To celebrate it’s 10th anniversary, MiningIR will be attending this year’s co-organised MDSG, AMA, MinSouth & SEG conference ‘FINEX‘. Here we discuss the importance of such events, crossing the lines between academia and industry in the UK market.
Financing exploration is never easy. Unlike manufacturing, where costs are known and an established price for the finished goods can be estimated against peers, exploring for minerals has an almost endless list of unknowns including the final price of the mined commodity some years hence. It makes you wonder why anyone does it!
Of course the obvious answer is demand, driven by rising living standards and increasing population across the world. For example global copper production in 2017 was, according to the United States Geological Survey mineral statistics, 19.7 million tonnes of metal; in 1967 4.6 Mt, and in 1917 1.4 Mt. Revalued to 1998 prices the cost per tonne of metal was $3860, $4,100 and $8,190 respectively. This means that globally miners have to find more metal from deposits that have less metal per tonne of ore (the near surface high-grade ones have already been found) for less money.
The next major problem is not exploration expertise but the financing to do it. Exploration is expensive, costs are often multiplied by the remote regions in which it takes place, and although carefully planned and executed there is no guarantee of success. Technical advances in remote sensing, geophysics and geochemistry have expedited exploration but the ultimate quantifying tool is the diamond coring drill and the cores it recovers from the exploration target, identified by the combined geological knowledge of the exploration team. At average prices of around $200 per metre, drilling is expensive. For example exploration drilling to define the contained resource at the Kevitsa nickel-copper deposit in Finland totalled 11,400 m.
It is not only resource definition that makes a mine. Ore grade, metallurgy, process technology and capital cost all add to the risk factors in development. Clearly those that invest and fund an exploration project look forward to the repayment of loans with interest or a capital appreciation of their shareholdings. As the risks involved are significant the greater the understanding between explorers and funders the better. That accepted there is, particularly with junior company exploration projects, the added risk of being first in jurisdictions that, for want of a better term, have significant political risk.
Bringing the financier and the explorer together has been and remains the purpose of the FINEX conference, a biennial event held at the Geological Society in Piccadilly. The originator of the series was Bob Foster, then CEO of Stratex International, an exploration and mining company with interests in Turkey and Africa. FINEX has always enjoyed the support of the Applied Earth Science division of IOM3, the Mineral Deposits Study Group of the Geological Society, the Association of Mining Analysts, the Society of Economic Geologists and other industry groups. The conference organising committee draws on the expertise and the industry contacts each organisation can bring.
This year FINEX’18 is to be held on the 17th -18th October, which marks the 10th anniversary of the first conference, FINEX’08.
Each FINEX reflects the technical and economic conditions that affects the industry at the time. Exploration is at the front end of investment cycle and as a programme can take on average five years, and sometimes much longer, to reach the decision point to build a mine. Since 2008 we have seen boom and bust twice with the latest recovery a slow motion affair. This cycle is always reflected in the topics and views of the presenters. The gold price hit record highs in the late 2000s, whilst 2010-2011 was focused on supply of critical metals (Rare Earth Elements). More recently, the quantification of risk has been in focus, and since 2017, the availability of battery metals (lithium, cobalt, vanadium etc) has been the hot topic within the mining world.
A prominent feature of the FINEX series is the Julius Wernher lecture, which will be given this year by Dr Dick Sillitoe, one of the industry’s most successful explorers. It is a reprise by Dr Sillitoe whose inaugural 08 lecture focused on the science-driven successes of copper and gold exploration in the Andean region of South America. Later Wernher lectures included Neil Philips of Melbourne University, adding value to gold exploration; Graham Brown, Exploration Director Anglo American, views of the mineral potential of Brazil; Harry Parker, technical director AMEC on recent resource estimation advances; and Louis Rozman, chair of the AusIMM VALMIN committee, on the criteria required to determine a valuation of minerals in the ground.
Julius Wernher was one of the founder members of the South African mining industry. On his death in 1912 Wernher left a fortune of £11.5 million, far more than many of his colleagues, as well as a large art collection, and a number of houses. He was a member of the Haldane Committee that led to the formation of the Royal School of Mines in South Kensington.
FINEX has always showcased the latest developments in exploration science. As most near surface economic deposits have already been found attention has become focused on deep-level exploration. This includes geophysical techniques, ground probing radar, division of continents into favourable geological time-slices, and use of drones.
Before any significant money can be raised for continuing exploration some idea of the amount of mineral or metal must be estimated and reported. This is the role of the feasibility studies that use data from surveys and drilling to ascertain the amount of metal, and its value in the ground. From scoping study to definitive, these plot the degree of increasing certainty of the content and extractability of the mineral.
Positive feasibility leads to valuation, the critical part in attracting investment. Actual extraction of material, including oil, offers the investor probably the best opportunity to maximise returns, and the earlier the investment the greater return. The converse is risk, for proving a resource has many stages at which the project may fail. FINEX has illustrated these challenges of the past, and future scenarios.
Presenters at FINEX involved in financing often have their own valuation and investment criteria. What is apparent that for juniors who can provide 50% of all exploration money, equity finance is the favoured (and possibly only) option, as banks do not see any security for loans based on what might be in the ground. As development progresses and returns look more promising then loan finance may be had. For the largest companies, self-financing is an option, however it comes with a huge burden of risk.
Plans for this year’s FINEX are well advanced with full list of high profile and expert speakers. It is to be held at the Geological Society in Burlington House on the 17th-18th October. Full details can be found on the IOM3 Applied Earth Science Division website, and on www.londonfinex.com including programme, registration, and presentations from past conferences. Membership of any mining-related societies means a 20% discount on the delegate fee.
MiningIR.com hosts a variety of articles from a range of sources, our content, while interesting, should not be considered as formal financial advice. Always seek professional guidance and consult a range of sources before investing.