scenario planning to improve exploration - sykes - nov 2017 - centre for exploration targeting

The Role of Strategic Consulting in the Resources Industries of Australia and Indonesia

My PhDOr: How I Learned To Stop

Worrying And Love Mining

Or: Using Scenario Planning To Improve The Integration

Of Geological, Technical, Economic, Environmental,

Geopolitical, And Socio-political Factors In Minerals

Exploration Management And Strategy

John Sykes1234

1. Centre for Exploration Targeting, School of Earth Sciences, The University of Western Australia

2. Business School, The University of Western Australia

3. MinEx Consulting, Australia

4. Greenfields Research, United Kingdom

16 November 2017

School of Earth Sciences Postgraduate Symposium

Image: Dr. Strangelove (A.V. Club)

http://www.avclub.com/review/dr-strangelove-kubrick-shot-brilliant-satire-strai-238683

My PhD Story: Another ‘Man In A Hole’

17 Nov 2017My PhD: Or How I Learned To Stop Worrying And Love Mining (UWA SES Postgraduate Symposium)

Images: Maya Eilam; Marvel Studios

NB: It usually is men in these stories…

Slide 2 of 35

http://www.mayaeilam.com/2012/01/01/the-shapes-of-stories-a-kurt-vonnegut-infographic/

http://marvel.com/movies/all

The Origin Story:The Prediction Menace

17 Nov 2017My PhD: Or How I Learned To Stop Worrying And Love Mining (UWA SES Postgraduate Symposium)Slide 3 of 35

Discovering Problems With Copper Forecasts

In the short-run demand

determines commodity

prices, but over the long-run

it is supply (i.e. mines &

exploration) that determines

commodity prices.* - Tilton & Guzman, 2016, Mineral

Economics & Policy


* This is why CRU employed geologists, such as myself, as

well as mining engineers, metallurgists, etc

Sources: CRU Group

Economists’ fault… (the forecast, not the GFC)

Geologists’ fault… (the forecast and the price?), i.e. me!

Slide 4 of 35

Discovering Problems With Copper Projects


Sources: CRU Group

Slide 5 of 35

Discovering Problems Elsewhere In Minerals

Humphreys (2010) points

out that not only were

commodity price bears

caught out by the impact

of Chinese

industrialisation on

commodity prices in 2005-

6, but that even the

commodity price bulls

underestimated the scale

of the impact on prices. He

also noted that many

mining companies also

did not seem ready for the

increase in demand, as

they struggled to bring on

new supply.


More of my

troublesome price

forecasts, this

time in tin..

More troublesome

mine projects that

I was trying to

analyse, this time

in rare earths..

Sources: Humphreys (2010), ITRI, Greenfields Research

Slide 6 of 35

My PhD Story: Part 1A New Hope


Into Academia: And Back To Copper Projects

My first hypothesis based on all my ‘industry knowledge’…


Mine production was falling behind demand… …but explorers were finding plenty of new reserves

…thus it must be a ‘development’ problem!Source: Sykes & Trench (2014)

Slide 8 of 35

From Development To Discovery Constrained

My first hypothesis based on all my ‘industry knowledge’… was probably wrong!


Not all resources can be developed economically… …and not all resources can be developed sustainably…

…actually we were ‘discovery constrained and thus had to find better resources!

“…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

“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 Apr 2014

Slide 9 of 35

A Discovery Solution!


We can find ‘better’ quality projects… …by looking in new places (or ‘search spaces’)

…by definition, the best discoveries are made first in any given area (as the have the strongest signature)

Source: Sykes (2014)

Slide 10 of 35

From Development To Discovery Constrained

My first hypothesis based on all my ‘industry knowledge’… was probably wrong!


Explorers were finding low quality resources… …that were prone to socio-political problems…

…thus it was actually a ‘discovery’ problem!Source: MinEx Consulting, Franks et al., (2014)

Slide 11 of 35

Suggesting A Simple Three-Stage Solution

All I needed to do was:

1. Calculate which parts of the

existing copper resource were

economic;

2. Analyse which parts of the

existing copper resource were

‘sustainable’ (i.e. socially &

environmentally accessible);

3. Use these criteria as exploration

targets for new discoveries.


