Hronsky - Session 1 - Strategic Exploration Management

KIGAM International School for Geoscience Resources
Module 3:
Exploration Management and
Targeting
Jon Hronsky
21-25 March 2011
KIGAM International School for Geoscience Resources March 2011 1
Course Overview
S
Session
i 1:1 Strategic
St t i Exploration
E l ti Management
M t
Session 2: Mineral System Science
Session 3: Mineral Exploration Targeting Science
Session 4: Mineral Exploration Tactics
Session 5: Human Aspects of Mineral Exploration
1
Module 3:
Exploration Management and Targeting
Session 1:
Strategic Exploration Management
Jon Hronsky
21-25 March 2011
Mineral Exploration Principles,

Philosophies and Culture
2
Overview
Mining Industry Environment
Roles of Mineral Exploration
Value of Exploration and Exploration Opportunities
Commodity Portfolio
Acquisition and Exploration: Buy or Explore?
Brownfields and Greenfields Exploration
Greenfields Exploration Philosophy
Luck and Persistence
General Role of R&D in Exploration
The Importance of Culture

(External / Demand)
China will continue to drive global metals demand
Other emerging countries will have significant impact

on demand
Long-term demand and price forecasts strong
Governments taking note (higher taxes & royalties)
Sovereign gold-buying
3
Mackenzie (2010)
7
Harding (2010)
4
Walsh (2010)
Albanese (2010)
10
5
Albanese (2010)
11
Albanese (2010)
12
6
Barrick, TD Newcrest Conference, Jan. 2011
13
14
7
(Internal / Supply)
Excellent cash flows
Re-emergence of mid-tier companies
Resources and grades dropping at flagship mines
Scarcity of new high-quality projects
Project permit timeframes longer
Exploration spending increasing
Looming shortage of qualified & experienced people
Harding (2010)
16
8
Harding (2010)
17
Albanese (2010)
18
9
(US $ 7.32 Billion in 2009)
19
20
10
Implications for Mineral
Exploration
Robust exploration spending to continue

Need to replace resources
Grades declining
Need to find new high-quality deposits
Innovative targeting
Technology
Commercial risk management
Need to find and develop talented people
11
Fundamental activity that locates minerals required/desired

by global society
Fundamental business activity in mining companies of
various scales:
Supports sustainability of existing mining and processing
operations
Provides high-risk / high-reward (and relatively low cost)
p
option for new business growth
g
Business activity that attracts speculative investment (e.g.
many junior exploration companies)
This course focuses on mineral exploration in the mining

company context
Mineral Exploration in the

Mining Company Context
Essential component of most mining operations and

mining/processing complexes
Maintain / expand resource base
A relatively low-cost (but high-risk) growth alternative

New discovery that supports existing commodity business units
Important
p component
p in assessment of acquisitions
q
Innovative R&D that identifies new business opportunities
Investment alternative (e.g. Tecks investment in Diamond

Fields during Voiseys Bay discovery)
12
Important Concepts in this Course
Expected Monetary Value (EMV)
Probability of Success & Base Rate
Risk Preference (Utility Theory)
Long-Term Option Value
Exploration Search Space
False Positives & False Positive Rate
Corporate Growth Strategy (1)
Mining companies have a number of strategic options for

growing the business:
Merge with or acquire similar producing companies
Acquire advanced projects and build new mines
Invest in mineral exploration to discover new deposits which
can be mined profitably (greenfields and/or brownfields)
Diversify into non-mining businesses
The growth path chosen will depend on a combination of:

Company balance sheet strength
Personalities of key leaders on Exco and Board
Shareholder composition and influence
Risk preference (in part related to above three)
Organizational capability
13
Corporate
p strategy
gy in mining,
g, if robustly
y developed,
p , will
consider the role of mineral exploration in the business and its
relationship to other growth options
The integration of corporate strategy and exploration strategy

will drive decisions regarding:
Desired commodity portfolio
Balance between acquisition and exploration
Balance between greenfields and brownfields exploration
Approach to opportunity generation in exploration
Industry environment and Corporate requirements and

preferences will impact decisions regarding exploration
strategy and style
The study of decision-making under uncertainty (developed in

economics, game-theory, decision-theory, utility theory) helps
us understand aspects of these decisions, includingg the value
of exploration opportunities
14
Value of Exploration and
Exploration Opportunities
Exploration Value Proposition
Bottom line: Exploration is a business that requires

positive return on investment over time
A relatively modest return may be acceptable in certain

circumstances, e.g. sustaining a resource base
The goal of most companies and individuals that invest

in exploration is a very high return on the investment
over a reasonable period of time
Giant greenfields discovery
Find significant hidden value in existing asset
Junior speculation
15
Discounting for Risk
If economic metals / minerals might be present in a given

opportunity how likely is it that we can find them and at what cost?
opportunity,
The value of mineral exploration opportunities needs to reflect (i.e.

discount) their typically high risk
Net Present Value (NPV) calculation accounts for the time value of
money but not the probability of a successful outcome
E
Expected
t d Monetary
M t Value
V l (EMV) isi a useful
f l method
th d for
f assessingi the
th
risk-discounted value of exploration opportunities in the context of the
probability of exploration success
There are various methods of valuing individual exploration

opportunities which we will cover later in the course
The EMV Method
Thi
This method
th d calculates
l l t an Expected
E t d
Monetary Value (EMV)
Usually based on a Decision Tree of an

expected exploration program
In theory, the most logically correct way to

value an exploration opportunity
16
The EMV Formula
Ps
$ NPV
?
Pf $ Costs
EMV = {Ps * (reward NPV- cost)} - {Pf * failure costs}
Ps = probability of discovery
NPV = net present value of discovery
Pf = probability of failure = (1 - Ps)
Failure costs include present exploration +/- divestment costs
What does EMV really mean?
EMV is the weighted average of all probable outcomes for

an exploration project:
These include the small probability of discovery of a very
valuable deposit and the high probability of expenditure of
the exploration budget with no success
Another way of thinking about EMV:

If we explore a large number of projects with a similar risk
profile, it should represent the overall average project result
If EMV >0, then if we explore enough similar projects we

should eventually make a positive return
If EMV <0, then the more similar projects we explore, the

more likely it is that we will destroy value
17
Assigning Probabilities
The greatest uncertainty with application of the EMV method is

assigning Psuccess values
In practice, can often establish reasonable general Psuccess values:

based on established base-rates either in the province of interest or in
the case of early stage projects, a province considered to be similar
This can help us value a portfolio of similar opportunities
Much more difficult to establish meaningful Psuccess that relates to

individual opportunities
Academic and industry studies of exploration success rates give

us some guidelines
Companies may find valuable information in their historical
exploration performance data
McCuaig 2010
36
18
37
WMC Resources
Historical P Success 1955-2001
Bauxite
Iron Ore
Ni Laterite
Ni Mafic Intrusion
Coal
Ni Komatiite
Uranium
Cu Fe-Oxide
Cu Porphyry
Au Orogenic
Diamonds
Pb/Z
Pb/Zn
Au Epithermal
Other
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
From Suchomel (2003)

38
19
Risk Preference
In the study of risk associated with commerce, Utility

Theory seeks to understand the issue of risk-
risk
preference and how it affects decisions such as the
price we are prepared to pay for an asset
In most cases we will not be risk-neutral when making
decisions but rather be influenced by our risk preference
Risk preference is influenced by:

Extent of financial assets
Goals: short, medium and long term
Capacity / patience to manage risk
Utility Theory concepts:

Certainty equivalent value
Risk discount
Risk tolerance
Risk Preference: An Illustration
Which scenario would you prefer?

A) a sure gain of $5000, or
B) an opportunity to play a heads and tails game where if the
coin comes up heads you win $20 000 but if it comes up tails
you have to pay $10 000?
Both scenarios actually have the same EMV ($5000) but most
people would prefer the sure gain ie demonstrate a risk
preference
Someone who was risk-neutral would not care about which

alternative was selected
In the real world risk-neutral behaviour is only observed where

the stakes are very low in a relative sense (eg a greenfields
exploration project in a major mining company)
20
EMV and Market Valuations
In theory, because EMV is a measure of the value of an

exploration opportunity, it should also establish the price at
which we would buy or sell the opportunity
In practice, market valuations are often significantly lower than

EMVs for early-stage projects because of risk preference (i.e.
additional discount on value)
M k t valuations
Market l ti may be
b significantly
i ifi tl hi
higher
h than
th EMV forf
certain advanced-stage projects for similar reasons of risk
preference
Typical Profile for a Successful

