An introduction to Mineral Exploration
Green field exploration.
Greenfield projects are usually undertaken in areas where there is no known records or mineral deposits. If a mineral deposit is found in an area, there is a greater probability that you will find other deposits in the vicinity of the local geological features. In greenfield projects, exploration work begins without the prior knowledge mineral formation.
The lack of known mineral deposits in an area, reduces the price to acquire mineral rights. In any greenfield project there is greater risk in developing the project, compared to later mentioned brownfield projects. Mineral exploration undertaken in an unproven area, can yield massive returns relative to the initial investment. It of course comes with greater risk, not only due to the unproven geological activities in the area, but also the feasibility of developing a mine.
Brownfield exploration
Unlike greenfield exploration, brownfield exploration is exploration done in the vicinity of another known mineral deposit. Where one deposit is located, there is a greater probability that a similar economically viable mine may be found in the area. The geology which forms the mineral deposit, can be the common root for another deposit in the area. If a mine is found near to a fault in rock, then you may find further mineral deposits along that fault.
Brownfields are also advantageous because they occur in areas where significant infrastructure may have been development, from another mineral deposit which was turned in to a mine. However they are often more expensive to purchase. Once a mineral deposit has been proven at a Greenfields project, the price of the surrounding properties will increase. Area plays, can be successful investment strategies for mining companies, where they purchase the surrounding mineral rights, with the belief that there is a greater probability it will lead to the successful development of a mine. There is no guarantee that this strategy will be effective however.
Brownfield & Greenfield; a venture capital example.
Brownfield and Greenfield projects can be thought of as analogous to investing in start-ups. Greenfields are much like start-ups with unproven market hypothesis. Investing in a company that is doing something very new brings with it greater risk, as you have no knowledge whether the market will buy to the product or service. Instagram in the early days may have been considered a risky bet. When Instagram’s success was evident, photo sharing apps started popping up everywhere. The valuations of these companies would have also risen, given greater demand for investors to play on Instagram’s success. You may perceive your investment as having a greater level of success now that other players have validated the market need, but outsized returns are less, due to missing the initial investment.
The same goes for project development in different areas. The known areas offer safer promise of returns, but may come with greater capital expenditures to do mineral exploration. Unknown areas are cheaper to acquire, and they can bring large rewards if successful. But they carry with them large amounts of risk, and for every successful project in this category, there are perhaps 100 or 1000 unsuccessful ones.
Properties and their mineral rights.
Conventionally, when we purchase a piece of land we are buying the surface rights of the property subject to laws governing their use. This must be understood as distinct from mineral rights. Mineral rights can be owned separately from the surface rights of a piece of land. So if you own a piece of farm land, you may someday find that another company owns the mineral rights below it. In the same way if you own the mineral rights, someone else may own the surface rights which you don’t have access to.
Staking mineral rights claims
Mineral rights are purchased or ‘staked’ in several different ways according to the jurisdiction. Today modern staking can occur online via interactive maps. In other jurisdictions you may still be required to physically stake posts, or mark trees in a field to show the boundaries of your claim.
Most countries will require you to conduct some sort of exploration activity in order to hold the mineral rights claim. There is usually a minimum dollar amount you must spend in order to be able keep the mineral rights. They may also be kept for a certain time period, which you can renew under other such rules.
Option Agreements
At some point a company may wish to purchase the mineral rights of a certain project which are already staked and claimed by another company. In this situation, it is possible and often quite typical for a company to purchase the mineral rights through an option agreement. This is a legal contract between two parties where the terms of the sale may be agreed upon.
The optionee may agree to purchase all or only a percentage of the mineral rights of a property. A cash payment and/or the transfer of shares of one company may be used to purchase the mineral rights of property. There may also be other terms in the agreement, such as the amount and type of work to be done on the property. Most optionors, will include a clause to receive a percentage of revenues, in the event that the mineral claim is deemed economical and a mine developed.
Joint Ventures and exploration alliances
Two or more companies may enter in to a joint venture or an exploration alliance. Both companies agree to work together on some asset of interest, and they agree to share the profits in an agreed upon way if they project is successful.
Exploration alliances may be between two companies of the same size, but they are often between one large company(Major) and one smaller company(Junior). The larger company may agree to share its larger datasets, and provide capital to develop the property, while the junior partner may play up to some speciality such as directing the drilling efforts of the major and providing data analysis.
A Joint venture may occur between two companies of roughly equal size, where they agree to share data and share the burdens of work in developing a property.
Lifecycle of a mineral rights claim and it’s property.
