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FORUM Sun 19/05/2013

West End feedback: Try sometimes

18 April 2012

THE recent “View from the West End” column on exploration entitled “Try sometimes” garnered a strong response from readers, most of whom broadly agreed with many of the points made about the trials and tribulations of discovery.

Selected edited comments included:

“I think there were some pretty good points. In particular, that exploration is a complex multistage business that requires all the components to work well in order to have success. I also think that the point about the interface between the science and business of exploration is a good one. To manage this interface well (and by extrapolation, the entire exploration process) it is very important to understand well both sides of this interface, not just be an expert on either the business or science. This is something that the big end of town has not really got very well yet, by and large.

“One factor relevant to some of the anecdotes that were not mentioned was the context – how the times that some of these decisions were made-in differed radically from our current reality. For example, to take the Telfer example (which was a WMC copper not nickel exploration project by the way), this occurred in a context (early 1970s) where the gold price had been more or less fixed since the end of WWII, the largest gold producer in Australia was Tennant Creek, and most companies had explicit policies against exploring for gold (as in later years they would have for uranium). I remember very well (as a 12 year old kid) that week in Kalgoorlie in 1975 when Mt Charlotte, the last operating gold mine closed. Luckily, a state government subsidy of $500 000 came through so it reopened again the next week and shortly after Homestake, an American company bought a half share, which secured its future. I also remember that over half the businesses in Hannan St that year were boarded up. Telfer itself was a very marginal operation when it commenced production in about 1979 but obviously benefited from the major increase in gold price that occurred in the early 1980s.

“I actually think most of the stories in our industry we tell about missing deposits are really stories about being in the wrong time at the right place.”

Mining consultant, and highly regarded exploration identity.

“It's a neat article. Some comments: if you go back to the ‘glory days’ of Western Mining you'll find the mine shafts were named after the drillers who drilled the first hole, not the geologists, which says a bit about what you're saying about ‘discovery’. You're right about Telfer. WMC sampled it and analysed for copper, not gold. They did a retrospective and the samples did in fact sample the deposit. But at that stage the gold price was low, and analysis was expensive. I wouldn't say arrogance, just budget constraints and very model driven. WMC did find Olympic Dam on that basis - even though it was the "wrong" part of the model. I wasn't there at the time, but the internal story was that they were looking to confirm the source as much as the deposit. In one of the programs I ran at WMC we only had enough money to analyse every second stream sediment sample. I went for the even numbers and we got Yandan, the odd numbers would have got Twin Hills/Lone Sister.

“It's an economic decision - and always was. It's just that in the past the ‘good’ majors like WMC educated their scientists to give them the skill set to make the financial/commercial decisions, rather than someone with financial skills but no - or minimal - exploration expertise. I think that's the difference. WMC had a program where you could study on full pay for one year and half pay for a second at places like Queens University, Ontario. And they used to bring Prof Brian McKenzie - from Queens - out to give in-house courses on financial modelling - DCF, IRR and NPV modelling - and to financially evaluate exploration expenditure - how you are going within WMC and against the broader industry. It was great stuff.

“You know an MBA degree was originally designed to give an engineer the financial analysis skills and leadership/management skills to move off the shop floor and into executive ranks. Now MBAs are being done by Economics graduates and lawyers. A complete waste of space. And a de-rating of scientific and engineering practitioners - who are probably far smarter than the financial types now in charge.”

Analyst and self-dubbed “opinionated old fart”.

“So true! You wonder if it will eventually go back to ‘science’ driving exploration. I also think technology will play a greater role as we start to explore the next layer down of the earth’s crust. Slightly harsh on his view of iron ore as finding it is relatively easy but finding a reserve is possibly harder than a gold reserve. Not just from an infrastructure stand point but from a material type; chemistry and physical properties. I guess if the volume is there then you just create the ‘market’.”

Junior exploration company executive (previously involved in Simandou discovery).

“Whilst I accept the general point, I do think it is being a bit harsh on WMC missing Telfer. Arrogance is probably the wrong word here – at the time, the gold price was so low that no-one (absolutely no-one) was exploring for gold in Australia. It was not even on people's radar screens – there was only one gold mine working in Kalgoorlie (Mt Charlotte), and even that was struggling to break even, so in those circumstances its hardly surprising Telfer was missed – not so much missed, gold was so out of favour that a Telfer would not have been considered of interest even if it had been found (although it could have been parked for future ‘rainy days’).”