A Simple Solution to the Mining Crisis

Accounting giants PwC see the mining sector embroiled in crisis.

The group recently released a report highlighting a number of systemic issues weighing down the minerals sector. High costs, poor performance, and jitters about commodities in general are all conspiring against mining companies.

The report points out a number of major challenges ahead for the industry. One of the major ones being: where will grassroots mineral discoveries come from?

As the report notes:

“Historically juniors have played a critical role in finding new assets, but with no money, how will they fund grass roots exploration? The identity of who will find the greenfield discoveries seems ever harder to determine.”

Indeed, funding is drying up for exploration (at least in traditional equity-market settings). But here’s something else to consider: the performance of the exploration sector has been abysmal, even when companies had ample amounts of money to spend.

The problem is not so much the overall amount of funding. It’s the fact that most companies spend exploration dollars on things that don’t help find ore bodies.

Expensive geophysics gets flown because, well, that’s what you do. But too often, management doesn’t know how to interpret or use the results. Or the data from an ill-planned program is not really helpful in finding the target mineralization type. I’ve seen a lot of expensive reports end up on shelves gathering dust.

The basic science of exploration is simple and surprisingly cost-effective: you explore. Good geologists get out in the field, walk around, and look at rocks. They know what they’re looking for, and they keep looking until they find it.

Yes, more-sophisticated techniques can help in some cases. But there’s no substitute for leaving boot-rubber over a lot of miles of outcrop. And boots are cheap. Ditto, camping supplies, hand lenses and truck rentals–the major expenses involved in a field mapping program.

Taking this approach means you need to be a little selective. You need to go places where there are rocks sticking out of the ground. Jungles and deserts are tough.

But there are plenty of places on Earth that fit the bill. Maybe the current drop-off in exploration funding that PwC is worried about will force us to think more about where we should be going to explore more easily and cost-effectively. After all, why make an already-difficult business more nail-biting than it has to be?

Here’s to picking your spots,

Dave Forest

dforest@piercepoints.com / @piercepoints

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