Exploration Project
Everyone wants
to buy here
ket Valuation/EMV
1.0
Exploration
provides an entry
here
Mark
0
Early Stage Project Advanced Stage Project
Significant Drill Hole
Intersection
42
21
Practical Implications for
Mineral Exploration
Early-stage exploration projects are inevitably strongly

undervalued by the market relative to EMV
In theory, this creates a market inefficiency with the potential

to be exploited by a patient investor with a risk preference
characterized by a higher risk tolerance (i.e. lower risk of
gamblers ruin)
In principle, companies that have a higher risk tolerance

should have a significant long-term competitive advantage in
early-stage
l t exploration
l ti if they
th choose
h to
t exercise
i it
Very large companies typically have a competitive advantage

over moderate-sized companies in making high-cost
acquisitions; therefore exploration / discovery may be
critically important for medium-sized organizations
Commodity Portfolio
22
Commodity Portfolio
Commodity portfolio in a large company is usually established by

the Exco / Board as part of the Corporate Strategy
May be based on external detailed commodity analysis
Exploration may be asked to contribute ideas but is usually told what to
look for (e.g. underground bulk-minable copper deposits)
In some medium-sized and small companies Exploration may select

commodities to explore for
Need to understand basic business parameters of commodities as well
as key exploration characteristics, e.g.
Diamonds can produce good cash flow but are very hard to find
Nickel is a more difficult business to enter than copper and quality
nickel sulphide deposits are harder to find than porphyry copper
deposits
Commodity Portfolio:
Bulk Commodities are Different
Bulk commodities primarily include iron ore, coal, bauxite

(nickel laterites share many (but not all) attributes)
Bulk commodities are typically near-surface and exhibit

significant lateral extent and continuity
Economic value of these deposits strongly leveraged to

infrastructure-related factors (i.e. discovery step does not
generate most of value):
Particularly
P ti l l ports,
t railways
il and
d energy supply
l
The inventory of known undeveloped deposits can be

considered to form a queue from those widely perceived to
be most likely to be developed in the near future to those
least likely
23
Exploration Strategy
for Bulk Commodity Deposits:
The Queue-Jumper Model
To create value in bulk commodity exploration, we need to successfully
jump the queue
This means acquiring a deposit at one position in the queue and moving
it to a more advanced position ahead of other deposits
Several ways to do this:
Improve resource quality and/or size by more detailed geological delineation
or extensional success
Anticipate a market change before others
Anticipate infrastructure changes before others
Anticipate political changes before others
Anticipate changes in ability to access resource before others (e.g. shrinkage

of Northern Sea ice cap)
Caution: If you acquire a deposit too early and take too long to develop
it, the government (any government) will take it off you!
Creating Value in
Bulk Commodity Exploration
Population of undeveloped bulk

commodity deposits
Move rapidly to here

Entry Cost
Acquire
q cheaply
p y here
Perceived Likely Time to Development
24
Acquisition and Exploration:
Buy or Explore?
Acquisition and Exploration
Acquisition and Exploration are complementary parts

off an iintegrated
t t d corporate
t business
b i development
d l t
function
Collectively they target the entire spectrum (project

risk vs. entry cost) of entry points into new
opportunities
Exploration has a critical role in adding value to the

acquisition process
Acquisition may unlock significant exploration

potential
25
A Spectrum of Entry Points for
New Opportunities
High
h
Exploration
Many
zombie
Project Risk
projects
P
Projects
dont Operating
example corporate Businesses
Low
exist risk tolerance limit
Low High
Cost of Entry
Comparison of
Resource Acquisition Strategies
Exploration Target Size Target Risk Potential Entry Cost

Category Return
Greenfields Large High Very High High
(challenging (big deposits (challenging
cover/environment) found early) cover/environment)
Brownfields Medium Medium Moderate Moderate
(residual (local knowledge + (big deposits (Local
endowment) infrastructure) found) infrastructure)
Mine-site Small Low Low-Mod Low
(
(ore body
y ((well understood)) (
(favourable
extensions) economics)
Acquisition Variable Low Low Very High
(parameters well (market value)
constrained)
Secondary Variable High Low Moderate-High
Evaluation (zombies) (new tech, etc.)
Modified from Guj and Bartrop (2009) 52
26
Creating Value by Buying:
Key Issues
Genuine undervalued, advanced-stage assets are rare:
industry/commodity
i d t / dit downturns
d t
high-risk jurisdictions
corporate technology advantage
Brownfields exploration success is usually critical to make

purchases pay-off
Beware of zombie
zombie projects
projects masquerading as low
low-risk,
risk, cheap
purchase opportunities - particularly during market upturns
Although market downturns may present undervalued

opportunities, non-diversified or smaller companies may not
have the balance sheet strength to take advantage of these
Market Cycles and Asset

Valuations
Over Valued
Relative Asset Valuation
Acquisitions
very high risk
ed
Under Value
Optimum time
for acquisitions
Bust Boom
Commodity-Price Driven Cycles
27
McCuaig (2009)
Increasing commodity price alone generally

does not turn poor projects into good ones
55
Problems with Low-Quality

(Zombie) Projects
Typically have long capital pay-back periods

Original investors often lose money
Projects have little margin for error

Low grades limit mining options
High sensitivity to metals prices
Often involve unproven technology
Community expectations
Community expectation management difficult
Start and stop nature damages company credibility
Ultimate project failure causes lasting damage
28
Impact of Corporate Size
As a company grows it will progressively be forced to:
Seek increasingly larger minimum targets
Forego the development of small but potentially

profitable projects
Confront decreasing probability of discovering larger

and larger deposits
Look for project acquisitions and eventually mergers
Re-assess risk preference
$115 b
bn (2011)
Finlayson (2009)
58
29
McQuaig, 2010
Taken to extreme, the largest companies must find multiple

orebodies or clusters (camps)
Tendency is to turn to acquisition rather than exploration

59
The full size and hence production potential of

many, if not most, world-class deposits is not
recognized at the point of initial discovery and mine
development
Successful exploration in the near-mine

environment provides options for production
expansion with relatively incremental capital
investment
30
Major deposits with long-term option value underpin

the long term value growth of a mining company
It is important for large mining companies to focus

exploration on the deposit types likely to have this
long-term embedded option value
These deposits may not necessarily have higher Net

Present Values at the point of discovery than other
deposits without such embedded option value
Key Issues for Integrated

Business Development (1)
Resource availability: in sectors that have under-

invested in exploration, few viable acquisition
opportunities remain
Relationship between corporate risk preference and

both available opportunities and competition
may
y necessitate an exploration-focused
p approach
pp
Acquisition strategy must adjust to market cycles
Exploration must be funded at stable, critical mass levels
31
Key Issues for Integrated
Business Development (2)
Geoscience-related technical due-diligence is critical

in acquisition (help avoid zombie projects)
Exploration provides skills and resources
Exploration can help with recognition of upside

critical to drive successful acquisition (e.g. long-term
option value)
Acquisition can sometimes provide access to

significant exploration potential
Finlayson ( 2009)
64
32
Brownfields and Greenfields
Exploration
Managing Brownfields and Greenfields

as an Integrated Portfolio
Successful mining companies manage

Brownfields and Greenfields efforts as an
integrated portfolio. This requires:
Understanding the key differences
A model for balancing

g effort between them
Knowing when to stop brownfields in an area
Consistent base-level funding for greenfields
33
Brownfields and Greenfields :
Key Differences
Greenfields has a much lower base-rate probability of

success (~ 0.1%
0 1% - 1.0%)
1 0%) than brownfields (~ 5%)
The success size-threshold is smaller in brownfields

because of the existing infrastructure
The geology is usually better understood in brownfields

and therefore predictive concepts can be robust
yp y a much larger
Typically, g proportion
p p of the exploration
p
budget is spent in the ground in the brownfields setting
The brownfields exploration search space is often more

dynamic than for greenfields requires frequent re-
evaluation to ensure opportunities are not missed
Brownfields and Greenfields :

Key Differences
Comparative Sensitivity to Increasing Exploration Expenditure:

High and Very High Risk Exploration Scenarios
1.00
Typical for greenfields
0.80
Risk off Program Failure
0.60
Psuccess = 0.05
Typical for brownfields Psuccess = 0.005
0.40
0.20
0.00
0 10 20 30 40 50
No of Proje cts Explore d
34
Brownfields and Greenfields:
Dynamic Interaction
There is on average a 10
10-year
year time lag between discovery
and production for a good-quality greenfields discovery
Persistent exploration in a brownfields domain results in

progressively decreasing discovery size and increasing
discovery cost (unless there is a major expansion in the
search space)
Brownfields exploration is much more responsive to

increases in expenditure than greenfields; a sudden
realization of a crisis in ore supply can only be
effectively dealt with by brownfields exploration (provided
the brownfields are not depleted at that time)
Dynamics of Brownfields / Greenfields

Interaction
Time Horizon Time Horizon

of Ore Shortage of Ore Shortage
(No Exploration Success)) (With Near Mine Success)
Greenfields
Greenfields Exploration Feasibility & Development
Feasibility
Near Mine
Brownfields Exploration
& Development
0 5 10 15
YEARS
35
Brownfields:
Knowing When to Quit
Gold Discoveries at Norseman (koz) Yr 2000 A$m
10000 $10
$8
1000 Deposit Size
discovered
$6
100
Exploration $4
p
Expenditures
10
$2
1 $0
1930 1940 1950 1960 1970 1980 1990 2000 2010
Note : Excludes Extensional exploration

Source : WMC Dec 1998; compiled by Richard Schodde
A Model for the Strategic Management of

Exploration in a Maturing Province / Camp
of Remaining Opportunitties
BOOM PHASE STRATEGIC VALUE

Focus resources
F PHASE DESTRUCTION
on province/camp Decision to persist PHASE
Average EMV
or refocus elsewhere Get out or get new

depends on corporate technology
strategy
(e.g. risk preference)
Average EMV of
Opportunities elsewhere
+ With New
0 Technology
_
TIME
Discovery
of Province / Camp 72
36
Key Principles of Successful
Brownfields Exploration
Match the program/budget to the LOM plan understand and

address any production cliffs
cliffs
Regular reviews with external (both to the operation and the

company) expertise
Continually re-assess search space assumptions
Invest in understanding the geology of the ore environment