A mineral rights claim constitutes a finite amount of land some place on the planet. All mines at one point were an undeveloped piece of a land. Getting from the point of having no work, to a operational mine requires the property to pass through some defined stages.
As a property progresses from one stage to the next, the risk associated with investing decreases and the probability that the property will be revenue generating increases. The amount of expenditure in developing the property also increases as the property is developed.
Lifecycle of a property and it’s venture capital analogue.
A property with potential for an economic mineral deposit is much like a start-up throughout its lifecycle from seed stage to IPO. In the beginning there is a large degree of risk with investing in a company with little to show for. But as the company progresses from seed stage to series A, to Series B and onwards our confidence in the companies’ ability to return our investment increases.
As the company progresses, so does it’s valuation and the price you will pay for a unit of shares in the company. Much the same will happen in the life of property with the potential for a mineral deposit to be turned in to a mine. You at first only have to pay a small amount, but it comes with a large amount of risk. But lots of work has to be done before we can be sure that the property will deliver a return. There is, like start-ups no guarantee that our investment will be successful.
Developing a property from first claim staking to opening a mine.
Where the analogy differs from venture capital is that the company investing in the property is paying for work to be done directly on the property. The types of work that can be done usually follows a sequential process. Companies want to get the most confidence in the economic potential of a property, while spending the least amount of money. The risk of drilling in an area where you have not done significant work prior, is enormous and drilling holes is the most expensive part of the exploration process. We want to slowly ramp up the expenditure while slowly reducing the risk on the capital expended in order to develop the property.
Developing the property is usually a combination of geological, geochemical and geophysical work. Finally drilling, is usually the final, most expensive, but often most conclusive piece of work that can be done on a property.
Geological development
Geological development is the oldest and often the first way that a property is developed. We are looking at the surface features of a property. Looking at the way the rocks are formed, if there are faults or noteworthy features.
Mapping
Mapping the area and it’s geological features is the first thing that will be done on a property. Geological maps will look at the features of a property relative to some known point about which we can base our map. It will include all features, and the ways that the rock is formed in certain areas. In the past maps were always physical and so any further study of the area was overlayed with these physical maps. Most maps today are digital and of much higher fidelity. With software packages we can overlay the data collected later with the maps that we create digital.
Trenching and stripping
The rocks in the area should be sampled to be able to determine possible clues for mineralisation. The rocks that we’re interested in can be buried under soil, dirt or sand. To get access to this rock there are two primary techniques. Trenching, involves digging trenches that are sufficiently deep to get access to the rocks. This allows geologists to sample the rock. The trenches can be dug or blasted.
Stripping involves removing top soil from a property so that we can get access to the harder rock underneath. Again once this is done, the geologist now have access to the rock which they can begin to observe, sample and record.
Geochemical Development
In the early days of mineral exploration, prospectors relied much more on experience, knowledge of rocks and cruder forms of chemical assays to determine whether the property they were looking at was a worthwhile to open a mine. Modern technology has allowed us to accurately determine the contents of any random sample to extremely high degrees of accuracy. Given some random sample, we can use modern techniques such as spectroscopy and radiography to pick up the signatures of the specific elements in a sample.
When a sample is collected in the field, it is often sent to a professional laboratory to go through assaying. Here it is important to know with precision and accuracy the contents of the samples being sent to the laboratory. A lack of precision in particular, or a lack of accuracy in assaying the sample, can result in a skewed understanding of what is actually there in measurements of the subsurface. This could lead to overestimating or underestimating the makeup of a possible mineral deposit.
There are several ways that geologist will collect samples in the field so that they can be sent off to a lab to be assayed or analysed. There are varying degrees of expense in these methods, and some are more appropriate than other given the context of the mineral deposit.
Soil sampling
Certain minerals have the ability to move around the subsurface by being dissolved in to other materials that have the ability to move around. This can cause some materials to spread outwards from the central mineral deposit in to the surrounding soils. The soil can then be dug, at an appropriate depth, at varying intervals. This literally means that a geologist will go around the property digging semi deep holes with a shovel or other digging tool. He will measure the position of the whole dug to a few centimetres. The information about where and how deep the measurement is logged and then sample is bagged in a non-interactive way, and is sent off to the lab to be analysed or assayed. The position of the data can then be matched with the assay results that come back from the lab. This allows us to map the chemical composition of the soil such as in a bubble plot map.
