reducing costs in mineral exploration

Reducing Costs without Compromising Ore Body Value – Part 1: Exploration

By: Erik Ronald, PG
Mining Geology HQ

9 September 2016

(Modified from the original publication in Australasian Institute of Mining & Metallurgy (AusIMM) Bulletin – June 2016)

Geoscientists have an important role to play in improving the bottom line while adding value to mining projects

On Friday 9 September, EY published their “Top 10 Business Risks in Mining and Metals 2016/2017” report. The report highlighted one of the key risks to the industry is a lack of access to capital. Miguel Zweig, the EY Global mining and metals leader stated that mining companies were prioritizing cash generation and preservation due to reduced demand and softer commodity price outlooks.

Productivity in mining is a major concern as the industry is coming out of the back-end of a boom. Explorers have shifted their focus from high growth to capital preservation while producers have changed their focus from “volume at all costs” to “cut cut cut” competing for bragging rights as to who is on the lowest tier of the cost curve. At the moment, cash is king for explorers, and ‘C1 costs’ are the main topic of discussion at Board Rooms around the globe. The industry as a whole is struggling with the transition from a volume business into one of high productivity, reduced costs, and optimizing assets from haul trucks to ore bodies.

This two-part article will examine the role company geologists play in saving costs, improving a company’s bottom-line while ensuring quality and fundamental understanding of ore bodies are not compromised. All too often during times of price drops, geoscientists are made redundant as many companies view their roles as expendable or only required during times of growth. The result tends to be underutilized ore bodies, poor M&A, and high-grading of deposits to meet the short-term desires of analysts. This first part of the article examines how geologists in the exploration space can ensure projects are progressing while minimizing spend while the second part reviews the production side of the business. Mine and Resource Geologists can significantly contribute to value-add projects at low costs by stepping away from a short-term mindset and understanding the entire value chain.

The fundamental question to ask is:

Amongst the talk of restructures, layoffs and “right-sizing”, can geoscientists directly influence and improve a company’s capex and C1 costs without compromising ore body value?

As a geoscientist, I believe that we are well placed to directly contribute to cost reductions and add significant value in the current environment by working smarter. There are commonly two ways for geoscientists to react when markets become stressed and companies aim to reduce spend: 1) get stressed and complain to co-workers, spouses, and the family pet and potentially become the passive victims of cost cutting; or 2) take an active role in challenging the perceived notions of what can be done with reduced budgets and then provide real solutions. It is the responsibility of geoscientists to ensure that value is not destroyed when times get tough and directly contribute to ‘smart’ cost cutting while not sacrificing the quality of Mineral Resources or increasing mining risk.

Mineral exploration

Although exploration and evaluation (E&E) activities are categorized as ‘indirect costs’, they are viewed as capital intensive and are therefore typically reduced or cut altogether when commodity prices fall. E&E is the true research and development (R&D) of the mining game. New discoveries and extensions to existing Mineral Resources are only found through greenfields and brownfields work. Unfortunately, E&E is also akin to R&D in that they both experience budget cuts when the market softens and short-term pain dominates over long-term goals. Therefore, we cannot continue to operate under the same paradigm that worked during the previous boom years. Now is the time for geoscientists to be smarter and more creative with E&E.

When commodity prices are down, it’s not just the producers that tighten the belt. Take advantage of a soft market as it is an excellent time to establish closer relationships, partnerships, and renegotiate agreements with contractors and consultants. Many mining service providers have struggled due to years of high-capital spend to compete followed by rug being pulled out from under them. Most service providers are accommodating to price reductions when their options are limited. Drilling costs per meter, assay costs per sample, geophysical surveys, and other costs have reduced significantly in tandem with metals prices over the past 24 months. From my time as a service provider, I can easily say that some work is better than none at all, and a company that is willing to partner, negotiate, enter into longer-term agreements, or find creative solutions would be well-received in today’s environment. That said, due to the recent increase in activity in the gold and lithium exploration segments, many drillers are starting to see a significant pick-up in business. Just as in investing, the periods of “bust” provide opportunities to those willing to be brave and maintain long-term focus.

Be Smarter in Acquiring Data

Exploration geologists should review current methodologies for data acquisition. Diamond drill core is hard to beat for gaining subsurface geological information, but if your budget has been dramatically slashed, there are other, less costly options available. Reverse circulation (RC) and air-core drilling are cheaper options if logging and assay are essential but core is not. Pre-collaring holes using RC or mud-rotary are good options if sampling overburden isn’t critical. Additionally, the use of downhole wedging from a parent hole when your target is deep can save total meters drilled by using the ‘mother hole’ approach with multiple daughter-holes from a single pre-collar.