(before you need to) this work is relatively very low cost but
has long lead times
Monitor discovery cost trends be prepared to stop or invest

in expanding the search space
In a multi-site company, understand where each site is on the

Opportunity-Urgency matrix
Ensure potential
Growth Obvious priority
Opportunities not for effort
overlooked
Guard against
Low Priority for
disproportionately
Effort
high effort
Whiting & Schodde (2006) 74
37
Key Principles of Successful
Greenfields Exploration
Greenfields cannot be turned on when it is needed

requires a long-term effort sustained at an appropriate base-
level
time is the greatest enemy of greenfields - our present business
culture is not geared toward medium to long term investment
Technical excellence is paramount, particularly at the
project generation stage, leading to the creation of new
search spaces
p
much more about the quality of the thinking than the dollars
spent
To pay for itself, greenfields must focus on those high-value
opportunities with long-term option value
Goodyear (2006)
76
38
Brownfields-Greenfields Balance
In recent years many companies have focused on

brownfields exploration because of the better short-
term return potential
This trend has been exacerbated by an overall
declining rate of return on greenfields investment
Due to the increasing maturity of traditional exploration
search space, the number of significant discoveries
has decreased while exploration costs have increased
Some large companies have abandoned greenfields

and assume that Juniors fill the gap
But the Junior market model does not support a

broad greenfields approach
Overall Decline in Exploration ROI
39
Overall Decline in Exploration ROI
McKeith (2009)
Brownfields-Greenfields Balance (cont.)
Recent large increases in production levels and

brownfields exploration are accelerating the
depletion trend
Current industry ratio of greenfields re-investment to

unit of production may be the worst in history
The issue is not availability of resources but rather

the availability of quality resources that will support
adequate returns on development investment
The discovery of new high-quality, high option-value

deposits is the solution and this will only be achieved
through investment in greenfields
40
Resource Availability Risk:
Who is doing the Greenfields?
Long-term trend
Resource Availability Risk:

Who is doing the Greenfields?
41
Managing the Balance:
Conclusions
Greenfields exploration should be maintained over the long

term at an appropriate base-level
Successful greenfields requires the highest calibre innovative
technical thinking
The depletion of brownfields opportunities must be closely
monitored (discovery cost trends are a good measure)
Do not persist too long in depleted brownfields camps: sell,
stop or invest in technology to expand the search space
Maximum strategic flexibility to respond to ore
shortages/expansion opportunities is provided by having an
accumulated portfolio of undepleted brownfields opportunities
Be sensitive to the impact of market, technological and
infrastructural changes on the brownfields search space
Managing the Balance:

Conclusions
It makes good business sense to manage brownfields and

greenfields exploration as an integrated portfolio
Consistency in processes and procedures
Flexibility in response to both changing business conditions and
exploration results
Raises the quality of both portfolios
Ability to provide staff with a variety of experience and opportunity
Must avoid us and them syndrome

Requires excellent relationships with senior operations
managers
Corporate and Exploration strategies and goals must be
well-developed and clear
42
Greenfields Exploration
Philosophy
Different Approaches to Greenfields

Opportunity Generation
Discussions about Mineral Exploration

p Philosophy
p y are
usually centered around the different approaches to
greenfields opportunity generation
There are broadly two approaches to greenfields
opportunity generation:
Empirical Focus (described in various ways such as
bootleather and drilling)
Conceptual Focus (described by terms such as models-
driven or conceptual targeting)
A best-practice approach should seek to understand and
incorporate the most useful elements of each broad
approach and apply them at appropriate scales
43
Empirical Approach
An empirical approach to greenfields opportunity generation

may exhibit these characteristics:
Focus on basic field observations and data collection and analysis
Strong focus on local knowledge and intelligence
Strong culture of individual geoscientists (i.e. savvy
explorationists or lucky individuals)
Commonly organized as autonomous local groups with numerous
field offices
Relatively limited communication or collaboration between groups
Often many JVs with junior companies
Tendency to be first mover in newly opening jurisdictions and
preference for elephant country in more established
jurisdictions
Conceptual Approach
A conceptual approach to greenfields opportunity generation

may exhibit these characteristics:
Focus on understanding mineral systems in a holistic manner and
recognizing expressions of these systems in various scales of
data
Emphasis on predicting where valuable mineral deposits should
occur
Culture of integrated teams across geoscience disciplines
Strong culture of collaboration, communication and teamwork
Tendency toward centralized teams with minimal field offices
Portfolio often weighted toward 100%-owned projects
Tend to be first movers in covered areas or new search spaces;
usually not a strong focus on existing elephant country
44
Contrasting Approaches
Exploration Managers tend to favor one approach very

strongly
t l
Viewpoint typically driven by career experiences or
aspects of personal work preference (e.g. doing lots of
deals)
Often can be a surprisingly emotional issue
Managers need to be aware of their personal biases

when
h developing
d l i exploration
l ti strategy
t t
Corporate and exploration strategies are the context for
determining the best approach(es) to greenfields
opportunity generation, not the reverse
What are your preferences / biases?

External Environment Influence
Although individuals and organizations may have style

preferences for exploration strategy
strategy, in some cases
influences of the external environment will over-ride these,
e.g.
In a situation (usually temporary) where there is intense junior

interest in a particular commodity, it may make sense for the
majors strategy to be more focused on evaluating the
outcomes of such work
On the other hand, for commodities with limited undeveloped

resources and relatively little junior interest (e.g. NiS,
Diamonds, U before about 2004) a major company has no real
choice but to focus on a greenfields project generation-driven
strategy
45
Seek Balance
What matters most in exploration is not whether the

exploration strategy is empirically or conceptually based, for
in practice, it will usually be found to be a blend of both. What
matters is what the mind makes of the evidence, whether
empirical or conceptual, and what we do about the evidence.
The unique opportunities to make discoveries come

infrequently and can come unexpectedly
infrequently, unexpectedly. They are fragile
opportunities where imminent success can be turned into
failure through lack of courage and lack of timely action.
Roy Woodall (1994)
Luck and Persistence
46
What about Luck?
The role of luck in success in a high-risk business

like mineral exploration is obvious
However, we also know that some people are
consistently luckier than others
Are there underlying principles that relate to luck?
British Psychologist Richard Wiseman (The Luck
Factor) spent 10 years studying people who
describe themselves as either lucky or unlucky and
succeeded in identifying four key behaviors that
separate lucky from unlucky people
Four Key Principles of Luck
1 Lucky people are more likely to notice

1.
something unusual and the opportunity that it
might represent. Unlucky people are more likely
to suffer from inattentive blindness
2. Lucky people have open body language, which

tends to attract opportunities
3. Lucky people tend to act on their intuition
4. Lucky people see the new opportunities

presented by negative events
47
The Discontinuity Factor
Major discoveries seem to happen when discontinuous

thinking occurs:
First entry in new country or area
Rocks not thought to be prospective
New deposit style (outside the model)
First use of new technology
First to drill deeper
This thinking is fostered in an environment that values

technical preparation, curiosity and willingness to take
risk
Senior managers can create this environment
In the fields of observation, chance

favours only the prepared mind
Pasteur Source: Woodall (1994)
48
Persistence: A Commonly
Misunderstood Virtue
Many discussions of successful exploration
focus on the persistence of people or
organizations
how many mines around the world are
called Perseverance?
It is clearly true that persistence is

important in discovery but it is critically
important that we understand what is meant
by persistence
Persistence
Persistence as a virtue IS NOT:

Continuing to explore the same piece of ground
for every increasingly smaller / high-risk target
Persistence as a virtue IS:

Following up a positive indication of
mineralization until it has been explained (e.g.
Fipke and the Slave Diamond discoveries)
Pursuing a program, continually learning from

experience and feeding that learning back into the
targeting and exploration of each new project
49
Persistence
Suchomel (2006)
50
General Role of R&D in Exploration
What is the Strategic Rationale for

Industrial R&D?
The obvious reason:

To gain a return on investment from specific
research projects of relevance to the organization
The most important reason:

To enable access to the vastly greater body of
relevant
l t knowledge
k l d that
th t the
th organization
i ti has
h nott
directly funded or participated in
Part of building an excellent team (attraction /
retention)
51
Science as an Invisible Club
Although most science is in principle freely

publically available, scientific knowledge is not
actually a free Public Good (i.e. such as the
internet, legal system, GPS etc.)
Instead, scientific knowledge is something

economists call a Club
Club Good
Good (Keeley,
(Keeley 2008)
This means that in practice, it is freely shared only

within a relatively restricted Invisible Club
Access to the Invisible Club
Although most science is public soon after it is produced,

significant
i ifi t barriers
b i to
t entry
t restrict
t i t organizations
i ti in
i
accessing such new knowledge
These relate to the expertise needed to understand new

knowledge and to recognize its significance to relevant
industrial problems
To overcome these barriers, an organization must have:
A) internal access to the people with the required expertise
B) knowledge to trade with external experts
Both require a vibrant internal R&D program
52
Generic Concepts for Optimizing
Industrial R&D
Need for Boundary-Spanners
Need for both industry and academic sides to clearly

understand and respect each others different drivers
Make sure that projects deliver to both sets of objectives

