Exploration Efficiency Evaluated
Are current exploration programs effective in maintaining adequate mineral reserves?
Speakers debate the question at the record-breaking 2010 PDAC convention.

By Russell A. Carter, Managing Editor

Following a year in which mineral exploration budgets plummeted, mostly from financial strain in the junior company sector, attendance at the 2010 Prospectors & Developers Association of Canada (PDAC) convention and trade show exhibited few signs of waning interest in exploration issues. According to PDAC, total attendance at this year’s annual event was a record 21,660, surpassing the 2008 convention’s 20,168 attendees, with roughly 1,000 companies participating in either the trade show or investors exchange.

The show’s robust attendance figures highlighted an optimistic mood pervading the industry—not the giddy attitude of the boom days preceding the 2008 bust, but more a sense of relief from unfulfilled expectations that the industry was facing a long, difficult and uncertain recovery. Those fears mostly vaporized as 2009 progressed: by March, commodity prices had noticeably strengthened, driven by Chinese demand, and precious metals rebounded. From late 2008 to late 2009, for example, gold was up more than 25%, silver more than 57% and platinum almost 63%.

To be sure, 2009 wasn’t a banner year for exploration. Metals Economics Group, a Halifax, Nova Scotia-based firm which tracks exploration statistics worldwide, reported planned nonferrous exploration budgets of the 1,846 companies participating in its annual survey on corporate exploration strategies totaled $7.32 billion for 2009— down from a record $12.6 billion in 2008, marking the largest one-year decline in the past two decades. However, despite the deep cuts to exploration plans, the industry’s 2009 nonferrous exploration budget total remained well above levels seen prior to 2006, according to MEG. Junior-company exploration spending fell by more than half in 2009 compared with the previous year, followed to a lesser degree by intermediate producers— the result being that exploration budgets among the major producers stood atop the heap for the first time since being overshadowed by juniors in 2004.

The financial blow dealt by the global economic downturn caused widespread damage among the juniors, dropping market capitalization for both the TSX-V mining sector and the entire TSX-V by more than half from 2008 levels. However, MEG attributed the drop in junior-company exploration spending to a sector-wide cutback by companies just trying to survive the slump, citing its data which indicate the number of juniors actively exploring fell by only 6% from 2008 to 2009.

A February 25, 2010, report issued by PriceWaterhouseCoopers Canada detailed the losses incurred by junior companies following the economic slump. “In the 12 months ending June 30, 2009, the global financial crisis eroded the share prices of most junior mining companies and made it nearly impossible for many of them to raise money to finance their projects,” wrote Paul Murphy, partner and mining industry leader for PwC. “While some investors were prepared to take a chance on production and development companies, exploration companies, or any company perceived to carry a higher investment risk, were left out in the cold.”

As the top 100 TSX-V companies tried to conserve cash, exploration spending declined. The top 100 group wrote down a total of $644 million on mineral properties and exploration as projects were either abandoned or put on hold. Stock-based compensation fell in tandem with share prices and was 30% lower than the prior year.

Smaller mining companies merged in order to survive, resulting in a 129% increase in acquisitions by exploration companies in the top 100 in 2009.

The PwC report pointed out that cash available to the junior mining sector dried up in 2008 and financing became even more challenging for the top 100 in the first half of 2009. For the year ended June 30, cash provided by financing activities (both debt and equity) dropped 21% to $1.5 billion. Expenses also declined as companies sought ways to economize.

Of the top 100 companies in 2008, the PwC report stated that only 48 remained in the 2009 top 100 list. Most of the remainder dropped off the list as their market capitalizations fell, while eight—five of them gold companies—graduated to the TSX and another seven were acquired. The 100th company on the 2009 list had a market capitalization of $25.7 million in 2009, compared with $72 million in 2008, reflecting the serious deterioration in market conditions for the junior mining sector.

