Exploration and discovery: Anglo’s perspective

There are only three ways a mining company can provide growth, contended Graham Brown, head of geosciences and exploration for Anglo American (AAL-L), during a presentation at the recent Mines and Money conference in London: You can discover, acquire or innovate.

Discovery, Brown said, is all about creating value by finding new deposits or expanding existing ones. Acquisition is recognizing value and trying to quantify the blue-sky potential that justifies the premium paid. Innovation is unlocking value through technological developments. He said his job is all about the first way.

As the world’s fourth-largest iron ore producer, the largest platinum producer and the leading diamond producer through its soon-to-be 85% interest in the De Beers Group, Anglo American has made 15 major discoveries over the last 10 years, eight of which were greenfield discoveries and seven of which were brownfield.

While the mining industry’s average discovery rate is one mineable deposit for every 1,000 targets tested, Brown pegs his company’s rate at around one for every 100.

And not just any kind of discoveries, Brown asserted. They are often tier-one deposits – the rare type of long-life, low-cost projects that capture most of the industry’s value. For those kinds of deposits, the industry’s average discovery rate is closer to one for every 3,000 targets, Brown stressed.

“I’m often asked what the key discovery tools are,” the Scottish geologist said with a grin. “I tell them there are four. The first is a hammer, which you hit rocks with. The second is a hand lens, so you can identify the minerals. The third is a big red crayon, which you use to mark a big circle on the map. And most importantly, the last one is a rotary lie detector, commonly known as a drill rig, which you use to test your target with.”

According to Brown, exploration spending across the world is at an all-time high, with over $17 billion spent looking for non-ferrous metals last year. His company was responsible for $136 million of that, spread across 17 countries in six regions worldwide. Nevertheless, grassroots exploration spending by the mining industry as a whole is at an all-time low, with as little as 20% of overall exploration budgets actually spent on grassroots regional programs. The focus for many juniors has been on brownfield and more advanced projects, and recycling old properties.

“The reality is we’re finding fewer tier-one deposits, in general at greater depths and declining grades. And it’s taking longer, and costing more in terms of lead time,” Brown said.

For Anglo American, competing globally requires a global footprint. That means staffing more than a dozen country and regional offices. It also requires funding, talent and time, with a focus on where to explore rather than how.

“When I started in this business, a 1-million-ounce gold deposit was seen as a viable target. The target for many companies today is five million ounces.” There is no shortage of resources, Brown argued, but quality is the real challenge.

His company offsets high exploration costs by selling non-core assets, like zinc and gold projects, as well as projects that fail to meet its minimum investment criteria. After combining these proceeds with a value given to resources delivered, the company can come up with a net exploration cost, which it says has averaged US$25 million a year over the last decade.

“It’s all about people,” Brown concluded. “They will get you in the right place at the right time using the right tools. It’s also about funding. You need it to be consistent, long-term and non-discretionary. Lastly, it’s about time. You need to build knowledge and you need to build capacity – anywhere between five and ten years as a realistic time for a new grassroots discovery.”