(e.g. McCuaig concept of nested research projects)
Need to understand differences in organization structure

and
d authority
th it levels:
l l
Single point of contact required in industrial organization
Social interaction to facilitate mutual understanding
Generic Concepts for Optimizing

Industrial R&D
Ensure frequent opportunities for the transfer of tacit

knowledge:
the value of the project is potentially far more than the content of
the final report
brings forward knowledge transfer process in project
Make sure the academic partner is engaged at the local

scale (e.g. embedded researcher concept)
If relevant, ensure IP ownership issues resolved formally

early
Better to think in terms of a long-term relationship:

Rather than a sequence of un-related short term projects
Accept that some projects wont work well
Some projects are just about getting to know the partner
53
Critical Components of Interface
Optimizing the Interface between R&D and the Exploration Business:

a model
107
54
The Power of Culture
Power of Culture
A culture
lt th
thatt is
i consistent
i t t with
ith and
d supports
t the
th goals
l off an
organization is important to achievement of those goals,
The process of developing such a culture is a valuable step in
helping people align with those goals
A strong, positive culture can and will supplant the need for
command and control management
Such a culture is especially critical in an organization in
which individuals must act independently often because they
are remote from management
55
Power of Culture
A strong,
t positive
iti organizational
i ti l culture
lt imparts
i t a
sense of freedom and creates an atmosphere of trust
which promotes both individual and team confidence --
a key ingredient in successful mineral exploration
Once implemented, such a culture
Becomes self
self-sustaining
sustaining
Supports resourcing -- people who work in a positive
culture are less likely to look elsewhere for work
Managing Culture
112
56
Managing Culture
Organizational culture is primarily about behaviours

Collaboration -- team members communicate openly and listen to
and engage others fairly and readily
Learning and commitment to technical excellence and innovation
Shared responsibility for team success and failure
Duty to adhere to high personal standards
Commitment to compliance with Company policies
Genuine feeling of obligation to the Company and other project

stakeholders
Others?
Leadership Tools
Leaders have tools that help create a positive culture:

Team Charters developed and agreed to by the team
Defined team meeting process
Accepted process for assigning tasks
Terminology same terms for the same things across the
group
More workshops, fewer presentations
Group structure using structure to encourage
communication, the exchange of ideas and information
57
Ineffective Tools
And tools that don

dontt
Teamwork speeches
Dictating results leading by fiat
Forcing issues or actions
Rejection without explanation
Ignoring issues or people
Being the decider without being the collaborative thinker
Effective Communication is Key
Obama says in an interview with CBS's "60 Minutes"

that he "stopped paying attention" to the leadership
style he displayed during his run for the presidency.
Obama also said he recognizes now that "leadership is

not just legislation," and that "it's a matter of
persuading
di people.
l And
A d giving
i i them
th confidence
fid and
d
bringing them together. And setting a tone. And making
an argument that people can understand."
58
Mineral Exploration Strategy,
Business Planning and Portfolio
Management
Corporate Strategy Link
59
Corporate Strategy Link
Corporate Strategy
Commodities & market share
Financial goals & hurdles
Risk tolerance & balance
Growth goals & time horizons
Exploration Strategy & Business Plan

Consistent, disciplined approach
Quality, results-focused team
Portfolio Management
Balanced & Dynamic
Project quality
Discovery & Value

The Exploration Process
Corporate Strategy
Portfolio
Management Commercial Risk Review and Gate
Technical Review and Rank

Economic
Analysis;
Portfolio Prioritization Balancing
Implement Programs PRMPs;

Decision-point
planning
Review Results
Feedback: drop project or proceed to next milestone

120
KIGAM International School for Geoscience Resources March 2011
60
Corporate Strategy (1)
Corporate strategy and strategic plan provide the

business context for EG in the organization
g
Ideally, corporate strategy is developed and agreed by

executive management (including the most senior
exploration manager) and is endorsed by the Board
Common relevant parameters of corporate strategy

include:
Key businesses / commodities
Financial goals and hurdles
Risk preference and balance
Growth goals and time horizons
KIGAM
SeniorInternational
ExplorationSchoolManagement
for Geoscience Resources
Course March
- 2011 121
A specific business development and growth strategy may

cascade
d from
f the
th corporatet strategy
t t (may
( nott be
b necessary
for smaller organizations)
Business development and growth strategy should:

Identify real competitive advantages possessed by the
organization
Identify relative operational, organic and external growth
requirement balance
Provide a consistent standard to identify and filter opportunities
Facilitate proactive pursuit of opportunities with a focus on time,
money and opportunity cost
Communicate clear, consistent goals and objectives
61
C
Corporate
t strategy
t t anddb
business
i development
d l t and
d growth
th
strategy will be developed considering a variety of both
external and internal business factors
These high-level strategies will be more robust if accurate

information regarding the exploration business environment
(both external and internal) is an input
Impact
I t on the
th balance
b l between
b t short
h t term
t and
d long
l term
t goals
l
Organizational capability
Organizational culture required
Albanese (2010)
124
62
Elliott (2010)
125
Carroll (2010)
126
63
127
Exploration Strategy Development
64
Corporate Strategy
Portfolio

Economic
Analysis;

Decision-point
planning
Review Results
Business Context for

Exploration and Geology
In global mining companies,

companies Exploration Group (EG)
is typically responsible for one or more of:
Brownfields exploration discover or acquire new deposits within economic
transport distance of an operating mine (shorter time horizon and lower
risk/reward profile)
Greenfields exploration explore for new mineralised districts (longer time
horizon and higher
g risk/reward))
Business geoscience support - reserves and resources process, production
geology, geological, geophysical and mineralogical standards, processes and
training, technical due diligence on potential acquisitions
65
Exploration Strategy
It is critically important that the exploration strategy be

developedp and modified in the context of a well-understood
corporate strategy that includes a business development and
growth strategy if the company has a growth plan
The exploration strategy must:

Articulate the business reason for EG and define EGs role(s) in
supporting the corporate strategy
Articulate what EG will deliver and how delivery
y will be
measured
Prescribe that risk analysis occur in the context of project scale,
i.e., balance risk and operational scale
Set high process standards for decision-making and progress
measurement
Be reviewed and updated regularly at least every 3 years
Exploration Strategy:
Key Elements
There are 4 key elements that guide development of effective

mineral exploration strategy:
1. The givens from Corporate strategy and planning
2. The core function / role of exploration in the business
3 The current mineral exploration environment (i.e.

3. (i e context)
context )
4. The desired risk-reward balance
66
Developing Exploration
Strategy (1)
Define and articulate corporate givens; if

corporate strategy is well-developed, these will
be clear, e.g.
Commodities (core plus desired)
Geography (if prescribed by corporate strategy)
General budget level
New business minimum financial thresholds
Corporate reputation (e.g.off-limits areas)
Strategy (2)
Establish the core function or role of EG in the business value

chain:
Define EG accountability
Define key business boundaries for EG
Enable most efficient EG design
Note: not the same for all companies
Mining Value Chain
Resource Pre - Processing Marketing

Exploration Feasibility Development Production
Delineation Feasibility & &
Study
Study Refining Sales
? ? ? ?
EG Accountability & Responsibility
67
Strategy (3)
Understand and articulate the current exploration

environment (i.e. context) within which EG will
operate, e.g.
Greenfields brownfields ( in-mine)
For a given commodity: endowment
characteristics, deposit size-distribution
Search-space trends (i.e. exploration maturity
and effectiveness)
Geopolitical trends
Strategy (4)
Establish guidelines for risk-reward balance in

context of other strategic elements, e.g.
Greenfields / brownfields balance
Generative greenfields vs. acquisition of
advanced projects
Greenfields style
Internal generation of new projects
JV entry to existing projects
Stable, tested jurisdictions vs. new untested
frontiers
68
Strategy -- VMO
Statement of vision
vision, mission
mission, and objective (VMO)
An effective way to articulate the exploration strategy and place