The struggle to survive led to a spike in the number of mining M&A deals involving junior companies in 2009. On March 1, PwC issued a press release noting “the number of small deals (below US$250 million) was significantly above the prior three years, with a total of 1,859 deals. This trend was driven by consolidation of smaller players and deals driven out of necessity for survival rather than opportunistic or strategic growth ambitions.”

Questioning Exploration Efficiency
The sudden shrinkage of industry exploration budgets renewed debate over some broad, ongoing issues: Are companies— and investors—getting the best bang for a buck out of their exploration programs? Overall, how good of a job is the industry doing in finding new deposits and replenishing reserves? How can exploration performance,

One measure of exploration effectiveness is the ratio of reserves to production for any given year, according to
Michael Doggett, president and COO of HanOcci Mining Advisors. Speaking at PDAC 2010, Doggett presented this
chart to illustrate that the copper industry, for example, despite doubling annual production during the past 30
years, has steadily maintained a reserve base of more than 30 years of production. Source, Doggett, PDAC 2010,
“Measuring Exploration Effectiveness and Efficiency: Do we need to do better? Can we improve?”.
Two speakers at a PDAC session that addressed the question “Exploration Expenditures are increasing, but discoveries are not. Why?” expressed widely divergent opinions. Michael Doggett, president and COO of HanOcci Mining Advisors, citing copper exploration and production data compiled from 1979 through 2008, began by positing: “The purpose of exploration is to replace reserves. If we’re talking about the copper business, a simple measure of exploration effectiveness then is simply the replacement ratio of reserves ”

During the period 1979–2008, continued Doggett, copper reserves in 1979 were 350 million metric tons (mt); in the following 30 years the industry produced 322 million mt, and at the end of the period reserves were reported as 550 million mt. Exploration during that span resulted in a net addition of 522 million mt of copper.

To determine the reserve replacement ratio, he explained, divide net reserve additions by production:
• For 1979-2008 = 522/322 = 1.6
• Similarly, the reserve replacement ratio for
• 20 years (1989-2008) = 1.9
• 10 years (1999-2008) = 2.0

“We have consistently added reserves at a rate far exceeding overall production. Does this look like an industry with a discovery problem?” said Doggett.

Continuing in the same vein, he said another simple measure of exploration effectiveness is the ratio of reserves to production for any given year. This metric represents the number of years of output supported by the current year’s reserves, assuming no growth in annual output or reserves. If this metric does not decline over time, then exploration is effective in both replacing reserves and sustaining growth trends.

“In spite of doubling annual production during the past 30 years, we have been able to maintain a base of more than 30 years of production at current rates moving forward. Does this look like an industry with a discovery problem?” Doggett said.

“As an industry we have been highly effective in replacing reserves through exploration, but this measure does not say anything about what it costs to be highly effective. To do that we need to factor in the amount of money spent on exploration,” he said.

During 1979–2008, the global copper industry spent approximately $22.5 billion on exploration; over the past 20 years, it spent $17.7 billion, and over the past 10 years, $10.3 billion.

“We can measure exploration efficiency by considering how much it cost to add reserves over time,” he said. “Consider an efficiency of exploration metric whereby z = net reserve additions, a = cost of making additions (exploration expenditure), with a/z = cost per unit of adding reserves. Thus, the cost of adding a unit of copper reserves from 1979-2008 was: $22,540 M / 522 million mt = $43.20/mt ($0.02/lb).”

This calculation shows that over 30 years ($0.020), 20 years ($0.016) and 10 years ($0.016) the industry, in terms of efficiency, has generally been able to consistently add copper to reserves for two cents or less per pound of copper—another indication of exploration efficiency. In addition, Doggett said the copper industry has consistently spent 2%–4% of sales revenue on exploration, in contrast to the gold sector, which at times spent more than 12% of sales revenue on exploration during the same period.

As for the probability that this efficiency can be sustained in the future, he suggested that in recent years exploration effectiveness and efficiency have been driven by brownfield additions to reserves in conjunction with major expansions at the world’s largest copper mines. For much of the next decade, this will continue to be the case. Beyond 2020, however, the ability to increase reserves and annual output at known mines is at best uncertain. The underlying resource base is large but much of these resources are challenged by political, economic, social and technological issues.