DISCOVERED

ECONOMIC but

INACCESSIBLE

UNDISCOVERED

INACCESSIBLE but

ECONOMIC

DISCOVERED

ACCESSIBLE but

UNECONOMIC

UNDISCOVERED

UNECONOMIC but

ACCESSIBLE

GEOLOGICAL CERTAINTY

EC

ON

OM

IC FE

AS

IBILITY

DISCOVERED

ACCESSIBLE

and ECONOMIC

(Behind)

DISCOVERED but

INACCESSIBLE

UNECONOMIC

UNDISCOVERED

INACCESSIBLE

and

UNECONOMIC

UNDISCOVERED

but ACCESSIBLE

ECONOMIC


Slide 12 of 35

My PhD Story: Part 2Complexity Strikes Back


A Mistake: I Forgot How Complex The Future Is


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sh

are

of G

lob

al C

u M

ine

pro

du

ctio

n

United Kingdom Chile USA Other

Decline of UK mining,

rise of Americas

Resurrection of

Chilean industry

…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)


20th century copper mining

technology, innovation &

discovery package

Dynamite

Steam power

The corporation

Mechanisation

Major public

infrastructure

Flotation

Improved smelting &

refiningAirborne

geophysics

Porphyry

geological

model

Better work

practices

SXEW

Computation

Low cost drilling

Globalisation

Forward contracts

Free trade

New geographies

Regime change

Slide 14 of 35

Hence The Decision To Use Scenario Planning

Instead for Stage 3, how about:

3. Assess which of the

‘economic & sustainable’

resources would remain

so over the long term

considering appropriate

technical, economic,

environmental and socio-

political uncertainty about

the future (i.e. using

scenario planning).


GEOLOGICAL CERTAINTY

EC

ON

OM

IC FE

AS

IBILITY

“ACCESSIBLE

RESERVE”

MULTIPLE

“HYPOTHETICAL

RESERVES”

MULTIPLE

“HYPOTHETICAL

RESERVES”

MULTIPLE

“HYPOTHETICAL

RESERVES”

“HYPOTHETICAL

RESERVE”

DISCOVERED UNDISCOVERED


Slide 15 of 35

My PhD Story: Part 3Return Of The Uncertainty


Mistake 2: I Forgot How Different The Future Is


Source: Sykes et al., (2016)

0

100

200

300

400

500

600

700

800

900

19

00

19

12

19

24

19

36

19

48

19

60

19

72

19

84

19

96

20

08

Growth in market size indices of copper

and aluminium 1900-2014 (1900 = 1)

Cu Index Al Index

0

50

100

150

200

250

300

19

00

19

12

19

24

19

36

19

48

19

60

19

72

19

84

19

96

20

08


and nickel 1900-2013 (1900 = 1)

Cu Index Ni Index

0

5

10

15

20

25

30

19

50

19

57

19

64

19

71

19

78

19

85

19

92

19

99

20

06

20

13


and uranium 1950-2013 (1950 = 1)

Cu Index U Index

Once again analysing other commodity markets was providing validation, but also frustration!

Slide 17 of 35

A Man in Metaphorical Theoretical & Practical Hole

1. Calculate which parts of the existing copper

resource were economic;

2. Analyse which parts of the existing copper

resource were ‘sustainable’ (i.e. socially &


3. Assess which of the ‘economic & sustainable’

resources would remain so over the long term

considering appropriate technical, economic,

environmental and socio-political uncertainty

about the future (i.e. using scenario planning).

1. Data difficult to source,* time-consuming

to analyse and already becoming

available from other researchers…

2. Data is non-existent, time-consuming to

gather, requires new (mathematically

complex) methods to analyse and already

becoming available from other

researchers…

3. This just sounds like a really BIG job!


Worst of all! I was still looking at current mine projects (i.e. the ideas of

the past) not the genuinely new ‘exploratory’ ideas required!

Slide 18 of 35

My PhD Story: Part 4The Scenarios Awaken


Another New Plan

1. Calculate which parts of the existing copper

resource were economic;

2. Analyse which parts of the existing copper

resource were ‘sustainable’ (i.e. socially &


3. Assess which of the ‘economic & sustainable’

resources would remain so over the long term

considering appropriate technical, economic,

environmental and socio-political uncertainty

about the future (i.e. using scenario planning).

1. Find a quick way to show that the existing

copper project pipeline is not ‘future

proof’

2. Try to come up with some new ideas for

exploration…


Fortunately scenario planning is suitable for testing strategic

‘adaptability’ and for new idea generation

?