it in context
A summation of the EG business organized by scale around
basic parameters
Language is important the VMO must communicate a clear and
concise message
People need to be reminded the VMO provides (1) a record of
commitment and (2) a reference point for EG staff, executive
management and the Board
Should be designed and owned by EG personnel
VMO Example
VISION
An Exploration Group that makes significant and valuable contributions to Company sustainability and growth
MISSION
Maintain a highly skilled exploration group that
(1) Operates safely across a range of mineral commodities and risk environments,
(2) Manages risk effectively and minimizes adverse impact on stakeholders,
(3) Employs innovation and good science , and
(4) Delivers high option-value growth opportunities to the Company
OBJECTIVE
Assemble lean, highly competent teams within the Exploration Group that are committed to innovation, that are guided by
sustainable policies designed to benefit all stakeholders , that adhere to disciplined processes and that work together to meet these
accountabilities in the following areas:
69
VMO Parameters (1)
VISION
Short, punchy statement describing desired Exploration Group
In the company context, at the highest scale
As EG wants stakeholders to see it
Develop in conjunction with Corporate
VMO Parameters (2)
MISSION
Words of action -- why the Exploration Group is in business
What does it do?
What is its reason for existence?
How does it achieve the stated Vision?
70
VMO Parameters (3)
OBJECTIVE
Lower scale than the Vision or Mission
More immediate, shorter term statement
What EG must accomplish to fulfil Mission and its Vision
VMO Outline (4)
ACCOUNTABILITIES
Key short term tasks
What EG currently has taken on to meet the stated Objective
Organized
g by
y defined Programs
g ((or business pillars)
p )
71
VMO Example (1)
VISION
MISSION
OBJECTIVE
Assemble lean, highly competent teams within the Exploration Group that are committed to innovation, that are guided by sustainable
policies designed to benefit all stakeholders , that adhere to disciplined processes and that work together to meet these accountabilities in
the following areas:
Geology and Geoscience Process Current Projects Growth Opportunities
Identify and train [named Leverage opportunities around Acquire data in [ name regions]
personnel] in geoscience standards existing mines and assets
Assemble /manageg existingg and acquired
q data to facilitate
Establish procedures to value and Advance alliances with [name screening and ranking of new opportunities
prioritize exploration projects partners and regions]
Develop relationships with the following key junior
Verify implementation of standards Use established regional / companies [list]
by [named groups] for production provincial relationships to secure
geology and reserves / resources and advance new opportunities in Develop internal greenfields capability as follows:
[name specific regions/countries] [skill requirements]
[people requirements]
[funding requirements]
VMO Example (2)
VISION
MISSION
OBJECTIVE
Assemble lean, highly competent teams within the Exploration Group that are committed to innovation, that are guided by sustainable
policies designed to benefit all stakeholders , that adhere to disciplined processes and that work together to meet these accountabilities
in the following areas:
PEOPLE ASSETS BUSINESS EXCELLENCE REPUTATION
72
Strategy (process down)
The process of developing the exploration
strategy must be broadly inclusive of global
EG staff
Imposed top-down strategies are rarely communicated

effectively and fail to empower EG personnel
Conversely, EG staff can be highly empowered when

allowed to communicate their ideas and provide input
In a large global organization, it is incumbent on regional

managers to make sure staff have the opportunity to
participate meaningfully
Strategy (process up)
As exploration strategy is developed

developed,
Discuss early drafts with the CEO and members of

the executive team to facilitate alignment with
corporate strategy
The senior exploration manager must work the

executive hall to develop and maintain corporate
buy-in at the senior level
73
Exploration Strategy:
when to review / revise?
Under normal business conditions the exploration strategy

should
h ld be
b reviewed
i d and
d updated
d t d approximately
i t l every 3 years
Conditions may require special review of the strategy, e.g.
Significant change in corporate strategy or business

conditions
Prolonged period of lack of delivery / improving metrics
Following a period of significant success
Major geopolitical changes that impact the strategy
Potential Pitfalls (1)
C
Corporate t St
Strategy
t d
does nott really
ll exist
i t or is
i poorly
l
articulated and understood by the organization (i.e. may
reside mainly in the mind of the CEO). Common symptoms of
this are:
Abrupt significant changes in strategic direction
Apparent knee-jerk business decisions
Business decisions that come as a surprise to senior managers
This forces Exploration to guess at the key targets

Very counter-productive since EG usually has a long-term
business horizon
74
Corporate
p and Exploration
p strategies
g are misaligned
g
Unresolved disagreement at Executive or Board level
Poor interaction and communication between senior

exploration manager and executive team
Corporate strategy defines an unachievable exploration goal or target
Exploration pursues projects that do not meet corporate goals
Unrealistic (or even absurd) promises made by the senior exploration

manager or other corporate executives in relation to what exploration
will deliver and by when
Non-alignment
Non alignment within exploration organization
Poor interaction and communication between exploration

managers and staff / team
Lack of involvement makes people feel marginalized and

disempowered
d se po e ed
Excellent ideas may be missed or under-utilized
75
The Exploration Planning Process
Exploration Planning Overview (1)
Key business goals articulated in the exploration

strategy
gy ((and VMO)) need to be converted to specific
p
programs with budgets that are grouped by time-
horizon
For most exploration organizations, written plans
should be developed and implemented at 3 scales:
Business Plan
Annual Plan
Project
j Plan
The plans are dynamic documents that must be

consulted, reviewed, and updated at regular
intervals
Concise and easily communicated
Readily convertible to management-level
presentations
76
Exploration Planning Overview (2)
It is imperative that a broad cross-section of

exploration personnel are involved in the planning
process
Buy-in to programs is critical to success
Ideally, budget-setting at the highest level will be an
interactive process with the corporate executive
In the detailed planning process budget setting will be
an iterative top-down, bottom-up exercise
Once established, budgets will be managed according
to the established corporate financial process
Exploration Business Plan
The Exploration business plan is grounded in and driven

by the exploration strategy / VMO
The plan should clearly articulate the key programs that will deliver
the results required by the VMO
We advocate a 3-year validation period for the business

plan
Todays global exploration environment requires at least 3 years to
effectively implement a variety of exploration programs
Exploration group managers should review and update the plan
annually and should validate and renew the plan every 3 years in the
context of updated corporate and exploration strategies
The senior exploration manager should use the business

plan as a template for consistent presentations to the
executive team and the board
77
Exploration Annual Plan
The Exploration annual plan consolidates the

business, financial and operating parameters of the
exploration strategy and business plan over a
common budget period (normally one year)
The annual plan:

Prescribes the programs that will be pursued to achieve the
goals defined for the year
Prioritizes those programs and the projects within each
program
Must be reviewed and updated regularly during the year by
exploration managers together with project managers
The annual plan should be communicated regularly

in an one-page format (Plan-on-a-page)
Vision
Mission
Objective
Assemble lean, highly competent teams within the Exploration Group that are committed to innovation, that are guided by sustainable policies designed
to benefit all stakeholders , that adhere to disciplined processes and that work together to meet these accountabilities in the following areas:
Strategies
Assets
People Business Excellence Reputation
Organise resources
Developing people Continual improvement Building credibility
around windows of
and high performance teams through an innovative culture and trust through
opportunity; Focus on
to realize the potential performance and
quality
of our business relationships
of opportunities
Targets
No injuries to employees or Optimise allocated annual funding Increase project probability of Positive internal and external
contractors attitudes toward projects
Increase number of stage 3 drilling success
Employee satisfaction in top programs by 25% over 2009 Preferred Au exploration
quartile No unplanned tenement loss partner globally
Achieve a return on cash
AAA Exploration is a expended of 25% as measured by JORC / Sarbanes-Oxley No unplanned loss due to
preferred employer globally increase in portfolio value negative community or
compliance government intervention
2010 Programs
EHS Near Mine NiS Business Processes: Country Risk Process
Safety Lead Team Jinx area Technical Support to Operations Map Updates
Training programs Reserves & Resources Reporting Committee review as appropriate
Lucky 7 area
Crisis Management Innovation: Community
New Province & Regional NiS GEODetector Development Peru
Capability / Development Plan 2nd Unit Operating JV leverage West Jackrabbit
West Jim JV regional
Employee Opinion Survey 1K Development Global use Rifle
Global Exploration 3D Modelling Other WA
Tamber NiS Peru Cu-Au Operations & Projects Grav-Mag 3D
N. America Cu Winner JV (Cu)
156
78
Reporting Plan Progress (1)
The Exploration business plan should be

monitored and supported by regular and
consistent reporting of progress and results:
Develop and implement a corporate template for
annual budget plans and presentations so that
terminology and information are clear and
consistent
In monthly exploration reports include a summary
of important technical results along with a budget
summary and program progress Gantt chart
Circulate among the exploration leadership team a
monthly summary of the status of new opportunity
reviews / due diligence
Reporting Plan Progress (2)
A suggested tracking and communication

schedule for exploration reporting:
Every 3 Review and update exploration business plan
Years
Annual Review and update plan

Adjust for current budget
Presentation (template)
Quarterly Internal technical review
Ranking adjustment if required
Summary of any change recommendations
Monthly Technical report summarizing key results,
budget, and plan tracking
79
Exploration Project Plan
The Exploration project plan describes individual

projects funded in the annual plan
The project plan:

Defines the project team
Provides the budget applicable to that project
Prescribes the agreed milestones and decision
points for the particular project
Defines the financial and human resources that are
committed to each milestone and decision point
Incorporates a risk management plan
The project team compiles the project plan which is

approved by exploration management
Exploration Project Plan Template
Project Name Big Copper
Accountable Person A. Zubinski
Project Category Regional Exploration
Approximate Location 100km SE of Super X Mine
Ownership Mighty Fine Mining 25%; TTT 25%
Target Summary Untested area on trend with previously explored project;

potential for up to 100 Mt @ 1.5% Cu with possible polymetallic
zoning further to SE
Critical Issues Does the mapped skarn alteration zone to sulphide

mineralization at depth along altered intrusive contact?
Milestone Statement Drilling: Presence of copper sulphide mineralization at depth

near intrusive contact.
Proposed Program Summary 2,500 m of diamond drilling in 10 holes. Hole depths of 200-300
m. Program to commence in early June, 2010.
Proposed Budget Site Prep $50,000

Diamond drilling $350,000
Logistics $50,000
Geol and field contractors $25,000
Total $475,000
Resourcing Requirements Geologist A