Stream sampling
Stream sampling is perhaps most commonly known to most people. This involves taking samples of the sediments in rivers or creaks near what we think may be a deposit. Parts of a mineral deposit being transported around the area eventually find their way in to the sediment of local rivers. Geologists can sample the sediment, taking care not to bias the results in many different ways. These sample can again be sent off to a laboratory. The data returned can be mapped to the locations collected. Note that this does not mean that there is automatically a mineral deposit in a nearby area, as the sediments can be under the influence of many different mechanisms and may be much further from the deposit than we might expect.
Biogeochemical sampling
The plants that grow in areas with higher than usual soil sediments will reflect this in their biogeochemistry. They soak up a lot of the minerals in their roots. Geologist can take sample of the local plants to see if anomalies are also being found in the plants.
Till sampling
Glaciers, are massive natural structures which erode whole landscapes as they move along. They can erode rocks and expose a lot of the rocks natural content from the rocks that they drag along with them. This is known as till sampling. Once again there is no way to know where exactly the sediment is derived from, but we can work backwards from the path of the glacier to see where the mineralisation might lie.
Geochemical development
While geochemical looks at the actual physical makeup of the soils and sediments of an area, geophysical methods tend to look at derived points of data from the structures and minerals themselves. More precisiely we are interpreting the physical properties of the subsurface through the ways those physical properties interact with or produce natural phenomena such as magnetism, conductivity, radioactivity or gravity. These methods tend to be very precise and have only become possible through the use of precise instrumentation and computers. Geophysics has allowed us to delve much deeper in to the subsurface, without actually doing any drilling. We can collect geophysical from the air, satellites, on the ground or down drill holes.
However finding mineral deposit with geophysical methods requires an understanding of the minerals and materials themselves. Some geophysical methods are not suited to detecting certain materials, because the materials or minerals themselves may not interact with that specific geophysical property in a way that is understandable.
Magnetic methods
The phenomena of magnetism effects rocks, as most all rocks will contain some magnetic material. However it differs from rock to rock. Magnetic surveys may pick up on Magnetite or Pyrrhotite, which are magnetically responsive. With this information we can run an arial or ground magnetic survey over an area with magnetometer. The differences in magnetism from one area to the next can be plotted on a map, which can indicate to us any magnetically anomalous areas which might be the result of a mineral deposit.
Electromagnetic methods
When a conductive material has a current pass through it, it will exhibit a response in the form or an electromagnetic field. Electromagnetic methods involve pulsing the earth with an electric charge and then measuring the responses from the fields generated by the conductive materials. We can also look at areas with high resistivity(low conductivity) to show us the inverse. All of this can be plotted on to a map and we can see the areas of high and low EM response. From this we can search for anomalies.
Induced Polarization
Similar to measuring the electromagnetic responses of materials, induced polarization also involves pulsing the ground with an electric current. However, instead of looking at the fields generated, we are looking at the responses of materials once the current being supplied to the subsurface is switched off. Different materials will have different levels of discharge and so we can get a sense of the types of materials that may be in the subsurface. For example sulphides will discharge a large amount of the current they were supplied.
Radiometric surveys
The detection of radioactive substances is an important part of radiometric surveys. Materials such as Uranium, Potassium and Thorium will give of radioactive particles such as alpha and beta particles. These radioactive materials are associated with different types of mineralisation such as Iron oxide copper gold (IOCG), porphyry copper or some gold deposits. We measure the level of alpha and beta particles across an area of interest and we can plot this data on a map. Mineral deposits of interest will show up as an anomaly.
Gravimetric
Each element has in it a different mass. As gravity is a force of attraction on bodies with mass, we can look at the varying differences of attraction between two bodies. Gravimetric surveys involve running highly sensitive sensors over an area of land. We are then looking at the differences in gravitational attraction as we move from one area to the next, this allows us to plot anomalies of gravimetric attraction which might indicate areas of mineralisation with higher density than surrounding rock.
Seismic
The same methods which we have used to measure earthquakes, we can also use to map the subsurface. When a seismic event occurs, the event causes seismic waves to propagate throughout the subsurface. Different subsurface features and mineral deposits will interact with the seismic waves, causing their paths to be distorted. Measuring these distortions we can get a build a picture of the subsurface.
Geophysical methods
Geophysical methods are an important tool in mineral exploration. They can be a relatively low cost approach to mineral exploration compared to other methods like drilling holes or wide geochemical methods. However they are data intensive and require a detailed understanding of geophysics to interpret well. Geophysics also allows us to collect large amounts of data relatively quickly and somewhat inexpensively.
