The Global Shift to Undercover Exploration - How fast? How effective?

The Global Shift to Undercover Exploration - How fast? How effective? Richard Schodde Managing Director, Adjunct Professor, University of Western Australia Society of Economic Geologists 214 Conference 3 th September 214, Keystone, Colorado

Overview 1. Trends in industry discovery performance Is the decline in performance due to (A) declining prospectivity, (B) rising input costs, or (C) the challenge of exploring under deeper cover? 2. Trend in depth of cover over time 3. Does exploring in covered terrains impact on unit discovery costs? 4. The Value Proposition for deep exploration 5. Trends in discovery methods used 6. Summary / Conclusions 2

Unit discovery costs are rising 1. TRENDS IN DISCOVERY PERFORMANCE 3

Number of discoveries made by Commodity Significant discoveries in the World: 1975-213 Number of Discoveries 15 1 Takes time for discoveries to be reported and fully drilled out Estimated Other Uranium Base Metals Gold 288 12% 13 5% 71 28% 1366 55% 2485 1% 5 Est 1975 198 1985 199 1995 2 25 21 215 Over half of the discoveries were GOLD Note: Significant is defined as Moderate + Major + Giant sized deposits, containing >.1 Moz Au, >.1 Mt Cu, >1 kt Ni, >. 3 Mt Zn+Pb, > 5 kt U 3 O 8 or equivalent in-situ value Excludes satellite deposits within existing Camps. Also excludes Bulk Mineral discoveries. Source: September 214 4

Until recently discovery rate moved in-line with exploration expenditures Non-Bulk exploration spend and discoveries World: 1975-213 15 Huge increase in spend, but no corresponding increase in the number of discoveries Number 213 US$ Billion $3 Exploration Spend 1 Number of Discoveries $2 5 Est $1 $ 1975 198 1985 199 1995 2 25 21 215 Note: Based on Moderate, Major and Giant discoveries. Excludes satellite deposits within existing Camps. Also excludes Bulk Mineral discoveries and expenditures. Source: September 214 5

Discovery costs are rising Unit cost per for a moderate-sized Gold or Base Metal discovery in the World Average Cost per discovery (213 US$m) GOLD Weighted Average for 2-29 = $77m Weighted Average for 198-89 = $44m ~$15m Unit discovery costs have doubled or tripled in the last decade Estimated ~$18m BASE METALS Weighted Average for 198-89 = $23m Weighted Average for 2-29 = $64m Estimated Note: Discoveries are for deposits >.1 Moz Au or >.1 Mt Cu-eq Data from 25 onwards have been adjusted for unreported deposits Possible factors driving the recent decline in performance include (A) declining prospectivity, (B) higher input costs and (C) difficulties in exploring under cover Source: September 214 6

Three possible factors behind the decline in exploration performance Has the World run out of good deposits? (A) DECLINING PROSPECTIVITY? 7

The long sweep of history suggests that we haven t run out of deposits Major Mineral Discoveries in the World: 18-213 The last decade has been one of our prolific discovery periods in history Number of Discoveries per year 8 Est Unreported Discoveries 6 Other Half of all Major deposits were discovered after 198 Base Metals Uranium 4 Gold 77% of all Major deposits were found since 195 2 18 182 184 186 188 19 Note: Major is defined as deposits containing >1 Moz Au, >1 Mt Cu, >1 kt Ni, >3 Mt Zn+Pb, > 25 kt U3O8 or equivalent in-situ value Excludes satellite deposits within existing Camps. Also excludes Bulk Mineral discoveries. 192 194 196 198 2 22 Source: September 214 8

Three possible factors behind the decline in exploration performance The cost of running an exploration program has risen in recent years, but this may change going forward (B) RISING INPUT COSTS? 9

Input costs for exploration doubled in real terms between 2 and 212 Average Diamond Drilling Cost (US$/metre) - Canada - Australia Average salary for an Exploration Manager (US$ per annum) - Canada - Australia Median Administration Cost for a Junior Exploration Company (US$m per annum) - Australia 2 nominal 2 real 212 real $ of the Day 212 US$ 212 US$ $84 $77 $112 $12 % real increase $21 $229 88% 125% Helped along by weaker exchange rate Change between 212-14 Down 3-4% Down 1% $7, $75, $93, $1, $17, $25, 83% 15% Down 2% $.34 $.44 $1.19 17% Source: September 214 1