Slide 20 of 35

Using Scenario Planning To Test Adaptability


EC

ON

OM

IC

MA

RG

INS

Inc

re

ase

d

De

cr

ea

se

d

CONCEPTUAL SEARCH SPACE

CRUSADES COUNTING HOUSE

PEASANTS’ REVOLT UNDER SEIGE

Company Type /

Scenario

Under

Siege

Countin

g House

Crusade

s

Peasant

s’

Revolt

Oyu Tolgoi X ? ? X

Pampa Escondida X ? X X

Pebble X X ? ?

Resolution X X √ X

Udokan √ X ? ?

Reko Diq X X X X

Kamoa X X √ ?

Increased

DecreasedSource: Sykes & Trench (2016)

Slide 21 of 35

Struggling To Adapt Via Portfolio Selection


A few ‘big bets’ A ‘no worries’ strategy?

What would be an

original ‘no worries’

strategy?

A few ‘wait & see’ options

The application of ‘portfolio selection’ or diversification by the mining sector…

Sources: Markowitz (1952), Erdmann et al., (2015), Sykes & Trench (2016)

Slide 22 of 35

My PhD Story: Part 5The Last Scenarios


Focusing On The Explorer, Not The Discovery

Discovered projects are a ‘known’ and thus well-analysed and optimised…

…if explorers are truly working in the unknown, then the explorers are the only

known entity upon which research can be conducted…

The final research question became:

“Can explorers find significant, better quality mineral deposits that are both

economically viable and more in line with contemporary and likely future

demands on the mining industry?”


First I Needed To ‘Upframe’ The Research

“If a problem cannot be

solved, enlarge it.”- Dwight D. Eisenhower


Sources: Wack (1985), Ramirez & Wilkinson (2016)

Slide 25 of 35

Investigating The Transition Into The Future


Wonderland

1984

Left behind

High tech

Discworld

NOW

(An unknown

number of

economic

cycles to come)Low tech

(Beyond which is

the unknown)

‘Economic paradigm’

‘Sustainability

paradigm’

‘Strategic paradigm’

‘Transition’

Sources: Sykes & Trench (2017); Images: Amazon

Slide 26 of 35

Transforming The Future Inspired by H&S


“Trapped in

a cycle”

“Breaking the

cycle”

19th Century 1970s

Compliance Culture Excellence

Late 20th century

HE

ALT

H &

SA

FETY

Mid-20th Century 1970s

Compliance Culture Excellence

Late 20th century

SO

CIA

L LI

CE

NC

E

Sources: Sykes et al., (2016); Images: Amazon

Slide 27 of 35

Accepting The Future, Dickens and AA


Localisation

Globalisation

Eco

no

mic Va

lueS

ha

red

Va

lue

God, give me grace to accept

with serenity

the things that cannot be

changed,

Courage to change the things

which should be changed,

and the Wisdom to distinguish

the one from the other.

Slide 28 of 35

My PhD Story: Part 6The Undiscovered Country


Some New Search Spaces?

The final scenarios workshops identified three new ‘conceptual’ search spaces for mineral explorers:

1. Previously underexplored minor commodities associated major structural socio-economic change,

such as the ‘energy transition’ (one form of ‘sustainable resource’);

2. Regions with restricted socio-political access that may be overcome with a better ‘social licence to

operate’ (another form of ‘sustainable resource’);

3. Converting geopolitical concerns into exploration opportunities, i.e. ‘strategic resources’.

In addition to the already identified ‘under cover’ search space.

But this will require some changes in exploration industry capabilities!


Learning How To See What Is There


The “Dee Why” (one of the

Sydney ferries) in the early

1930s, sailing past the Sydney

Harbour Bridge under

construction.

Source: Wikipedia

Slide 31 of 35

https://en.wikipedia.org/wiki/Sydney_Ferries

Returning To Go…

Explorers, exploration teams, and exploration companies will require a broader skill set in the future including:

• a better philosophical understanding of the nature of exploration and discovery

• better understanding of the cognitive processes involved in exploration and discovery;

• developing strategies and capabilities to effectively enter emerging commodity markets;

• building a diverse exploration culture to bring in ideas from other industries and disciplines;

• switching from a focus on economic value to shared value;

• developing a stronger innovation and technology culture;

• encouraging creativity and ideation;

• linking short and long-term thinking;

• improving the image of exploration;

• monitoring local and global socio-political, economic and technological trends and

• measuring and understanding the potential impact of these trends;

• encouraging a collective approach to ‘big exploration’.

Perhaps with these capabilities we can resolve the ‘discovery constraint’ on the minerals industry.


Acknowledgements

Firstly, I would like to acknowledge the Noongar people, who remain the spiritual and cultural custodians of the land, upon which The University of Western

Australia is situated, and pay my respect to Elders both past and present.