Geologist B50%
Timing (to milestone) 31 July, 2007
Notes Results from first phase of holes may cause remaining plan to
be adjusted; expect first technical review by 31 August, 2010.
80
Exploration Strategy and Plans
Corporate Strategy
Commodities
C diti & market
k t share
h
Financial goals & hurdles 2-way communication
trust and confidence
Risk tolerance & balance
Exploration Strategy & Business Plan vision, clarity

teamwork
Consistent, disciplined approach communication
Balanced & Dynamic
Project quality
Discovery & Value

Building Trust and Confidence (1)
The Senior Exploration Manager must develop

very effective communication skills:
Establish expectations and goals up-front (realities of
risk and confidence)
Distill technical information and decision-making
complexity to clear, concise messages
Repeat key messages consistently and often
Be a lobbyist make sure that the entire executive
management team hears and understands key
messages
Make sure that high-level performance measurements
are clear, understood and agreed by Executive
81
Building Trust and Confidence (2)
It is critical that realistic and accurate data and

information are discussed when setting goals
Audacious goals can be motivating for an organization
however they can quickly morph into unrealistic
expectations
Choice of words and phrases is important for

communication at Executive and Board levels
163
The Teaching Role
As Senior Exploration Manager, you have a key teaching role with your
boss (usually CEO or Exco member)
One on one conversations to establish:
Exploration principles, i.e. the business realities
How Exploration supports the corporate strategy and goals
What Exploration is doing to deliver results, e.g. competitive approach,
innovation, etc.
These conversations need to be repeated regularly
Make sure information and messages are consistent
Verify understanding
Key activity to build credibility and trust
If CEO is using your narrative in publicyouve done it well
82
Making Effective Presentations
Too often, executive or board-level exploration

presentations are poorly assembled and ineffective in
delivery
Exploration managers need to understand they are both
describing progress / results and seeking buy
buy-in
in (i.e.
(i e
selling the message)
Making Effective Presentations
In general,
general the audience comprises very smart people
(but some may be disinterested)
If they are disinterested and you bombard them with detailed
technical concepts they will tune-out completely
Do not show slide after slide of monotonous drill results
Make use of proxies and analogies for complex technical
concepts
t (b
(butt dont
d t dumb-down
d bd too
t much) h)
Set aside sufficient time to prepare

Do not prepare slides on the plane to Melbourne
Rehearse to make sure timing is good
83
Making Effective Presentations:
Content
Avoid excessive verbiage
Make sure the message is accurate, clear

and consistent, both within an individual
presentation and between successive
presentations
p
Repeat key messages and themes

strategically throughout presentation
Making Effective Presentations:

Visual
Use a standard template for every presentation

(if there is a corporate template it should be
used)
Use simple, clear and well-labelled diagrams
Do not overload with technical detail

D nott use visual
Do i l gadgetry
d t and/or
d/ garish
i h colours
l
Make generous use of location maps and photos
If you plan to say this is a busy slide or I know you
cant read all of this remove the slide
84
Detailed mapping
Volcanic flow Volcanic flow
New feeder
dyke
Volcanic flow
Seaberg (2010)
170
85
Mineral Exploration Portfolio
Management
Exploration Portfolio Management:

Purpose
Facilitate delivery of results called for by the

Exploration Strategy and Business Plan
Provide a transparent, informed and consistent

process for responding to short medium term
corporate needs or business changes
Principles apply at various scales we will focus

on the global scale
86
Global Portfolio Management:
Purpose
If there is no g
global-scale p
portfolio management
g
system that is transparent and consistent:
Opportunity / project decisions are likely made by various
managers using different standards and criteria, some of
which may be out of sync with or counter to evolving
corporate objectives
Even worse, all decisions may be made by the senior manager
who,, in a large
g organization
g with many y projects,
p j , can not be
fully informed and abreast of all issues (prone to whims and
bias)
Typically, information is poorly shared and organizational
learning (continuous improvement) is inhibited

Benefits
Maintain focus on business targets

g and results
Improve decision-making
Optimize resources (financial & people)
Minimize opportunity cost
Increase
I flexibility
fl ibilit
Promote internal communication & collaboration
Promote Executive & Board support
87
Exploration Process
Corporate Strategy
Portfolio

Economic
Analysis;

Decision-point
planning
Review Results

Key Gating & Ranking Processes
Commercial risk review and gate

Go / no-go
no go
Technical review and rank
Province and Project scales
Portfolio prioritization
Economic analysis
Long term option value
Commercial risk ranking
Project stage balance (pipeline)
Budget analysis and plan
Check balance against Corporate guidelines and filters
88
Key Gating & Ranking Processes
Implement programs
Project risk management plans
Project decision-point planning
Review and feedback
Peer reviews
Learning that feeds back to targeting/area
selection process

Communication & Collaboration
A global portfolio management system is most effective when

developed by the exploration team(s) that uses it
Buy-in and ownership by senior managers and specialists is critical
for successful implementation
Lack of buy-in guarantees use of sub rosa processes
Creation and implementation of an effective standard global process is
time consuming
Failed implementation means high opportunity cost and hurts
management credibility
Individual accountabilities and performance objectives should link to
the system and its processes in appropriate areas
Recognize that a large knowledge management / innovation benefit
will result from staff interaction during development and review
process
89
Communication & Collaboration
Exploration
p project
p j technical reviews should be conducted at
least twice per year, preferably in different Regions
Peers should be involved in the technical reviews
A field component should be included
In organizations with a large and diverse portfolio it may be

desirable to establish an interactive web-based system to track
and manage portfolio progress
Senior leader often needs timely access to key information to
manage up
An appropriate level of information access for group staff helps
morale and increases collaboration

Measurement
A global portfolio management system should establish

appropriate business measurement criteria, e.g.
EHS performance
Project flow and conversion rates (pipeline)
Budget performance
Discovery cost
Portfolio value
90
Measurement
Portfolio value measurement requires use of a common

value method (e.g. EMV) and can be very beneficial
Help Executive management and Board understand the value

that is being created by exploration
Give the company and the Exploration group value thresholds

against which to compare and evaluate acquisitions and other
pp
new business or investment opportunities
Measurement criteria established for the exploration

portfolio can be easily translated to individual performance
objectives and thus to performance reviews and rewards

Options
The system and its individual processes should be tailored

to the size, complexity and business requirements of the
organization
e.g. multi-commodity producer and exploration strategy more

complex
Petroleum industry utilizes complex statistical approaches
Web-based systems
The key focus needs to stay on knowledge management,

organizational learning and collaboration
91
The Petroleum Experience
Onset Formal Risk Assessment

80%
70%
60%
50%
40% Economic Success Rate
30% High Risk Wells (<20%
20% TCS)
10% Slide provided by
0% Glenn McMaster, bp plc
2002 SPE Distinguished
83
85
87
89
91
93
95
97
99
01
19
19
19
19
19
19
19
19
19
20
Lecturer
*BP data 83 90, BP + Amoco 90- 98, bp 99 02 ytd


Getting Started
In the initial stages of system development:
Make sure global information and data is transparent,

consistent and of high-integrity
Be flexible and allow the system to evolve there is no

perfect solution
Communicate and collaborate at a high level globally
Will require investing in some travel that might not otherwise

occur
If brownfields and greenfields exploration are to be managed

together, make sure the key differences are well-understood
92
Summary
F
For a global
l b l mining/exploration
i i / l ti organization,
i ti an exploration
l ti
portfolio management system will be beneficial
To design and implement such a system, important areas of

initial focus are:
Clarity of Exploration Strategy and Business Plan
Effective commercial gating
Effective global processes for opportunity ranking and valuation
Excellent global communication and collaboration
Exploration and Geology

Business Context
Corporate Strategy
Commodities & market share
Financial goals & hurdles
2-way communication
Risk tolerance & balance trust and confidence
vision, clarity
teamwork
Exploration Strategy & Business Plan communication
Consistent, disciplined approach

discipline
rigour
transparency
Balanced & Dynamic
Project quality
Celebrate!
Discovery & Value

93
KIGAM
SeniorInternational
ExplorationSchoolManagement
for Geoscience Resources
Course March
- 2011 187
Minerals Access
94
Minerals Access
Four Basic Parameters
1. Access:
At each stage
g from rock-kicking
g through
g miningg
Does early stage access guarantee mining access
2. Cost
What will the proposed activities cost (internally, externally)
What must I give up in future revenue to get access
3. Risk
What is the risk of loss (loss in value, injury to persons/property)
Who bears it at each stage of the process
4. Revenue
Who participates in production revenue, how much does each
participant get and when
How much is left for me to cover my costs and get a return
189
Access -- Surface
Stakeholder identification
Who has rights in the surface
Have I identified them all
What process do I follow to get stakeholder permission

(license) to go on the surface and do what I want to do?
Will I need a consultant or expert to help me?
What will permission cost (internally and externally)
throughout the mining process and is it revocable?
What are the safety risks that I will need to manage?
95
Access Risk Analysis
Do the initial (country, regional, deal due diligence) risk analysis so

that the following are answered going in:
What permission do I need to do what I want to do -- how much recon can
I do, how much can I learn, without formal permission?
What does recon permission cost and does it guarantee me exclusive

access for subsequent exploration stages, i.e., if I like what I see, do I
have to share that information and compete for further access?
What are the recurring costs (annual) for exclusive access?
How much of the revenue from mining must I share with others (state,
private parties) in taxes, royalties, other, and how is each calculated?
What is the impact of that sharing on project economics?

