Building a great Resource into a great Project

Taking a successful exploration project to the next step in evaluating its potential for development is a long and complex process. It requires a confident management and technical team that is adaptable and willing to roll with the punches.

Mineral Resources are gradually lowering in average grade and being found under more cover. Between 1985 and 2005 average grade of copper mines in Australia decreased from 2.2% to 1.1% and zinc mines from 9.1% to 8.3% (Eggert 2010). This trend has continued and applies across virtually all commodities. Margins in minerals projects are lower and simply building a basic processing plant that has been used elsewhere is a sure way to destroy value. We are no longer in the 1980’s when Western Mining could build the same Carbon-in-Pulp plant on every new gold resource and make money. Lower grade resources need innovative thinking in mining and processing to ensure that they provide the best returns.

The steps for project development are well established, focusing on reducing risk and providing a pathway to make an informed investment decision. There are many competing factors that need to be considered at each stage, including but not limited to:

• Establishing options for processing
• Ensuring that resources are sufficiently well defined to support forward looking statements
• Planning for ore reserves
• Environmental studies
• Community and stakeholder engagement
• Marketing
• Investor relations

Getting the process right can de-risk the project and build strong investor confidence in the management team. However, getting it wrong will destroy much of the good work the exploration team has done in finding a good resource.

The development phase is also unfortunately the easiest time to destroy shareholder value. It is a period where the focus is on reducing project risk and that can mean slow news flow and reduction in resource size. This can be avoided with careful planning of positive news to highlight process and keep the market informed on the project status.

The Problem

Project development requires a broad range of skills and experience. While the individual steps are well defined, moving from scoping study through to feasibility study, it is critical to address all the relevant sub-steps to minimise risk as the project moves forward.

This period is often associated with reduced stock prices as there is less positive news flow than during the exploration phase. This results in budget pressures that can seriously impact the development process if not well planned for. Often this leads to additional pressure on the management team, driving budget driven rather than data driven decisions.

Engineering companies are very skilled at bringing together well-defined projects but bring overheads to match. It is important to have the right technical support to provide direction to engineering companies doing design and maintain the context of the bigger project development picture, to ensure that all the key steps are covered.

In addition, there is greater focus on forward looking statements on the ASX and other markets. Since 2016 more rigorous guidelines have been in place for ASX compliant scoping studies that go beyond the conventional engineering definition and require companies to have a reasonable basis for all forward looking statements. This adds a lot of pressure early in the project and if not considered will lead to completion of studies that cannot be published.

The Solution

Engaging a skilled and experienced owners’ representative early in the development process can greatly reduce risk and limit wasted spending. It is important that this representative brings specialist skills to the project team but has experience across all the required disciplines and has run through the process before.

This is especially important for listed companies where requirements for reporting of study results are complex and require a deep understanding of the full process.

We have found great success in working closely with companies as part of the management team to navigate the development pathway. By being involved early and integrating technical development with all other steps we can drive a streamlined process that doesn’t miss critical steps and reduces the chances of needing to go back and redo stages.

Conclusion

Taking a mineral resource from exploration to an operating mine is a complex and exciting process. There are plenty of opportunities to add genuine value, but it is also a time where the wrong decisions can quickly destroy value. For junior companies taking this step getting the right support is critical in reducing risk and ensuring that shareholder value is maintained and grown through the process.