By William (Bill) Howald, CEO of Rye Patch Gold Corp.
This near mine exploration investment allows for mine operations to extend their mine life beyond the original feasibility study estimates. Mine geologists have a regular routine like a factory job.
The second type of exploration is called generative exploration. In generative exploration, geologists are in remote areas with little or no infrastructure and must rely on local communities for support or bring their own support. Generative exploration looks for and discovers new mines.
Many times when I go to different mining communities, the fact that the mine wasn’t always there seems lost on the inhabitants. While most know what a geologist is, they never really think about the time when the mine was nothing more than an idea. Before there was a mine and infrastructure, exploration geologist selected an area based on the commodity of interest, geologic environment, and an idea or concept. The concept was tested using the scientific method, which if successful, could lead to the discovery of a new economic mineral deposit.
It takes a small army of geologists, technicians and drillers to set up field operations in the nearest town or build their own camp in remote locations. The exploration group employs local groups and spends money at local hotels; eats at local restaurants; purchases fuel from local gas stations; and receives support from various local businesses.
The exploration operation starts small and grows as success is achieved. Once an economic mineral resource is identified, the group becomes larger as the resource is quantified, and the site becomes an advanced project. Once a positive feasibility study is achieved, permitting, resource delineation, and mine engineering work in concert so a mine can be built, the resources extracted, and new wealth created.
In past years, large mining companies had extensive generative exploration departments that worked exclusively for the mining company to find new ore deposits around the world. The exploration budget for any company is a discretionary budget that is limited by the company’s cash flow, capital projects, and exploration priorities. Over the last 20 years, large mining companies have reduced their generative exploration staffing requirements and have focused funds and manpower on near mine exploration programs.
Free market forces allow smaller discovery-based companies to pick up the slack and fill the niche for new mine discovery. Playing the rule of large numbers, the larger mining companies are willing to fund, participate, and purchase new discoveries from the junior mining sector – roughly 2,000 companies are on the TSE. Most junior mining companies hail from resource-based economies such as Canada and Australia where capital markets and investors know the immense upside value a new discovery can create. The high-risk dollars required for mineral exploration are raised abroad on the Toronto, Sydney, London, and New York stock exchanges. Mineral exploration is high risk, but can provide a high reward return to investor groups. The value curve below shows the share price curve as a company progresses from a new discovery, to building the mine, and mining the resource.
The largest value driver and share price appreciation occurs in the discovery phase of exploration; however, it is the most risky part of the curve. Most projects fail to make a new discovery or find an economic deposit. As an example, statistically, it takes roughly 65,000 projects to find one economic gold mine. You probably have a better chance of being hit by lightening, but it’s the reason gold is $1,200 per ounce, and the reason exploration geologists are a different breed of cat.
Editor’s note: William (Bill) Howald is the co-founder of Rye Patch Gold Corp, a TSX listed company. Prior to joining Rye Patch, he was General Manager of Exploration, United States and Latin America, for Placer Dome Inc. During his tenure at Placer Dome, Mr. Howald was an integral part of the teams that delivered over 100Mozs of gold resources to the Placer portfolio. A number of these resources are now being mined or are at the feasibility stage and heading for a production decision. Mr. Howald was born on the “Richest Hill on Earth” and has 30 years in the international gold exploration and mining industry gained primarily in Nevada, Mexico, and Central and South America.
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