Cash Reserves and Expenditures have dropped dramatically MEDIAN Australian Junior Exploration Company : 1998-June 214 During a downturn, in-field exploration & development expenditures are cut the most 213 A$ Million pa Cash Reserves Normally spend $2 in the field for every $1 of Admin. Is now $1 for $1 so less bang per buck Exploration & Development Admin costs tend to be fixed Administration Net Other Note: Survey based on a sample of 125 junior exploration companies listed on the ASX between 1998-214 Net Other includes production and other costs less interest income, mine revenue, Government Assistance and R&D tax credits Quarterly spend data has been multiplied by 4x to produce an annualised spend rate Source: September 214 based on Quarterly Reports to the ASX 11

Three possible factors behind the decline in exploration performance Its more expensive & riskier to test hidden targets (C ) CHALLENGE OF EXPLORING UNDER DEEPER COVER 12

Progressively exploring under deeper cover 2. TREND IN DEPTH OF COVER OVER TIME 13

Progressively exploring under deeper cover Base Metal deposits found in the World between 19-213 Depth of Cover (Metres) N = 134 Note: Size of bubble refers to Moderate, Major and Giant -sized deposits. Excludes Nickel Laterite deposits 14

Progressively exploring under deeper cover Base Metal deposits found in the World between 19-213 Depth of Cover (Metres) N = 134 Note: Size of bubble refers to Moderate, Major and Giant -sized deposits. Excludes Nickel Laterite deposits 15

Depth of cover has been slowly increasing over time Weighted average depth of cover for base metal discoveries in the World Percentage Share (G/F versus B/F) 1% 16% 17% 2% 5% 19% 22% 27% 37% 84% 8% 83% 81% 78% 73% 63% 1945-54 1955-64 1965-74 1975-84 1985-94 1995-4 25-13 % 5 35 33 35 1 42 73 94 77 25 69 92 84 97 14 144 Greenfield Brownfield Average 3 Depth of Cover (Metres) 45 57 114 15 2 55 189 194 214 239 Progressive shift from Greenfields to Brownfields, and the latter are getting deeper 16

Progressively exploring under deeper cover Primary gold deposits >.1 Moz found in the World between 19-213 Depth of Cover (Metres) Depth of Cover (Metres) N = 1478 Note Size of bubble size refers to overall pre-mined resource in Moz 17

Progressively exploring under deeper cover Primary gold deposits >.1 Moz found in the World between 19-213 Depth of Cover (Metres) N = 1478 Note Size of bubble size refers to overall pre-mined resource in Moz 18

Depth of cover has been slowly increasing over time Weighted average depth of cover for primary gold discoveries in the World Percentage Share (G/F versus B/F) 1% 1% 22% 22% 5% 22% 2% 27% 26% 9% 78% 78% 78% 8% 73% 74% 1945-54 1955-64 1965-74 1975-84 1985-94 1995-4 25-13 13 13 12 18 % 7 2 5 23 16 9 15 14 33 5 1 9 Greenfield Brownfield Average 2 45 19 36 44 Step increase in depth of Brownfields targets from 199s onwards 11 41 14 2 Depth of Cover (Metres) Source: September 214 Note: Excludes South Africa 19

Deposit depths can vary from zero to 3 metres This creates challenges when calculating the average depth as outlying values can skew the results 2

Have a wide range of depths for BASE METALS Depth of cover for base metal deposits >.1 Mt-Cu equivalent found in the World: 25-13 Cumulative Number % 25% 5% Cumulative Mt Cu-equiv 75% 1% 1 2 3 % 25% 5% 75% 1% 2% of all discoveries (by number) outcrop Average depth is 132 metres 4 5 Depth of Cover (Metres) 7% 1 8% 2 83% 9% 93% 3 1% of all discoveries (by Mt Cu-eq) outcrop 72% 75% Average depth is 156 metres 8% 4 98% 5 Depth of Cover (Metres) Note: Includes both Greenfield and Brownfield discoveries Based on 119 deposits. Excludes Nickel Laterite deposits and Undersea Deposits 68% Source: September 214 21