Drilling
The process of drilling holes in to the subsurface is one of our last steps in reducing the uncertainty behind our knowledge of what the subsurface contains. After careful consideration of geological, geochemical and geophysical data, our mineral exploration team may define potential anomalies and hence targets for further exploration. They cannot be certain that the models they develop, that look at geophysical, geochemical and geological data are correct. So holes are drilled in the areas of interest to further reduce uncertainty in a possible anomalous area.
At first only a few holes may be drilled. This is largely due to the risky nature of mineral exploration and the high costs of drilling holes. Drilling 10 holes of 300m each with diamond core drilling could cost anywhere between $150,000 to $450,000. A typical project could have 300 such holes drilled before moving on to developing a mine. So in order to keep costs and risk as low as possible, a few holes will be drilled in a target of interest. The physical rock is returned as a core. This is a cylindrical piece of rock, which can then be sent to a lab to be assayed. With this we have more conclusive proof that an anomaly exists.
Drilling has two types. Reverse circulation and diamond core drilling. Reverse circulation is a cheaper method, but the data retrieved is less rich compared to the data collected from the more costly diamond core drilling. In diamond core drilling, the physical core is returned and we can have information on the depth that mineralisation occurs and the chemical composition of the mineralisation. Reverse circulation returns chips of rock when drilling. The chips are formed while drilling and so precise information about the depth that mineralisation occurred on is more difficult to determine.
Having many holes drilled on a property is a good sign for a property. This is because there is likely a positive showing of mineralisation at high enough grade to support further investigation. As the drilling continues, the mineral exploration team can begin to develop more precise estimation of what is contained in the subsurface. These models have different levels of uncertainty attached to them. The less uncertainty you have in what is actually down there, the more confident you can be in publishing precise resource estimations which may fuel investment in the development of a mine, or the sale of a property.
Resource estimations
Before drilling any holes, we have a a model of what we think the subsurface actually looks like and what it might contain. At this point the uncertainty is so high that any estimate of the resources is so statistically insignificant that no one would take a estimate of the resource serious. To counter this, we start drilling holes in the areas that we think may be interesting. At first, we can drill sparsely to save costs. Then if there are promising signs we can continue to drill to find more information. The ways that we refer to estimates of resources have varying degrees of uncertainty and significance.
Inferred resources.
Inferred resources are the resources that a qualified person might deem to be reasonable to assume are there. There may be a few sparsely drilled holes in an area that is showing significant levels of mineral concentrations relative to the background. However as the drilling is sparse we cannot be certain that this actually means there is a deposit there. We can start to report inferred resources although it will be understood as such.
Indicated resources
Indicated resources are more definitive estimates of what is contained in the subsurface. The holes that have been drilled are less sparse than before, however there is still some uncertainty about definitive claims of mineralisation. Indicated resources are much more valuable than inferred resources as the levels of uncertainty have decreased to an acceptable level. If a project has significant levels of indicated resources then this is likely enough to undergo a pre-feasibility of feasibility study to determine if a mine could be developed on the property.
Measured resources
We can say that our resource estimates are measured, when there is significant drilling on a project with minimal sparseness and low spacing between holes drills. This is a high level estimate and can be used for a feasibility study if there is significant grade and tonnage to warrant a feasibility study.
Reserve estimations
Having knowledge of what is under the subsurface is very helpful. However even if there is definite knowledge of a mineral deposit, including it’s grade and the amount of tonnes it includes, we still cannot be assured it can be a mine. This comes down simply to the economics of mining. If the mine is in a highly remote area, where the nearest hospital is 400 miles away and it’s in a country which has few people involved in the mineral extraction industry, then your costs to operate a mine will be higher. Money may have to be spent on roads, local clinics being built. You may have to higher people from different countries, who may not which to live in such a remote area without higher pay. You might have to pay for electricity to be brought in to the area, as well as water. Essentially the more expensive the mine will be to build, the higher the quality of the deposit you have found has to be. A mineral deposit is a remote area may be abandoned, just due to the costs associated with having to develop a mine there, where a deposit of lesser value might be developed in an area with lower development and operating costs.
In order to know whether our deposit can actually become a mine, a detailed study is done in to the costs that would be associated with turning this resource is to mineable ‘reserves’ . Therefore if the costs will be low, the grade can be lower. If the costs will be higher the grade will have to be higher. The mineable reserves is the percentage of the known resources that can be economically extracted. The reserves set a cut off point. Which is a lower bounded number that determines the minimum grade required to mine in order for a mine to turn a profit. If the resources are deemed to be too low quality then a known mineral resource may be abandoned. If it is deemed to be of high enough quality then the miner may end up proceeding in to development.