For more greenfields work, surface geochemical sampling campaigns can be relatively cheap and effective and we mustn’t forget about good old-fashioned geological field mapping. If you are fortunate enough to have surface outcrop exposures, company geologists should be out in the field mapping. As an industry, we seem to have forgotten the art of creating three-dimensional geological models without drilling or complicated technology. Mapping incurs minimal costs while allowing geologists to gain a detailed understanding of site geology.

air core drilling

Using cheaper air core drilling along previously disturbed areas.

Know Your Data

Historical data reviews can be a treasure trove of ore body knowledge, with costs limited to finding, validating, scanning/digitizing or simply incorporating the old literature, core, or data. As the industry takes a breath after a boom, exploration teams tend to find an abundance of hastily collected data that wasn’t necessarily well interrogated. Personally, I have found un-sampled core, geochemical data not in a database, old hand-drawn underground maps, water bore logs, thin sections from graduate student projects, pit mapping on Mylar, and long-forgotten about archived reports. I know of one instance of a core re-logging program that ultimately found a new large-tonnage, low-grade target based on improved understanding of host mineralization. All of these valuable data were incorporated into the overall ore body understanding, geological models, and database at the minimal cost of labor. It was merely a matter of geologists understanding what was useful, performing fundamental exploratory data analysis, and transferring that data into value for the business.

mineral exploration cost savings

Historic underground workings.

Prospect Pipeline

Revisit your prospect pipeline, interrogate the ‘tier-two’ exploration prospects with a more careful eye and kill off the ‘dogs’. Tier-two projects are ranked below ‘high-priority’ projects during boom times and therefore are ignored or forgotten about as priorities change. However, some of these tier-two projects will still be valid and highly prospective, but may have fallen out of favor due to outdated reasons and continue to be unjustly discounted. Inversely, review the lowest-tier projects in your pipeline and decide whether retaining the exploration licenses is still valid. Instead of continuing to spend precious time and budget on these projects, consider sale, joint venture, or simply relinquish the holding to effectively increase your budget on the more prospective ground.

mineral exploration prospect pipeline

An example of a prospect pipeline

Public Data

Scour government databases. Many geological surveys, State/Provincial and Federal government agencies maintain regional data available for free along with specific information on previously held tenements. Though a lot of this information may not provide great detail to your specific project, it’s an underutilized resource that many prospects can be discovered simply through interrogating old data, or a new set of eyes on old information. Much of the public information is available in GIS, Google Earth and other easy-to-use formats which makes integration into existing systems simple.

For an example, read about innovative techniques for lithium exploration using open-sourced data available from local governments.

Bring Along a Friend

Lastly, consider partnering to share the exploration load. Bringing on a joint venture partner to share the budget and risks to advance projects is a great way to improve your position for when demand and prices rebound. This philosophy can help to share new ideas, challenge interpretations, and learn from the different backgrounds of your joint venture partners.

I hope you’ve enjoyed this article reviewing what geoscientists can proactively do to contribute to the bottom-line and preserve ore body knowledge. Check back in a few weeks to read Part 2 of this article as we dive deeper into geological aspects of mine production. Don’t forget to leave a comment plus, if you liked this article please share it with friends on social media using the buttons below.

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Posted in Mineral Exploration.


  1. Erik,
    You touched on this in the article, but I wonder if there is any value in a mining company acting in a truly counter-cyclical fashion. That is, when metals prices are up do the aggressive cost savings and bank as much cash as possible. Then when prices drop and everyone else is offloading properties and services for pennies on the dollar use that war chest to scoop up everything you can. I think there would be little competition as everyone else spent the boom years wasting money on expensive acquisitions and increasing production with no regard for profit margins. Do you know of any companies, successful or otherwise, that have used this strategy?

  2. I like the way you’re thinking! There certainly needs to be more focus on long-term strategy beyond continuous overreaction to market ups and down. I can think of two specific examples: 1) This is simply tier 1 assets. When you have a deposit that’s big enough, high grade, long life and expandable through brownfields you can take the luxury of focusing beyond short term (think Escondida, Grasberg, Cortez, Olympic Dam, etc). 2) Check out what Northern Star Resources did a few years back when all the major gold producers were selling assets to reduce debt. They picked up some mid-range deposits in a world-class district for a song, spent a lot of money on exploration, and are now swimming in cash. Brilliant stuff!

  3. exploration is definitely a cash guzzler and mangements will try to reduce it to the maximum extent possible .As chemical analysis is quite costly and time consuming, some smart interdisciplinary work needs to be done by the geologist. , like searching for physical / biological indicators and reducing the number of samples assayed to the minimum possible and using geostat techniques to fill out the gaps initially , then if warranted go for more chemical analysis , use handheld XRF`s and XRD`s to get a feel of the field and detect any alteration patterns

  4. “ There is no substitute for the geological map and section – absolutely none. There never was and there never will be. The basic geology must come first – and if it is wrong, everything that follows will probably be wrong” – Wallace (1975) Mining Engineering, 27, 34-36.

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