The results for GOLD are especially skewed Cumulative distribution of depth for gold discoveries >.1 Moz found in World: 25-13 Cumulative Number % 25% 5% 75% Cumulative Moz 1% 1 2 3 % 25% 5% 75% 1% 89% 51% of all discoveries (by number) outcrop 95% 97% Average depth is 41 metres 98% 4 99% 5 Depth of Cover (Metres) 1 2 3 44% of all discoveries (by ounces) outcrop 98% 99% Average depth is 32 metres 99% 4 5 Depth of Cover (Metres) Note: Includes both Greenfield and Brownfield discoveries Excludes South Africa 93% 99.6% Source: September 214 22

Depths vary by Region 23

Depth of cover for BASE METAL discoveries in the World: 25-13 Metres 1 World Average Rest Pacific of World SE Asia FSU + EE + Western Latin China Europe Am Africa 85 25 64 Aust 132 144 18 2 USA Canada 148 AVERAGE DEPTH 315 3 381 4 % No OF DEPOSITS AT GIVEN DEPTH +3m 2-299m 1-199m 5-99m 25-49m 1-24m 1% 75% 5% 25% % 2% Outcrop 1% 5% 42% 11% 16% 22% % Note: Relative proportions were calculated on the number of deposits (not contained metal) 14% % Source: September 214 24

Depth of cover for GOLD discoveries in the World: 25-13 Metres 5 1 World Average Rest Pacific of World SE Asia 54 4 FSU + EE + Western Latin China Europe Am 21 4 Africa 3 AVERAGE DEPTH +3m 2-299m 1-199m 25-49m 1% 75% 5% 25% Outcrop 1% 71% 67% ## 89% 47% 71% % Note: # All of the +3m deep deposits in Africa were in South Africa. Excluding these reduces the average depth to 5 metres. ## All of the outcropping deposits found in Western Europe during this period were in Turkey. 71 82 Canada 11 % No OF DEPOSITS AT GIVEN DEPTH 1-24m 5% 5# 56 USA The depth of cover issue is most critical in Canada, USA, and Australia 15 2 Aust 6% 38% 36% Source: September 214 25

Intuitively you would expect a good correlation between increasing depth of cover and increasing exploration costs 3. DOES EXPLORING IN COVERED TERRAINS IMPACT ON UNIT DISCOVERY COSTS? 26

Discovery Metrics for GOLD All primary gold discoveries >.1 Moz in the world 1975-84 1985-94 1995-4 25-13 Number of Deposits Found 266 482 329 411 Moz Found 987 1379 818 117 Exploration Spend (213 US$b) $7.9 $22.5 $23.5 $54.4 US$ per Ounce $8/oz $16/oz $29/oz $46/oz US$m per Discovery $3m $47m $72m $132m Based on Number of deposits 2 19 36 41 Based on Ounces 33 43 67 32 Average Discovery Cost (213$) Average Depth (metres) Note: Figures for 25-13 include an adjustment for unreported discoveries Excludes discoveries and expenditures for South Africa Source: September 214 27

Weak correlation between depth and discovery cost Whtd average cost of discovery for primary gold deposits in the World: 1975-213 Average depth is influenced by method of calculation 213 US$/oz $6 213 US $m per Discovery Method used to calculate average depth 24-13 24-13 $15 24-13 24-13 Number Basis Moz Basis Drop in depth in last decade but costs still rose!! $1 $4 Other factors are at play 1995-4 1995-4 1995-4 1995-4 1985-94 $2 1985-94 $5 1985-94 1985-94 1975-84 1975-84 1975-84 $ 1975-84 $ 25 5 75 Average Depth (metres) 1 25 5 75 Average Depth (metres) 1 Source: September 214 28

Weak correlation between depth and discovery cost Whtd average cost of discovery for primary gold deposits: 25-213 Poor correlation. Discovery costs are driven by a range of factors 213 US$/oz 213 US$/oz $1 $1 $8 $6 USA $8 USA Rest of World Rest of World $6 Australia $4 Canada Latin America Latin America $4 (excluding Sth Africa) $2 Australia WORLD Average WORLD Average Africa??? Western Europe??? Western Europe Canada Africa $2 Method used to calculate average depth (excluding Sth Africa) Number Basis $ Moz Basis $ 25 5 75 1 Average Depth (metres) 125 25 5 75 1 125 Average Depth (metres) Source: September 214 29

