. Lisbon, Portugal. http://www.icsg.org/index.php/component/jdownloads/finish/170/1188.

• Hume, David., and Selby-Bigge, L.A. 2006. An Enquiry Concerning Human Understanding (Reprinted from Posthumous Edition of 1777). Second Edition (1902). Project

Gutenberg Ebook.

• International Copper Study Group (ICSG). 2013. Copper: Preliminary Data for May 2013 (Press Release). Lisbon, Portugal.

http://www.icsg.org/index.php/component/jdownloads/finish/114/1587?Itemid=.

• Jacks, David S. 2013. From Boom to Bust: A Typology of Real Commodity Prices in the Long Run. Cambridge, USA: National Bureau of Economic Research.

http://www.nber.org/papers/w18874.

• Khong, Cho. 2014. Re-perceiving and scenario thinking. Oxford Scenarios Programme. 28th April.

• Kreuzer, Oliver P., Michael A. Etheridge, Pietro Guj, Maureen E. McMahon, and Darren J. Holden. 2008. "Linking Mineral Deposit Models to Quantitative Risk Analysis

and Decision-Making in Exploration." Economic Geology 103 (4): 829-850.

• Lagos, Gustavo. 2010. "Mining and Economic Development in Chile." In National University of Mongolia, Mineral Policy Forum, Ulan Bator, Mongolia. Mining Centre,

Catholic University of Chile.


http://www.cet.edu.au/research-outcomes/newsletters/june_newsletter_09_web



http://dx.doi.org/10.1080/08120090701581356

http://www.icsg.org/index.php/component/jdownloads/finish/170/1188

http://www.icsg.org/index.php/component/jdownloads/finish/114/1587?Itemid

http://www.nber.org/papers/w18874


Other references [4] • Meadows, Donella H., Dennis L. Meadows, Jørgen Randers, and William W. Behrens III. 1972. The Limits to Growth: A Report for the Club of Rome's Project on the

Predicament of Mankind. New York: Universe Books.

• Meadows, Donella H., Jorgen Randers, and Dennis L. Meadows. 2004. Limits to Growth: The 30-Year Update: Chelsea Green Publishing Company.

• Metal Pages. 2014. Copper Metal Prices, News and Information. Accessed 14 February, https://www.metal-pages.com/metals/copper/metal-prices-news-information/.

• Mudd, Gavin M., Zhehan Weng, and Simon M. Jowitt. 2013. "A Detailed Assessment of Global Cu Resource Trends and Endowments." Economic Geology 108 (5): 1163-

1183. doi: http://dx.doi.org/10.2113/econgeo.108.5.1163.

• Otto, James M., and John Cordes. 2000. Sustainable Development and the Future Mineral Investment: Colorado School of Mines, Metal Mining Agency of Japan & United

Nations Environment Programme.

• Rio Tinto. 2014. Rio Tinto gifts stake in Northern Dynasty Minerals to Alaskan charities. 7th April. http://www.riotinto.com/media/media-releases-237_10183.aspx.

• Schodde, Richard C. 2006. "What Do We Mean by a World-Class Deposit? And Why Are They Special?" In Association of Mining and Exploration Companies (AMEC)

Conference, Perth, Australia.

• Schodde, Richard C. 2010. "The Key Drivers Behind Resource Growth: An Analysis of the Copper Industry over the Last 100 Years." In 2010 MEMS Conference Mineral

and Metal Markets over the Long Term Joint Program with the SME Annual Meeting, Phoenix, USA. MinEx Consulting.

http://www.minexconsulting.com/publications/mar2010c.html.

• Schodde, Richard C. 2012. "Recent Trends in Copper Exploration - Are We Finding Enough ?" In PDAC, Toronto, Canada. MinEx Consulting.

http://www.minexconsulting.com/publications/aug2012a.html.

• Schodde, Richard C. 2014. "Key issues affecting the time delay between discovery and development - is it getting harder and longer?" In 34th International Geological

Congress, Brisbane, Australia. MinEx Consulting. http://www.minexconsulting.com/publications/aug2012a.html.


https://www.metal-pages.com/metals/copper/metal-prices-news-information/









http://dx.doi.org/10.2113/econgeo.108.5.1163

http://www.riotinto.com/media/media-releases-237_10183.aspx





http://www.minexconsulting.com/publications/mar2010c.html

http://www.minexconsulting.com/publications/aug2012a.html

http://www.minexconsulting.com/publications/aug2012a.html


Other references [5] • Schodde, Richard C., and Jon M. A. Hronsky. 2006. "Chapter 4: The Role of World-Class Mines in Wealth Creation." In Special Publication 12, 71-90. Littleton, USA:

Society of Economic Geologists.

• Singer, Donald A. 1995. "World Class Base and Precious Metal Deposits; a Quantitative Analysis." Economic Geology 90 (1): 88-104. doi:

http://dx.doi.org/10.2113/gsecongeo.90.1.88.

• Society of Petroleum Engineers (SPE), American Association of Petroleum Geologists (AAPG), World Petroleum Council (WPC), Society of Petroleum Evaluation

Engineers (SPEE), and Society of Exploration Geophysicists (SEG). 2011. Guidelines for Application of the Petroleum Resources Management System. Richardson,

USA. http://www.spe.org/industry/docs/PRMS_Guidelines_Nov2011.pdf.

• Tilton, John E. 2003. On Borrowed Time? Assessing the Threat of Mineral Depletion. Kindle ed. Washington DC, USA: Resources for the Future.

• United States Bureau of Mines (USBM), and United States Geological Survey (USGS). 1980. Principles of a Resource/Reserve Classification for Minerals. Reston, USA.

• United States Department of Labor (USDL). 2014. Bureau of Labor Statistics - Consumer Price Index - All Urban Consumers - (CPI-U) - U.S. City Average - All Items.

Accessed 14 February, ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt.

• United States Geological Survey (USGS). 2012. Copper Statistics. Reston, USA. http://minerals.usgs.gov/ds/2005/140/ds140-coppe.pdf.

• Vann, John, Scott Jackson, Alan Bye, Stephen Coward, Sorousha Moayer, Grant Nicholas, and Rodney Wolff. 2012. "Scenario Thinking: A Powerful Tool for Strategic

Planning and Evaluation of Mining Projects and Operations (Presentation)." In AusIMM Project Evaluation Conference, Melbourne, Australia.

• Vann, John, and Mike Stewart. 2012. "Philosophy of science: a practical tool for applied geologists in the minerals industry“. Applied Earth Science (Trans. Inst. Min.

Metall. B). 120 (1) pp21-30. DOI 10.1179/1743275811Y.0000000018

• World Commission on Environment and Development (WCED). 1987. Our Common Future. Oslo, Norway.


http://dx.doi.org/10.2113/gsecongeo.90.1.88

http://www.spe.org/industry/docs/PRMS_Guidelines_Nov2011.pdf

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

http://minerals.usgs.gov/ds/2005/140/ds140-coppe.pdf



finding the copper mine of tomorrow - sykes - aug 2014 - ausimm new leaders conference

Economy & Finance