Miners, says SCM Decisions’ Michael Samis, are great at building cashflow models and calculating project values; not so great at “thinking about technical risk”. Too often he hears, “that’s just the way we’ve always done things”, when he asks senior mining people about justifications for often huge investments in metallurgical and exploration testwork.
Samis, a veteran Canadian mining engineer and expert strategic capital management (SCM) advisor, says he’s “yet to hear a satisfactory explanation for how exploration – and engineering pilot programs and corporate R&D, for that matter – creates value”.
Previous co-authored research for the University of British Columbia (UBC) indicated that between 2003 and 2016 at least 30% of mining project financial losses could be linked to “geoscientific challenges”. Other work in Australia and elsewhere has shone a relatively small amount of light on mining project losses caused by gaps in sub-surface understanding. Anecdotally, the value destruction is vast.
Samis spoke about the “value mechanism” underlying investments in exploration and ultimately resource definition and other orebody knowledge-building at the 2023 Xploration Tech Symposium in Vancouver earlier this year.
The annual event is organised by Australian Securities Exchange-listed mining technology company, Imdex, which has linked with Canadian mining-tech firm Ideon and UBC’s Mineral Deposit Research Unit (MDRU) and Bradshaw Research Institute for Minerals and Mining (BRIMM) to build on the earlier work by Samis and his colleagues, John Steen and Andrew Gillis.
A “million-dollar, two-year deep dive into the economics of orebody knowledge” that is being part-funded by Canada’s Natural Sciences and Engineering Research Council will “shine a flashlight on … the magnitude of the problem” highlighted by Samis, according to Imdex chief geoscientist Dave Lawie.
“A key outcome of the project is that it will provide an appropriately risk-adjusted method for correctly calculating in financial terms the value of early-phase orebody knowledge collection,” Lawie said.
“It will give the industry tools to make that calculation, show the value of early orebody knowledge and make the cost of collecting it more acceptable.
“At the moment, no-one is good at articulating the dollar value of orebody knowledge.
“The industry knows the cost of everything and the value of nothing.
“This project will change that.”
Lawie told InvestMETS.com results of the new study would be valuable to financiers, investors, explorers and mine operators.
“On one level, better orebody knowledge can inform a bankable feasibility study that determines a project’s economics, and once a mine is operating it provides valuable information upstream of the processing plant that affects the economics of the mine,” he said.
“For the wider community, failed critical metals projects are lost opportunities to supply the metals and minerals needed for a net-zero transition. It’s a question of resource stewardship because we’re dealing with finite resources.
“When mining companies secure assets they have an obligation to mine them responsibly, to realise their true value, not squander the opportunity through lack of information.
“Those who pay the price for lack of orebody knowledge are varied, from investors and financiers who have their investments written off through to mining companies that miss the opportunity for a no-surprises operation made possible by early collection of comprehensive orebody knowledge at the pre-resource extraction phase.
“The exploration program collects rigorous data knowing that they will be long gone by the time it turns into a mine, but the mine benefits.
“The conversation on data collection happens every day, certainly in the resource definition drilling phase. What data should we collect to best inform the mine design?
“Typically, the bias is to collect less data because of the cost, which you may never get back because the project may never turn into a mine. But if you don’t do it, the risk is a mine design that will face future problems.”
Asked why mining hasn’t learnt more from industries such as oil and gas which traditionally spend orders of magnitude more money on upfront resource and reserve definition and characterisation, Lawie said while aspects of the financial modelling were similar, fundamental geological constraints and complexities were not.
“There are analogues in other industries but we need a study such as this, which takes into account that mining takes place in difficult terrains, amid geopolitical complexities, with communities often living near or on top of resources,” he said.
Imdex and Ideon are leaders in the development and supply of orebody knowledge technologies, which Lawie says miners have been generally slow to adopt despite the increasing sophistication of the technology. He says the lack of clear articulation of the financial value of better orebody knowledge is a factor.
“Clearly articulating the dollar value of orebody knowledge also assists in the adoption of technology where the cost is born in one part of an operation or organisation, but the dollar benefit is accrued in a different department or during a separate phase of development,” he said.
“Dan Heath in his book, Upstream: How to solve problems before they happen, refers to a wrong pocket problem, where the entity that bears the cost of the intervention does not receive the primary benefit.
“So, one pocket pays, but the returns are scattered across many pockets.
“An example in a resource project is that a mining operation using [Imdex’s] Blast Dog to detect clays on the bench in blast holes will come under the drill and blast team budget, but the benefit will accrue to the metallurgists who are trying to maintain a consistent throughput and recovery.
“The general problem is that within a mining operation there are many silos involved to get through to get technology implemented.
“It is a long and sophisticated conversation involving many partners, which means the adoption is not straight forward.
“In terms of orebody knowledge, it can be that those who benefit the most are the least involved in the implementation.
“So, the greatest change in workflow will be to those who see the least benefit.”
Senior researchers at UBC will drive the study, along with postdoctoral experts, which will analyse mining projects completed over the past 23 years. The work will trawl through Toronto Stock Exchange and ASX reports, assessing links between mine project performance, and writedowns, and orebody knowledge data – or the lack of it. It will also look at the cost of generating orebody knowledge data.