The following analysis is based on data for the Western World for the period 195-213 Good deposits are waiting to be found under deep cover 4. VALUE PROPOSITION FOR DEEP EXPLORATION 3

Number and size of discoveries by depth Primary gold discoveries in Western World: 195-213 Number Depth of Cover (Metres) 25 Total Metal (Moz) 5 5 1 15 Average Size (Moz/Discovery) 5 15 2.8 4.9 1-25 26-5 4.2 51-1 4.3 11-15 3.6 151-2 2.6 11.8 21-3 5.9 >3 Most gold discoveries were outcropping (ie metres of cover) but discoveries under cover tend to be 2x 4 x larger Note: Analysis based on detailed analysis of 92 primary gold discoveries >.1 Moz Excludes satellite discoveries in existing camps. Excludes South Africa 1 Source: March 214 31

Value of discoveries by depth Primary gold discoveries in Western World: 195-213 Total Value (US $b) Average Value (US$M/Discovery) $ $ Project Quality (%Tier) Depth of Cover (Metres) % 25% 5% 75% 1% $5 $1 $25 $135 1-25 $293 26-5 $277 $224 51-1 11-15 Tier 1 Tier 2 Tier 3 Unassigned 151-2 21-3 >3 $5 T1 Tier 2 Tier 1 & 2 discoveries are rare but valuable Tier 3 Significant value yet to be found below 25 metres Deeper discoveries tend to be more valuable $337 $312 $354 $481 That shouldn t be a surprise, as the deeper search-spaces haven t been depleted yet CAUTION: Values are indicative/approximate only. Analysis based on an average Expected Value (at the time of Discovery) of a Tier 1, 2, 3 deposit of US$2m, $5m and $1m respectively. Unassigned deposits have been given a notional value of $1m. Source: March 214 32

Number and size of discoveries by depth Primary copper discoveries in Western World: 195-213 Number Depth of Cover (Metres) Total Metal (Mt Cu) 25 5 1 Average Size (Mt Cu/Discovery) 5 15 1.9 4.4 1-25 3.4 26-5 3.2 1.7 51-1 11-15 1. 151-2 11.2 21-3 3.3 >3 Most copper discoveries were under <25 metres of cover deeper discoveries tend to be larger Note: Analysis based on detailed analysis of 57 primary copper discoveries >.1 Mt Cu Excludes satellite discoveries in existing camps. Excludes undersea deposits 1 Source: March 214 33

Value of discoveries by depth Primary copper discoveries in Western World: 195-213 Total Value (US $b) Average Value (US$M/Discovery) $ $ Project Quality (%Tier) Depth of Cover (Metres) % 25% 5% 75% 1% $5 $1 $25 $75 $17 1-25 $271 26-5 $269 $23 51-1 11-15 Tier 1 Tier 2 Tier 3 Unassigned 151-2 21-3 $5 T1 Tier 2 Tier 3 >3 Tier 1 & 2 discoveries are rare but valuable Significant value yet to be found below 5 metres Apart from the outcropping deposits value doesn t vary with depth $15 $249 $542 $251 That shouldn t be a surprise, as the outcropping deposit space has been depleted CAUTION: Values are indicative/approximate only. Analysis based on an average Expected Value (at the time of Discovery) of a Tier 1, 2, 3 deposit of US$2m, $5m and $1m respectively. Unassigned deposits have been given a notional value of $1m. Source: March 214 34

There have been several innovations in the exploration tools used to make discoveries 5. TRENDS IN THE DISCOVERY METHODS USED 35

Trends in exploration methods The preferred search method used varies by commodity type, depth of cover and scale Continental-Scale Province-Scale District-Scale Project-Scale MinEx has carried out a detailed analysis of the discovery history of 227 gold and base metal deposits at these two scales Prospect-Scale 36

Primary search method used at the project-scale BASE METAL discoveries (>.1 Mt Cu-eq) in the World: 19-213 Percentage of total discoveries (by Number) 1% ie What method was used to decide where to peg the leases Serendipity Prospector 8% Other Visual 6% Conceptual/Geological Geological Mapping 4% Extrapolated from Known Mineralisation Geochem 2% Geophysics + Geochem Geophysics % Note: Analysis based on detailed analysis of 93 Cu+Ni+Zn+Pb projects (out of 1568 known discoveries) Source: September 214 37