I would like to acknowledge the support of my PhD supervision team: Allan Trench (CET, UWA), Mark Jessell (CET, UWA), Campbell McCuaig (BHP), and Nicolas Thebaud (CET,

UWA); as well as the financial support of a Centre for Exploration Targeting ‘Ad hoc’ scholarship and an Australian Government Research Training Program Scholarship.

I would also like to thank the participants in the three CET “Future of Minerals Exploration” Scenarios Workshops: Jonathan Bell (CET, Curtin), Leila Ben Mcharek (Muslim Studies, UWA), Rob

Bills (Emmerson Resources), Aida Carneiro (Mining Engineering, UWA), Ivy Chen (CSA Global), Aaron Colleran (Evolution Mining), Tim Craske (Geowisdom), Liz Dallimore (KPMG), Deon

deBruin (Diamond Indicator Minerals), Edoaldo Di Dio (Calibre Projects), Joe Dwyer (HiSeis), Mayara Fraeda (CET-UWA), Nick Franey (NFJ Consulting), Simon Gatehouse (BHP), Jeremie

Giraud (CET, UWA), Marcelo Godefroy Rodriguez (CET, UWA), Chris Gonzalez (CET, UWA), Isabel Granado (Information Systems, Curtin), Matt Greentree (Ausgold), David Groves (CET, UWA),

Mike Haederle (Rio Tinto), Mike Hannington (Metalicity), Nick Hayward (Teck), Amanda Hellberg (Law, UWA), Paul Hodkiewicz (Anglo American), Amy Imbergamo (Environmental Science,

UWA), Constanza Jara (CET, UWA), Caroline Johnson (CSIRO), Heta Lampinen (CET, UWA), Helen Langley (Law, UWA), John Libby (Digirock), Martin Lynch (Author of “Mining in World History”),

Stuart Masters (CS-2 Consulting), Michael Mead (Gold Fields), Adele Millard (Anthropology, UWA), Joanne Moo (Environmental Science, UWA), Suzanne Murray (Billabong Gold), Sandra

Occhipinti (CET, UWA), Ahmad Saleem (CET, UWA), Ian Satchwell (PerthUSAsia Centre), Robert Sills (Sills Strategic Materials), John Southalan (Law, UWA), David Stevenson (CET, UWA),

Narendran Subramaniam (Transmin), Siobhan Sullivan (Plant Biology, UWA), Daniel Sully (Teck), Janet Sutherland (Business, Curtin), Marcus Tomkinson (MMG), Marnie Tonkin

(Anthropology, UWA), Jan Tunjic (CET, UWA), Will Turner (Millenium Minerals), Stanislav Ulrich (AngloGold Ashanti), Jessica Volich (BHP), Wenchao Wan (Chemical Engineering, UWA), Peter

Williams (HiSeis), Marcus Willson (CSA Global) and Afira Zulkifli Tahmali (Environmental Science, UWA).

I would also like to thank Steve Beresford (Independence Group), Jon Hronsky (Western Mining Services), Robbie Rowe (NextGen Geological), Richard Schodde (MinEx Consulting), John Vann (Anglo American) and

the members of #explorationtalk for the continued support, guidance, and championing of this research.

This work has also benefitted from the contributions of many other people who have co-authored papers, provided input, or contributed in some other way, whether they knew it or not. These include David Abraham (TREM, IAGS), Saleem Ali

(University of Delaware), Tim Andrews (Western Power), Lucy Ash (Independent Geologist), Miles Ashton (Baron Property Group), Alex Atkins (Alex Atkins Associates), Roger Bade (Whitman Howard), Anthony Barich (Aspermont), Laurent

Barrere (Gryzlly Resources), Geoff Batt (MBA, UWA), Kristie Batten (MiningNews.net), Anselm Boehl (BHP), Carla Boehl (WASM, Curtin), Doug Brewster (Independent Exploration Geologist), Zenoushka Bynevelt (BHP), Sarah Connolly (Gold

Fields), Jess Currell (EY), Sam Davies (CET, UWA), Aaron Dixon (EY), Nick Gardiner (CET, Curtin), Chris Gemell (Wood Mackenzie), Mike Gershon (Gershon Learning), Pietro Guj (CET, Curtin), Nancy Hanna (CSIRO), Jess Harman (BHP), Matt