Long lead times to find and develop new mines (on average 20 or more years) restricts the conversion of resources to proven and probable reserves. To meet anticipated demand for new primary supply of copper, the industry can only bank on brownfield success for so long. New discoveries are essential. Exploration effectiveness and efficiency will necessarily decrease when this crossover point is reached.

“Can the industry do better [in exploration]?” Doggett questioned. “In the face of the cumulative impact of billions of dollars of exploration expenditures in the past few decades, it is completely unrealistic to think that we will magically get better at exploration.” There’s no silver bullet or panacea on the horizon, he suggested, but to date, advances in technology and the cumulative base of knowledge gained from past exploration have been dependable factors in keeping up with the relentless forces of depletion.

Gold: Searching for Reserves
Stephen Enders, director and principal consultant at Renaissance Resource Partners, Denver, Colorado, USA, and former senior vice president of worldwide exploration at Newmont Mining Corp., presented a less sanguine view of exploration performance and expectations—at least ’s point of view.

Mineral discovery trends, 1959-2009. Source: Richard Schodde, MinEx Consulting, PDAC 2010, “Global discovery trends 1950-2009: What, where and who found them.”.
From a corporate perspective, he stated, there’s never enough exploration success. “It’s never in the right geopolitical area, and if it is there is something wrong from a social perspective. It’s never enough grade; it’s never big enough. It’s typically not close enough to infrastructure, and if it is then it’s too close.”

There’s also a major disconnect in what major producers want—in terms of exploration success—and what junior companies can accomplish, he stated, suggesting that majors are exploration-phobic and much prefer to acquire discoveries without having to spend the time and resources to conduct their own exploration effort. Juniors, on the other hand, mainly function on an extremely short-term financing timeline. He estimated that only about 30% of juniors are seriously interested in creating wealth for others—“the rest are focused on creating wealth from others.” And, perhaps 50% or more of junior funding “never goes into the ground. They spend it just keeping their lights on,” Enders said.

He said the gold business is quite different from copper—the median gold deposit size is about 350,000 ounces, much smaller than typical copper discoveries and much quicker to deplete. Because of the difficulty of replacing reserves to maintain production, he believes that “from a major’s perspective, [gold] is not a sustainable business” by itself and that’s why major gold producers are now focusing on finding porphyry copper-gold deposits.

Discovery Rate Declines
In the same session, Richard Schodde, managing director of MinEx Consulting, Melbourne, Australia, presented results of a study on global discovery trends from 1950–2009, focusing on how many deposits were found, what commodities were involved, where were they found and who discovered them. The study included nonferrous metals, precious metals, diamonds, and uranium but excluded bulk minerals (coal, iron ore, bauxite) and industrial minerals such as potash, talc or phosphate. It also ignored discovery of satellite deposits feeding into an existing mill within an established mining camp (for example, it counted the Ekati diamond discovery as one world-class discovery, not 20 small discoveries), and limited analysis to major deposits ( > 1 million mt Cu equivalent, > 100 kt Ni, > 1 million oz Au, > 10 million carats, > 25 kt U3O8, etc.). It also assessed quality of the discoveries (Tier 1, Tier 2).

The study’s findings, in a nutshell:
• In spite of record exploration expenditures, the rate of discovery has declined over the last decade.
  ° Industry is now finding less than 10–20 major deposits per year.
  ° Only one to two of these are “worldclass.”
  ° The gold industry is struggling to replace the ounces it mines.
• In the last 20 years there has been a steady shift away from the established countries.
  ° In the 1980s, Canada, the U.S. and Australia accounted for over half of all major discoveries. Now it is less than 20%.
• Since 1980, the “main game in town” has been gold.
  ° Currently 60%–80% of all major discoveries are gold-related.
  ° The current hot spots for gold are Colombia/Ecuador, West Africa and Central Africa.
  ° The size and grade of the discoveries (for gold) is declining.
  ° Few major lead-zinc, diamond or uranium deposits have been found in the last decade.
• Since the 1990s, juniors have played a significant role in discovery.
  ° Currently over half of all major discoveries in the Western World are made by junior companies and small producers.