Primary search method used at the prospect-scale BASE METAL discoveries (>.1 Mt Cu-eq) in the World: 19-213 Percentage of total discoveries (by Number) 1% ie What method was used to decide where to drill the first hole Serendipity Prospector 8% Other Drilling (Sole Method) Visual 6% Conceptual/Geological 4% Geological Mapping 2% Extrapolated from Known Mineralisation Geochem Geophysics + Geochem Geophysics % Note: Analysis based on detailed analysis of 93 Cu+Ni+Zn+Pb projects (out of 1568 known discoveries) Source: September 214 38

Primary search method used at the project-scale GOLD discoveries (>.1 Moz) in the World: 19-213 Percentage of total discoveries (by Number) 1% 8% ie What method was used to decide where to peg the leases Serendipity 6% Prospector 4% 2% Other % Visual Conceptual/Geological Percentage of total discoveries (by Moz) 1% Extrapolated from Known Mineralisation Geochem 8% 6% 4% Geophysics + Geochem 2% Geophysics % Note: Analysis based on detailed analysis of 1277 gold projects containing 6528 Moz (out of 25 known discoveries containing 7771 moz) Geological Mapping Source: September 214 39

Primary search method used at the prospect-scale GOLD discoveries (>.1 Moz) in the World: 19-213 Percentage of total discoveries (by Number) 1% 8% Serendipity Prospector 6% Other 4% Drilling (Sole Method) 2% % ie What method was used to decide where to drill the first hole # # # # # Visual Conceptual/Geological Percentage of total discoveries (by Moz) 1% Extrapolated from Known Mineralisation Geochem 8% 6% 4% 2% % Geophysics + Geochem # # # # # Note: Analysis based on detailed analysis of 1277 gold projects containing 6528 Moz (out of 25 known discoveries containing 7771 moz) # Large geophysics figure is due to deep discoveries in South Africa Geological Mapping Geophysics Source: September 214 4

The problem is that the effectiveness of the exploration techniques deteriorates with depth 41

Discovery method changes with depth Primary GOLD discoveries >.1 Moz in World: 25-213 Number 97 metres 45 1-24 metres Average Size (Moz Au) DISTRICT-SCALE DRILL TARGET 2.9 2.2 25-49 metres 19 5-99 metres 17 1-199 metres 13 3.2 2-299 metres 3.9 1 2.7 >3 metres Discovery Method 7.3 4.4 Effectively all brownfield targets As methods become less effective switch from Geochem to GPx then to drilling (sole method) Source: September 214 42

6. SUMMARY / CONCLUSIONS 43

Summary [1/2] 1. Exploration performance has declined in the last decade, with unit discovery costs increasing 2x to 3x. This mainly due to higher input costs. Prospectivity issue resolved through going into new search spaces. Challenges of exploring under deeper cover are real. 2. Industry is having to progressively look under deeper cover The rate of increase is slow. Base Metals 2x deeper than gold. Brownfields exploration is 2x to 3x deeper than greenfields. Notwithstanding this. 51% of all recent gold discoveries and 2% of all base metal discoveries are outcropping. Tend to be in frontier regions where you trade-off geological risk for business risk. 44

Summary [2/2] 3. Discovery costs are (loosely) correlated with depth of cover Going from 25 to 75 metres average depth, doubles the discovery cost. Caution: Discovery costs are also driven by other factors 4. Deeper discoveries tend to be more valuable In mature terrains this may help offset the higher exploration costs. 5. The discovery method used varies over time Is a function of technology, scale of the exploration program (project versus prospect targeting) and the depth of cover. At present we don t have effective tools for exploring under +2 metres cover for gold. 45

Conclusion In conclusion. The challenge of increasing depth of cover is a slow-burning issue. It is currently most felt in brownfield exploration and mature countries. To offset the decline in performance we constantly need to develop new search concepts and technologies. As deep cover is effectively a new search-space, the prize for effectively exploring under deep cover can be huge. 46

Contact details Richard Schodde Managing Director Melbourne, Australia Email: Richard@MinExConsulting.com Website: MinExConsulting.com Copies of this and other similar presentations can be downloaded from my website 47