Horgan (Alcoa), Simon Jowitt (University of Nevada, Las Vegas), Matthew Kanakis (KPMG), Peter Kettle (ITRI), Cho Khong (Shell), Cui Lin (ITRI), Paul Miller (Vedanta), Gavin Mudd (RMIT University), Tom Mulqueen (ITRI), Janusz Olbromski

(Brickworks), Ian Radisich (South32), Rafael Ramirez (University of Oxford), Laurence Robb (University of Oxford), Paul Robinson (CRU), Cynthia Selin (Arizona State University), Bindi Shah (MBA, UWA), Natalie Staffurth (Terravision

Exploration), Mark Tyrer (Imperial College), Kees van der Heijden (University of Oxford), Jess Volich (BHP), Angela Wilkinson (World Energy Council), and Josh Wright (Rowton Consolidated).


Key References

• Sykes, J.P., 2014, Influencing exploration choices in copper at a strategic level (The Hollywood Edition), Centre for Exploration Targeting Members’ Day,

December, Perth (WA).

• Sykes, J.P., & Trench, A., 2014, Chapter 14: Finding the copper mine of the 21st century: Conceptual exploration targeting for hypothetical copper

reserves, in Special Publication Number 18: Building exploration capability for the 21st century, (eds., K.D. Kelley & H.C. Golden), Society of Economic

Geologists: Littleton (CO), 273-300.

• Sykes, J.P., Wright, J.P., & Trench, A., 2016, Discovery, supply and demand: From Metals of Antiquity to critical metals, Applied Earth Science, 125, 1, 3-

20.

• Sykes, J.P., & Trench, A., 2016, Using Scenarios to Investigate the Long-term Future of Copper Mining and Guide Exploration Targeting Strategies,

International Mine Management Conference, Brisbane (QLD), 22-24 August.

• Sykes, J.P., & Trench, A., 2017, The Impact of the Renewable Energy Transition on Battery and Strategic Metal Markets [presentation], AIG Battery &

Strategic Metals Seminar, Perth (WA), 10 November.

• Sykes, J.P., Trench, A., McCuaig, T.C., Craske, T., Dwyer, J., Subramaniam, N., Sullivan, S.T.M., & Turner, W., 2016, Transforming the Future of Minerals

Exploration, AusIMM New Zealand Branch Conference, Wellington, 4-6 September, 407-418.

• Sykes, J.P., Trench, A., McCuaig, T.C., & Jessell, M., 2017, Charles Dickens on the (potentially) changing role of globalisation and sustainability in the

long-term future of mining and exploration, Tenth International Mining Geology Conference, Hobart (TAS), 20-22 September, 239-256.

• Sykes, J.P., Trench, A., & McCuaig, T.C., 2017, The Future(s) of Minerals Exploration [poster], TARGET Conference, Perth (WA), 19-21 April.


Other References

• Erdmann, D., Sichel, B., & Yeung, L., 2015, Overcoming Obstacles to Effective Scenario Planning, McKinsey Quarterly, June, 1-6.

• Franks, D.M., Davis, R., Bebbington, A.J., Ali, S.H., Kemp, D., & Scurrah, M., 2014, Conflict Translates Environmental and Social

Risk into Business Costs, PNAS, 111, 21, 7576-7581.

• Fukuyama, F., 1992, The End of History and the Last Man, Penguin Books: London.

• Humphreys, D., 2010, The Great Metals Boom: A Retrospective, Resources Policy, 35, 1-13.

• Markowitz, H., 1952, Portfolio Selection, The Journal of Finance, 7, 1, 77-91.

• Ramirez, R., & Wilkinson, A., 2016, Strategic Reframing: The Oxford Scenario Planning Approach, Oxford University Press: Oxford.

• Rigby, D., & Bilodeau, B., 2007, A Growing Focus on Preparedness, Harvard Business Review, 85, 7/8, 21-22.

• Silver, N., 2012, The Signal and the Noise: The Art and Science of Prediction, Penguin Books: London.

• Taleb, N.N., 2007, The Black Swan: The Impact of the Highly Improbable, Allen Lane: London.

• Tetlock, P.E., 2005, Expert Political Judgment: How Good Is It? How Can We Know?, Princeton University Press: Princeton (NJ).

• Tetlock, P.E., & Gardner, D., 2015, Superforecasting: The Art & Science of Prediction, Random House Books: London.

• Tilton, J.E., & Guzman, J.I., 2016, Mineral Economics and Policy, Routledge: Abingdon (UK).

• Wack, P., 1985, Scenarios: Shooting the Rapids, Harvard Business Review, 63, 6, 139-150.
