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Finding the copper mine of tomorrow:
AN ECONOMIST, A SCIENTIST
AND A GEOLOGIST DISCUSS
RESOURCE DEPLETION
John P. Sykes12*
Daniel Packey2
Allan Trench12
1 Centre for Exploration Targeting, University of Western Australia
2 Department of Mineral & Energy Economics,
Curtin Graduate School of Business
Contents
• The future of copper mining = bigger, badder, more problems!
• The economist and the “opportunity cost” paradigm
• The scientist and the “fixed stock” paradigm
• The “limits” to the “fixed stock” paradigm
• From “fixed stock” to “sustainable development” paradigm
• The exploration geologist’s view:
– The need for systemic exploration for “sustainable reserves”
– The need for forward planning with uncertainty
22 April 2014
Centre for Exploration Targeting: Science Day
Slide 2 of 20
The future of copper mining = bigger,
badder, more problems!
• Lower grades
• Higher capital
• More complex mineralisation
• Uncertain external environment - Anonymous CET Adjunct!
22 April 2014
Centre for Exploration Targeting: Science Day
Copper costs
up, grades
down: - Metals Economics Group
(23 July 2013
Mongolia takes battering
over Rio Tinto’s Oyu
Tolgoi mine - Minweb (19 August 2013
Anglo American
pulls out of Pebble
copper project - Minweb (16 September 2013
Slide 3 of 20
The economist and the “opportunity
cost” paradigm
22 April 2014
Centre for Exploration Targeting: Science Day
Source: Jacks (2013)
Slide 4 of 20
Economists assume inevitable decline
battling with innovation
22 April 2014
Centre for Exploration Targeting: Science Day
Source: Jacks (2013)
No need for exploration?
Slide 5 of 20
The scientist and the “fixed stock”
paradigm
22 April 2014
Centre for Exploration Targeting: Science Day
0
5
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0
100
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800
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Copper Reserve (Mt) Depletion (yrs)
Slide 6 of 20
The “limits” to the “fixed stock”
paradigm
22 April 2014
Centre for Exploration Targeting: Science Day
Source: Jacks (2013)
Slide 7 of 20
From “fixed stock” to “sustainable
development” paradigm
22 April 2014
Centre for Exploration Targeting: Science Day
Weighted average percentage head grades of copper
mines, 1970 onwards
Source: Crowson (2012)
Slide 8 of 20
The copper industry has a long term
‘development’ problem
“…the primary factors that govern whether a given
project is developed will be social, economic, and
environmental in nature.” - Mudd, Weng, & Jowitt, 2013
22 April 2014
Centre for Exploration Targeting: Science Day
Image from the
movie “Avatar”
courtesy of blu-
raystats.com No need for exploration?
Slide 9 of 20
The exploration geologist’s view: less
resource…
22 April 2014
Centre for Exploration Targeting: Science Day
Chart: Cairns, Hronsky, and Schodde, 2010
“…investigate an alternative, less
capital-intensive design of the
Olympic Dam open-pit expansion…
align with the Company’s cost
control strategy in the current
economic environment…”
- BHP Billiton, 6th Dec 2012
Slide 10 of 20
A (reserve) ‘discovery’ problem, not a
‘development’ problem
22 April 2014
Centre for Exploration Targeting: Science Day
Chart: Schodde, 2012
Slide 11 of 20
But we’ve always known this!
22 April 2014
Centre for Exploration Targeting: Science Day
“Now a miner, before he begins to mine the veins must
consider seven things, namely:- the situation, the conditions,
the water, the roads, the climate, the right of ownership
and the neighbours.”
- Agricola, 1556
Image: Wikipedia
Slide 12 of 20
What’s different nowadays?
22 April 2014
Centre for Exploration Targeting: Science Day
Sustainability:
“Development that meets the needs of the
present without compromising the
ability of future generations to meet
their own needs.”
- Brundtland Commission, 1987
“Social” “Equitable”
“Viable”
Sustainable
“Bearable”
Based on: Eggert (2013)
Slide 13 of 20
What makes a sustainable mine project?
2D McKelvey Reserve Box
3D ‘Sustainable
Development” Reserve Cube
Source: Otto & Cordes (2000)
RESOURCES
RESERVES
GEOLOGICAL CERTAINTY
EC
ON
OO
MIC
FE
AS
IBIL
ITY
RESOURCES
RESERVES
GEOLOGICAL CERTAINTY
EC
ON
OO
MIC
FE
AS
IBIL
ITY
22 April 2014
Centre for Exploration Targeting: Science Day
Slide 14 of 20
The exploration geologist’s view: less
resource, but quality decline not certain
22 April 2014
Centre for Exploration Targeting: Science Day
Chart: Hronsky & Groves, 2010
Slide 15 of 20
Personal perspective on forecasting
22 April 2014
Centre for Exploration Targeting: Science Day
"Scythia has an abundance of soothsayers who foretell the future. They are judged by results and the losers are loaded on to oxcarts which are set
on fire.“
- Herodotus, 440BC
(NB: This is a paraphrasing by a former colleague at CRU – John Tomlinson)
Slide 16 of 20
Personal perspective on the future
22 April 2014
Centre for Exploration Targeting: Science Day
“My interest is in the future because I am going to spend the rest of my life there”
- Charles F. Kettering (American engineer, inventor of the electric starter, 1876-1958)
Slide 17 of 20
The future is not unknown, just
uncertain
22 April 2014
Centre for Exploration Targeting: Science Day
Images: Wikipedia
Thomas Bayes (1701-1761)
- An Essay towards solving a Problem in
the Doctrine of Chances
Thomas Chowder Chamberlin (1843-1928)
- The method of multiple working
hypotheses
Slide 18 of 20
Conclusions and further research • Copper prices at real price highs: China and the supply lag
– Is this a long or short term problem?
• The economist and the “opportunity cost” paradigm:
– Relative depletion, declining quality, temporary development problem
• The scientist and the “fixed stock” / “sustainable development” paradigm:
– Relative abundance, declining quality, long term development problem
• The exploration geologist’s view:
– Relative depletion, but can have improving quality, discovery problem
– Need systemic exploration for ‘sustainable reserves’ – HOW!?!
– Need to target ‘reserves’ needed in the future, not now – HOW!?!
22 April 2014
Centre for Exploration Targeting: Science Day
Slide 19 of 20
Further reading
• A version of this article appears in this months Centre
for Exploration Targeting Newsletter, available to
Corporate Members through the website:
www.cet.edu.au
• There is also a poster and extended abstract outside!
• And follow my CET webpage:
http://www.cet.edu.au/about-us/a-z-student-
profiles/john-sykes
22 April 2014
Centre for Exploration Targeting: Science Day
Slide 20 of 20