Exploration Drill Rigs and Tools Get Upgrades
As exploration drilling steadily moves toward jobs involving deeper deposits in remote areas, requirements for more powerful drills, longer-lasting core bits and better driller accommodations are being met by industry suppliers.

Boart Longyear’s new SC11 flyable exploration drill rig is designed to be transportable in nine to 11 helicopter
lifts, with the heaviest module weighing 680 kg (1,500 lb).
At this year’s PDAC trade show, Boart Longyear released its new flyable SC11 rig, touted as the only compact, modular rig in its class that offers 5456 Nm of torque and can manage PQ-size rods. The drill is a surface exploration rig targeted at the 1,300- to 1,500-m NQ market, and can be broken down into manageable modules.

“The SC11 is built from Boart Longyear’s proven LM technology and designed for use in surface applications where access is limited and drill footprint is a critical consideration,” said Craig Mayman, global product manager for capital equipment. “It’s extremely flexible—conveniently assembling and disassembling in flyable, compact modules— and in colder regions, its compact size enables operation inside a drill shack.”

The SC11 was literally built around the engine—a John Deere 4045HF485, 4.5- liter, Tier 3 diesel rated at 172 hp (128 kW)—to take advantage of its high power rating. The SC11 delivers large-diameter and deep-hole drilling capacity with a 132-kN pullback rating and PQ handling capacity. The rig features a variable-speed motor that provides low-end torque output of 5,456 Nm at the head for tri-cone drilling and a 1,230- rpm speed for diamond drilling. The rig also has efficient hydraulics to easily make or break rod joints and transport rods safely.

Hydraulic actuators control the rig’s rod handler, providing movement in three dimensions. The rod handler has proximity sensors to protect the operator by preventing rod drops when operators are nearby. A laser beam system positioned between the helper and rod-handler control panel stops movement when drillers enter the operating area. Once the beam is interrupted, the rod handler immediately stops and can only be restarted when the driller resets it.

The rig uses Boart Longyear’s Nitro Chuck with gas-charged springs that actuate the jaws holding the rods to provide failsafe operation. Control panel levers also feature lift-to-shift rotation and feed actuation that protect against accidental actuation.

The SC11 has been designed to break down into flyable modules, with the heaviest lift weighing 680 kg (1,500 lb), and depending on drill configuration, it is transportable in nine or 11 (with skid base and rod handler) lifts. Lifting points are positioned at the module’s center of gravity to provide a balanced load, while quick-connect hydraulic couplings speed assembly and disassembly and prevent oil spills. All modules utilize visible guides to help operators quickly align and assemble the rig, speeding up the setup process. Pressed steel framing with male-female joints help the modules drop into position and highly visible jacking and lifting points make assembly and disassembly safe and easy.

The SC11 is built at Boart Longyear’s Perth, Western Australia, facilities and units have been field tested in New Zealand and Indonesia.

Monika Portman, Boart Longyear’s product manager for coring products, introduced two recent developments in the company’s core-bit lineup. A new XP line of surface-set bits includes 11 configurations designed to last up to three times longer than conventional surface-set bits and eliminate the need to utilize alternative bits in broken ground. The company sees the largest market for these bits in the coal sector.

“Our goal was to redefine the surfaceset category and set a new benchmark for productivity in soft and sedimentary applications,” said Portman. “Early testing of the new surface-set bits confirms the strength of the engineering and technology applied in their development.”

The new Surface Set XP line of bits can provide up to
three times longer life than conventional surface-set
bits, according to supplier Boart Longyear.
The new SurfaceSet XP bits feature an impregnated crown with multiple layers of diamonds that are claimed to provide significantly increased lifespan. A patented Ultramatrix crown holds large, synthetic diamonds in place as it continues to cut, compared with traditional surface-set bits that use only a single layer of diamonds.

