Title What's wrong with Exploration? Degree of recognition National Media name/outlet ResourceStocks Magazine - Aspermont Media type Duration/Length/Size 2 pages Country Australia Date 6/01/14 Description Just What’s Wrong with Exploration?
Digging Deeper this month takes an analytical look at the organisational challenges that can make effective mineral exploration difficult – seeking the views of renowned geologist Professor David I Groves.
Cricket lovers among readers will recall the famous jibe of “can’t bat, can’t bowl and can’t field” to describe either a hapless individual or else a whole cricket team when things are going awry.
Observers and investors in the metals and mining sector – with the notable exception of iron ore – may be excused for thinking up disparaging claims in respect of resources companies. That modern-day resource companies “can’t find anything, can’t build new projects, can’t run mines” would be considered by many to simply be astute observation rather than a targeted insult.
Turning to the exploration factor - the perceived lack of new quality discoveries (with rare exception), Digging Deeper has this month sought out the views of renowned geologist and Emeritus Professor David I Groves as to why exploration success is so elusive. In addition to the obvious technical challenges that accompany exploration, there are also many-fold organisational challenges.
Professor Groves points out five issues that combine to make successful exploration all the more difficult for today’s resources companies. The factors, in short-form (with exceptions)– are as follows:
1) A lack of both geosciences expertise and exploration mind-set at Board level in mid-tier to large mineral resources companies.
2) A focus upon acquisition over exploration – where the potentially superior ability of larger companies to explore goes begging.
3) Junior companies remaining hamstrung by a broken funding model.
4) Declining quality in the technical and general geosciences training of new graduates by Universities
5) A lack of mentorship for young geologists in companies.
Groves’ opinion is an experienced one that carries weight. Over a distinguished career as an academic and industry consultant he supervised over 250 geological research theses including 85 at PhD level, authored or co-authored some 500 publications, and was awarded eleven medals for geological research. His academic studies included many studies of the geotectonic setting to detailed geology of global gold mineralisation. He has consulted to both major and junior companies in most continents and in recent years assessed the tenements of numerous junior companies for investors and brokers.
He explains that “the repeated exploration successes of larger mining companies in the past were assisted by both technical understanding and support for exploration at Board level. The influence of Roy Woodall in the exploration successes of Western Mining Corporation (WMC) is an outstanding example. Now mining companies think lawyers, accountants and businessmen with no significant training in geosciences are somehow best qualified to advise on exploration from above: It is plainly illogical”.
On exploration versus acquisition, Groves believes that larger companies are missing a great opportunity by seeing these as mutually exclusive outcomes - an ‘either or’ conundrum.
“Larger mining companies have access to the financial and technical skill-sets that show clear potential to create advantage from both M&A and exploration together – but they constantly see it as a choice. The answer of course is that they need to create value from both”.
Groves sees junior companies as in dire straits. “Even when the equity markets were open, many junior company IPOs sat around the $5-10 million mark which is exactly sat they were 15-20 years ago in terms of average capital-raising. Of course, that figure now provides far less’ bang for the buck’ than it did in the past due to cost escalation from everything from geologists’ salaries through to drilling costs. Right now of course, equity markets are effectively closed to these companies anyway”.
Professor Groves also takes aim at the education sector in contributing to the difficulties of feeding skilled geologists into the exploration sector. “The whole system has changed in the last few years” he opines. “Now, 50% is no longer the pass mark in school subjects, with newspaper articles suggesting that an ‘adequate result’ in literacy and some science subjects is around 35%.
A greater percentage of school leavers used to immediate ‘digital entertainment’ now go to university. In combination, these factors lead to academic staff lamenting the lack of literacy and logical thinking and short attention span of students.
Once within the university system, the non-integrated and non-graded unit-by-unit general approach to getting a degree means that students only get limited exposure to the detailed aspects of key technical subjects – and the overall depth of professional learning is diluted by such an approach.
In at least some universities, ‘the jewel in the academic crown’, the practical Honours year, so envied by other countries, is set to disappear and be replaced by more course work.
Basically, you now get generalists instead of graduates from what was originally a professional degree specifically in geology.
Put simply, today’s graduates are not as well prepared scientifically or technically for exploration as was the case in the past. There are also fewer Australian industry leaders coming from PhD level trained in problem solving”.
Finally, Groves sees another opportunity being missed in mentorship of new explorers. “The FIFO model destroys a large part of the potential for one-to-one mentorship of young geologists by more experienced geologists at mine sites and for near-mine exploration. Instead of coaching time that came with workforces residing in small mining towns, the senior geologists and younger geologists now just pass each other at the air-strip in the FIFO model – so mentor relationships are all the harder to develop: Compare this to the past situation of WMC at Kambalda-the source of numerous highly qualified successful explorers and exploration managers globally; the crème de la crème of the industry”.
Groves’ five factors are certainly food for thought for mining and exploration companies. Add these organisational factors to the technical challenges of successful exploration and you start to see why quality discoveries are so few and far between.
Is it time for a radical review of the exploration industry itself? Is there a way to combine the technical excellence and adequate budgets for acquisition of high-quality geophysical and geochemical surveys of the majors with the ‘exploration hunger’ and relatively lower exploration costs and lower management overheads of the juniors to enhance discovery?
Could the majors, for example, provide guaranteed funding and access to technical excellence to a small group of selected juniors with high-quality ground and well-managed staff for an arranged period-say 5 years-on the basis of a ‘first-refusal’ agreement on any significant discovery by the junior.
This could be a ‘win-win’ situation by combining the contrasting exploration ‘drivers’ of each of the ‘partners’?
Producer/Author Allan Trench Persons Allan Trench