Portman said the bits’ RazerCut face design further increases productivity by quickly exposing the impregnated diamonds. This design, she noted, delivers “sharp-out-of-the-box” performance, with exposed cutting surfaces for immediate drilling capability.

By delivering better cutting and deeper penetration, the bit’s Ultramatrix design reduces downtime where the bit is not cutting. Hard seams often destroy traditional surface-set bits, forcing operators to pull the rod string out and change bits if ground formations vary at depth. The Surface Set XP bits are claimed to provide a “pushthrough” capability in hard seams, preventing unnecessary rod trips and enabling drillers to keep their string in the ground longer.

Portman said the company also has upgraded and expanded its Stage diamond coring bit product line. The new bits include engineering upgrades to the Stage3 waterways, a selection of Stage bits with an optional new 16-mm crown and an optional face-discharge feature.

Since its release in 2007, said Portaman, the Stage3 diamond coring bit remains the industry’s tallest, with a crown height of more than 25 mm. Its patented design is claimed to deliver better penetration rates, longer active drilling in the hole and fewer rod trip-outs, increasing shift capacity and overall meters drilled.

“The new design features an expansion of our patented window to improve productivity, a revised window layout to increase strength and also has our new patent-pending RazorCut face design. The 16-mm model includes the upgraded Stage technology and gives customers more choice when operating at shallower target depths.”

Upgrades to the Stage design include windows with rounded corners for greater durability. The new windows increase resistance to damage caused by debris in fractured ground conditions. The windows also feature a new Twin-Taper design; they taper inward to create more material on the window’s inner diameter, increasing material strength and extending product life. In addition, the tapered windows produce high fluid velocity in the inner diameter, resulting in better flushing of fluids, cuttings and debris.

Portman said the Stage windows are now positioned to rotate in the opposite direction of rod rotation, creating more surface material which further increases the strength of the crown and improving performance in all types of ground conditions.

Excore Bits Enhance Efficiency
Not to be outdone, Atlas Copco also introduced a line of diamond coring bits during PDAC, noting that their new Excore bit line is based on the best features of previously successful designs, but offers new design points and matrices to achieve optimized balance between design and metallurgy. According to the company, testing of the bit line before launch was rigorous, with more than 10,000 m drilled in six different markets under varying conditions

Atlas Copco’s new Excore bit line is available in three
ranges for efficient drilling in soft to very hard rock.
One of the Excore design team’s principal objectives was higher penetration rate. As explained in the Excore product literature, when drilling in difficult, broken ground with increased risk of hole deviation or lower sample quality, the driller often must decide whether to reduce weight on bit (WOB) or maintain penetration rate. Lower WOB makes it easier to drill straight holes with higher core sample quality, while at the same time reducing wear on the drill string. However, when rock conditions allow the driller to push for maximum speed, the correct bit configuration for existing conditions is required. The Excore line, according to Atlas Copco, allows the driller to optimize penetration rate vs. WOB for optimal results in any type of ground as each bit type covers a wider range of conditions— resulting in a lower inventory of bit types required for any given drill site.

The Excore bit line is divided into three ranges:
• For soft to medium hard rock with abrasive and fractured to competent formations (Matrix series 1-4);
• For medium hard to hard rock with slightly abrasive and slightly broken to competent formations (Matrix series 5-8); and
• For hard to very hard rock with competent formations (Matrix series 9-10).

Each Excore configuration is available in various crown designs, including Extended Channel Flush (ECF) for broken to competent formations, Jet profile for fast cutting in competent formations, and Face Discharge (FD) design for extremely broken and triple tube applications. Combining these features with different available crown heights, from 10–16 mm, according to the company, providews an Excore bit for every core drilling application.

Atlas Copco provided several case histories supporting its performance claims for the Excore line. At Boliden’s Renströmsgruvan underground mine, for example, core drilling at the 850-m level is carried out by Protek Norr AB, a Swedish drilling contractor. Recent drilling by Protek Norr has been in a zone in which normal diamond drill bit life is roughly 100 m, so when sinking a 900-m-long hole, the driller must pull the drill string out of the hole eight times to change drill bits—adding up to a big loss of productive drilling time.

Atlas Copco’s sales engineer at the mine suggested a test of an Excore with a Jet profile. The first Excore drill bit tested had a service life of 326 m and the best Excore bit in the test had a life of 347.5 m. Overall, testing indicated that the average life of the Excore drill bits was 324 m, more than three times that of the bits previously used by Protek in the same formation.

Similarly, South Africa-based drilling contractor Drillcorp tested Excore bits during a five-month contract involving 46 holes totaling 20,000 m of core drilling at a gold mine west of Johannesburg. By the halfway point of the contract, the contractor was managing to drill about 30 m per shift with an average bit life of 60–70 m while penetrating fractured, troublesome ground. The contractor tested an Excore bit, starting in a hole with 250 m left to finish; normally, a driller would expect to change bits at least three more times for that hole, taking at least 6 hours to run the rods. However, the Excore bit finished the hole without need of replacement and was able to drill another 52 m in the next hole. The first test bit provided 302 m of life— four to five times the life the contractor had achieved with previous bits.

Sandvik’s new, modular drill shack is designed to accommodate its
DE130 and DE140 drill rigs.
Sandvik’s Strongest Underground Rig
The DE150, introduced in 2009, is Sandvik’s most powerful exploration rig for underground exploration. A surface version of the rig is currently under development, according to the company, and both versions share many of the proven components used by other drill rigs in the DE100 series. In underground applications the DE150 is equipped with a 110-kW (150- hp) electric power unit giving a maximum working pressure of 250 bar (3,645 psi) and oil flow of 300 l/min (79 gal/min). For surface application the DE150 will be powered by a diesel engine. The hydraulic feed cylinder has a push and pull capacity of 15 mt (147 kN), which is exceptional in relation to the weight, said Sandvik. Depth capacity is up to 2,000 m with NQ rods.

The drill unit features a torsion-resistant steel profile feed boom and a direct coupled feed cylinder with a feed length of 1,700 mm and maximum feed speed of 0.63 m/s. The feed boom is mounted on a frame with the tilt cylinder and mechanical supports. The mounting frame has been specifically designed for quick set-up when fan drilling, with a full range of adjustment from vertical down to vertical up.

Sandvik’s DE150 torque control enables optimal balancing of torque and rotation speed. The control panel is a pilot-operated hydraulic system which gives the operator central control of all drilling operations including flush pumps, wireline hoist and boom tilt. The system also controls hydraulic system pressure, feeding force, hold back pressure, water pressure and water flow.

Sandvik also has designed a drill shack to accommodate its DE130 and DE140 diamond core drills. The modular design of the new Sandvik Drill Shack makes it suitable for both mobile and stationary units with quick assembly/pull down. The drill shack can be packed in compact units and is suited for helicopter transportation to remote areas. It can also be transported in its entirety by tracked vehicles or mounted on a hook lift frame.

All of the modules needed for operating the drill shack are built on an identical platform significantly reducing the number of components. Modules are fastened to the floor by T-rail nuts, allowing easy installation, removal or replacement if needed.

The frame is supported by legs assembled from the outside and easily removed. For operator safety, all hydraulics are located in the frame, keeping the floor free from hoses and oil leaks. The operator workstation has a dry, ice-free surface with builtin floor ducts for heating fluid. The shack's heating system can be started remotely by a phone call or by a preset timer. The operator compartment shares the same heating system as the rest of the working station, providing personnel a pleasant working environment. Sandvik also offers an air conditioner for applications in sub-tropical areas. Storage cabinets for coring bits and tools and a drill pipe stand that can handle drill pipes up to 6 m are also available as options.

As featured in Womp 2010 Vol 04 - www.womp-int.com