Access/Ownership
Anomaly Discover Develop
Idea Fully Test
(Always Interesting) Or Exit or Exit
Access is an essential pillar of the process and access means:

Sufficient access to achieve
Maximum learning for the least cost at each stage
Predictable / acceptable economics at each stage
Absolute and exclusive (controlled) ownership of
1. The right to move to the next stage
2. Anything learned
3. Anything discovered
96
Access Failure
We found a lot of gold, but
Negotiating the Deal
The Deal Table Essentials Up Front:

Economic Understanding
Communication Skill
Objectivity (empathy)
Accountabilities
Responsibilities
Patience
Courage
194
97
Define Economic Success
Up Front
Mining Company must know the perimeters and parameters for
acceptable deal terms and deal breakers
Acceptable terms must be understood in terms of broader
corporate and exploration strategies
Is the goal a world class discovery and what does that mean?
Are there other acceptable economic results?
Is there another agenda

g besides discovery?
y
Then define the economic success / failure of the project, in

advance, based upon that understanding
Then tailor the negotiation and tenement acquisition objectives to
that definition to short and long term project value
195
Economic Impact of Deal Terms

Example from ProVal System courtesy R.Schodde, Minex Consulting
Break-even T-G curve as function of location, cover and deal type

The likelihood that your project will make money critically depends on its size, depth
of cover, location, country risk and JV terms
Au Grade (g/t) (E) As per (D) but with

20% Free Carry to Partner
(D) As per (C) but with

8% Country Risk Premium
(C) As per (B) but in Mali

under 150 metres of cover
(B) As per (A) but in a remote area and

under 150 metres of cover
(A) Western Australia with good

Infrastructure under 50 metres of cover
Data: All primary gold deposits in the world > 100koz

Resource (mt)
98
Deal Making
Successful negotiations require

1. Genuine (i.e., more than imagined) mineral economics expertise
2. A good understanding of access requirements
3. A good understanding of the real/potential economics of the

proposed project under a range of global scenarios, i.e., does this
deal work at Au $1000/oz, but not at $600/oz?
4 A team that knows how to use a well-equipped bag of useful deal

4.
tools to achieve the necessary project economics
5. The courage to walk away and not look back when the tools dont
work a discovery under uneconomic deal terms isnt a discovery
6. The strength and maturity to leave with a smile

197
Key Deal Making Concepts
The goals for Mining Company (and therefore for the junior
that plans to sell to Mining Company) are
Access for as long as necessary to fully explore and, if a
discovery, exploit what is found
Project economic success which means
Mining Company has project control when it has the risk
The agreed deal terms and project economics (worst /best case)
mean that Mining Companys financial expectations will be met
Fairness to all parties and a sustainable workable relationship

throughout the life of the project
198
99
Deal Making - Communication
Translation isnt communication, at least not always and rarely at first

Translators must know the lingo and be able to capture the true meaning
and intent of words/phrases/characters
The goal is a true meeting of the minds and it often takes an iterative
process, back and forth with the same deal term, through each language,
on the white board, to get there
This iterative process works to facilitate understanding and also helps

begin to build the relationship
Equally important -- it can also help participants see up front that maybe
there cant be a relationship
Also important the process helps even when both sides think they
speak the same language
199
The Participants
All parties desire to share in production revenues, so the

simple distinction between participants is
Those who bear all or part of the cost and risk
Those who bear no cost and no risk
Tools and approaches for sharing cost, risk and revenue

Royalties and Net Smelter Returns (NSR)
Dilution
Carried Interests (free / loan)
Back in rights
Options
200
Off take rights
100
Deal Term - Concepts
Net Smelter Return (NSR)

Similar to a royalty (a non-cost bearing interest), but the net
component means some cost bearing
Is a burden on the cost bearing interests
Calculated as a percentage of actual or deemed revenue net of
certain defined costs in the old days it was net of the costs to get
the ore to smelter (hence the name)
It is
i nott a term
t off art!
t! Must
M t be
b defined
d fi d each
h time
ti in
i terms
t off what
h t it
is net of, what it is a percentage of and when is it paid
Dilution
A cost bearing party gets to stay in and avoid bearing costs for a
while, but pays a dilution penalty must reduce its % interest
201
Deal Terms - Concepts
Carried interests
A way for a cost bearing party to defer bearing costs for a while
often until the project has shown some defined success
Until when and with what effect on project economics?
How are the carried costs paid back if at all?
If they are it is a loan carry, and if they arent it is a free carry
Back-in rights
A way for cost bearing parties to deal with differing incentives and
budgets, e.g., deposit size
Need real clarity around defining the back-in trigger and the cost of
backing in, otherwise it looks a lot like the big guy getting his cake
and getting to eat it too (which it probably is)
202
101
Deal Terms - Concepts
Options
Useful way to get your a foot on it early so you can have a look
Enforceability problems unless the ultimate deal is fully fleshed

out in the option agreement
So the economics still must be understood up front, otherwise it

is simply a gamble
Off-Take Agreements
Can be a good way to deal with differing incentives
Can also greatly affect deal terms usually because of the unique
project economics for the party desiring the off-take
203
Deal Making Pitfalls
Not knowing what you are talking about -- failure to

understand terminology and relevant economics
Failure to keep it simple
Inadequate teaming and planning
Losing sight of the goal
Unrealistic expectations
Non-aligned incentives
204
102
Know What You are
Talking About
Dont think of the customary terminology as terms of art
Dont use terms that you dont know the definition of
Terms that you think have standard definitions dont,
especially in global settings
Dont say percent without asking Of what?
Use y
your team economic expertise
p to define key
y terms
On a deal-by-deal basis
In the context of the current and projected technical and
economic realities of the particular project, region,
205
commodity
Keep it Simple
Complicated earn-in and/or divestment mechanisms

are often more trouble than they are worth
Do the complex terms/concepts make sense and add

value (in addition to making the lawyers happy), or
will they actually slow the project down, defeat
expectations?
206
103
Keep it Simple
Key Question: when the deal is done,

done
will everyone who has to work with
it, in a variety of future contexts, be
able to make sense of it?
Mining transactions dont have to be complex to be good dont get

high on complexity and mistake it for brilliance
207
Team Planning
Successful negotiations are team efforts and are the result of

Research, planning and scenario analysis understanding going
in the economics in a variety of scenarios
Knowing what you want and why
Knowing what you dont need and wont fight over or can trade for
something you do need
Dont try to be the Lone Ranger -- deal-making requires a
breadth of disciplines and everyone has a role
Lead negotiator is just one role and the Exploration Manager
may not be the best qualified for that role
Remember the key role of the silent observer not many can
talk, think, analyze at the same time
208
104
Dont Lose Perspective
on the Real Goal
Bridge over the River Kwai syndrome

Easy to let making the deal become the goal get it signed we
will deal with problems later
Instead of, make the deal that works for all parties , now and in
the future, or make no deal at all this may take courage
y
Lawyers arent always
y a help
p they
y like to close
One of the toughest pitfalls to avoid in a competitive
environment -- just trying to get your foot on opportunity may
cost you in the long run
209
Unrealistic Expectations
There is value in both sides having an early rendezvous with

reality
lit
Requires paying attention to and caring about the other sides
expectations
Technical risks associated with mineral exploration and mining
are not well understood
The more the mineral owner and surface owner (both private and
government) know about high technical risk and low probability
of success, the better the relationship (and deal) will be.
May well involve bringing the other side in on projected
economic scenarios early
210
105
Non-Aligned
Incentives
Jos robbed a bank and fled south across the Rio Grande with the Texas Rangers in
hot pursuit. They caught up with him in a small Mexican town. Since Jos knew no
English, and none of the Rangers spoke Spanish, they found a local resident willing to
act as translator, and began their questioning.
Rangers: Wheredidyouhidethemoney?
Translator: TheGringoswanttoknowwhereyouhidthemoney.
Jos : TelltheGringosIwillnevertellthem.
Translator: Jos sayshewillnevertellyou.
TheRangersallcocktheirpistolsandpointthematJos.
Rangers: Tellhimthatifhedoesnttelluswherethemoneyis,wewillshoothim.
Translator: TheGringossaythatifyoudonottellthem,theywillshootyou.
Jos beginstoshakewithfear.
Jos : TelltheGringosthatIhidthemoneybythebridgeovertheriver.
Translator:Jossaysthatheisnotafraidtodie.
211
Non Aligned Incentives
Know what is driving the transaction from each partys

party s
perspective
Non-aligned incentives wont come into alignment with time or
brute force and may haunt the deal forever
More important, alignment usually can occur with work,
communication and reasonable mutual accommodation
The more money I pay you up front, the less I can put in the
ground vs. Considering your track record, I need cash up-
front , that may be all Ill see from this deal!
212
106
Negotiating the Deal
The Deal Table Requirements Throughout:

Economic Understanding
Communication Skill
Objectivity (empathy)
Accountabilities
Responsibilities
Patience
Courage
213
Commercial Risk Management
107
Terminology
This session is about non-technical risk management
The concept has various labels, but we will call it

Commercial Risk Management
Or
The CRM Process
Recommended Reading
Framework for Responsible Mining:

A Guide to Evolving Standards
Sponsored by the Center for Science in Public Participation (CSP2)
and the World Resources Institute (WRI)
Researched and compiled by an independent research team with

expertise in environmental policy and practice, protected areas,
community participation, indigenous peoples, and social issues.
Written by Marta Miranda, David Chambers, Catherine Coumans

(October 19, 2005)
Online: www.frameworkforresponsiblemining.org
108
Recommended Reading
E3 PLUS:
FRAMEWORK FOR RESPONSIBLE EXPLORATION
EXCELLENCE in SOCIAL RESPONSIBILITY
A toolkit intended to help explorers understand social responsibility
and provide practical guidance for how they can implement and
sustain social responsibility within their organizations.
Presented at the PDAC in March 2009, but a dynamic work in

progress
Available on PDAC website: http://www.pdac.ca/e3plus/
The CRM Process
109
CRM Process
Objective: Identify, Assess, Plan for and Manage non-

technical risks associated with acquisition and exploitation of
growth opportunities and with operating the business
Required: A process that is

clearly-defined and well-communicated
rigorously applied with valuable results
tailored to Companys operational and growth
strategy, business and projects
Key: Company-wide recognition, understanding, acceptance,

thinking application
CRM Process
1. Identify non
non-technical
technical risks
2. Assess their adverse impact potential and their
manageability
3. Decide whether to pursue the opportunity/project
4. If Go -- Plan for effective risk management
5. Manage risks according to the Plan and in the
context of the applicable Business Process (e.g.
Exploration)
110
1. Identify:
Opportunity What are the
Non-Technical Risks?
2. Assess:
Company Strategies Potential Impact
Policies, Plans Are they manageable?
CRM Process
3. Decide: EXIT
Go No-Go
4. Plan:
Create Risk
Management Plan 5. Manage
(RMP) Implement
Commercial Component in
RMP Project Ranking/Gating
Project
Value
221
CRM Process
Scope Issues
111
CRM Scope (1)
Commercial Risk Management is not about

about
Impression Management
Disaster struck,
So how do we look?
So,
Far from making the world a safer place, the

transformation of risk management into
impression management diminishes [our]
capacity to respond to disasters in a sensible
and resilient fashion.
Frank Ferudi commenting on BP Gulf of Mexico spill in Spiked (21 June

2010)
112
Managing the company image at the expense of

effective response management in the face of
emergencies and other unplanned events
Deflecting blame instead of accepting responsibility
Market management over crisis management
Failing to be prepared for the fact that,
that once the
crisis occurs, the best protection for the reputation
is effective response
CRM Scope (2)

about
Risk Management Rituals
Myopic focus on process
113
Risk Management Rituals
When company executives become preoccupied

with being seen to tackle risks - rather than
with actually thinking in a rational way about
risk - they often end up confusing their
adherence to the rituals of risk management
with actually taking real-world, effective
action.
Frank Ferudi commenting on BP Gulf of Mexico spill in Spiked (21 June
2010)
Ritualistic Risk Management
Promotes process over achievement

Creates an environment of rules and red tape
Limits quality thought and devalues judgment
Turns people into Bureaucrats who
Tick boxes
Go through
g the motions
Miss the meaning
114
Beware the Walrus Factor
Five oil companies drilling in the Gulf of

M i
Mexico h
have virtually
i t ll identical
id ti l emergency
response plans all written by the same
subcontractor
Four of those declare their commitment to
protect walruses, seals and sea lions none of
which species exists in the Gulf, but the
protection of which is seen to help big
company public image
Once the Walrus Factor takes over, then Ritualistic Risk

Management controls, and the ability to respond effectively in
the face of emergencies and other value-decreasing events is
greatly diminished
CRM Scope (3)

about
Not taking Risks
115
Risk is a Key to Opportunity
Risk is an essential component of business,

especially the mineral exploration business
So, these are the important messages up front:
Non-technical risk can be identified, planned for and
managed intelligently and effectively
The willingness and ability to manage non-technical risk
effectively expands opportunity
But when managed poorly, non-technical risk limits or
defeats opportunity
Risk Taking vs.

Risk Management
In mineral exploration,
exploration
Prospects for a large reward and/or the learning that can come
from the technical success of a project may well justify taking
more risk in pursuit of an opportunity
But remember,
Large reward and learning potential do not justify,
justify will not
overcome, the inevitable loss in value that comes from CRM
Process flaws
116
CRM Process Flaws
Information Failure
Risks associated with growth opportunities are not properly
identified, assessed and managed
Company doesnt understand the value (positive or negative) of its
growth opportunities
Management Failure
A project or operation is managed improperly with resulting loss in
value,, injury
j y to p
persons or p
property
p y
Responses to unplanned events are inadequate and diminish
Company and/or stakeholder value
Ownership failure
Company doesnt own what it has spent money to learn, acquire,
find
Why the CRM Process?
Poor risk identification and assessment up front will haunt

an operation, exploitation of an asset or presumed asset,
throughout its life
Poor risk management can
Result in loss of the asset before its true value is realized
Result in damage to property, injury to persons, loss of life
Bring the company down
Poor risk identification, assessment and/or management

can greatly increase the cost of exit
117
CRM Process
PURPOSE
Purpose
The Purpose of the CRM Process

Underpins the components of the Process
Should be clearly defined by Exploration Management
Should be accepted across Exploration and by Company
Management
Should be defined in the context of the Company strategies,
plans and policies that govern growth
118
Capacity for Risk and Patience
The Purpose of the CRM Process should also be defined in

th context
the t t off the
th Company
C and
d the
th Exploration
E l ti
capacity for risk and patience
It is essential that Exploration understands this capacity
Defining the CRM Purpose
Think of the Purpose as a way to answer a basic question,

such as:
Can we safely and economically pursue this opportunity
(exploration project ) [and own what we find]?
Or
Assume technical success -- can we build and operate a
mine here in time to meet corporate standards,
standards financial
hurdles and growth objectives?
These are very different purpose questions -- each will drive

a different approach to new opportunity risk evaluation
119
The Exploration
Context
As Explorationists, we should first ask another basic question:
How do we select areas to explore, opportunities to pursue?
Do we first decide that a region or country is acceptable
commercially and then commit financial and human resources
to exploration and technical evaluation?
Do we first determine technical attractiveness and then
perform the commercial (non
(non-technical)
technical) risk evaluation that is
appropriate for the stage of exploration?
The answers to these questions will drive different definitions of
the CRM Process Purpose
No Right Answer
There is no correct Purpose definition,

definition but the key is to ask
these questions and then work-shop the issues so that:
The Exploration CRM Process is aligned with
Company strategy and policy
Company capacity for risk and patience
Your CRM Process is tailored to Your Exploration Process

and Your Exploration Programs
The Purpose of the CRM Process is owned by those
accountable for its implementation
120
Implementing the CRM Process
Cultural Context
The culture of the Exploration group is crucial in the effort

to implement an effective CRM Process
The culture should support the process
A strong, positive culture supplants the need for command
and control management of the CRM Process
Such a culture is especially critical in global exploration
groups because individuals are remote from management
and often must act independently
121
Power of Negative Culture
Negative culture: sees the CRM Process as

The boring, soft side of the business
Not my day job
Important, yes, but not as important as finding good rocks
Not where the rubber meets the road in mineral
exploration
e p o at o
Such a culture
Defeats the purpose of the CRM process
Ultimately undermines the business of Exploration
Cultural Pitfalls
The Chernobyl Errors

Forgetting the power of the beast. Operators get so used to working
with large and potentially dangerous objects that they forget the
potential impact of a mistake.
Rationalizing away. What are the odds that something will go wrong? It
wont happen to us!
Trusting
g that others will know/act. Especially
y in interaction between
groups uncertainty is not shown -- groupthink.
James Reason on Chernobyl and Columbia disasters ,as quoted in

Commentary and Analysis on the Mining and Exploration Sector, June 7 2010.
122
Wont Happen to Us
In its 2009 exploration plan and

environmental impact analysis for the
well, BP suggested it was unlikely, or
virtually impossible, for an accident
to occur that would lead to a giant
crude oil spill and serious damage to
beaches, fish and mammals
And if such a spill did occur, the company said, "due to the
distance to shore and the response capabilities that would be
implemented, no significant adverse impacts are expected."
CRM Process - Management Role
123
Management Support
Th
The CRM Process
P requires
i unequivocal
i l Management
M t
support to be effective
Support means that Management
Is the ultimate keeper of the integrity, consistency and
objectivity of the Process
P
Provides
id the
th financial
fi i l resources and
d the
th human
h resources
and performance incentives necessary to implement the
process
Understands and communicates the benefits of the Process
CRM Benefits
Offers early
y assessment of risk manageability
g y
Is this risk a show-stopper for the opportunity?
Or, with proper definition of accountability and allocation

of resources is this risk manageable?
Provides early assessment of the opportunity's business

case
Develop the information necessary to ask and answer key

commercial questions before commitments of people and
financial resources
124
CRM Benefits
Greatly helps to avoid opportunity costs involved in pursuing

projects that are ultimately untenable (as operations) despite
technical success
As projects and operations are pursued globally in varied

cultures and settings, the company is better prepared for the
potential impact of projects on persons, communities, the
natural environment and corporate reputation
CRM Benefits
Facilitates project advancement:

Key questions about how to proceed are asked and
answered proactively, not reactively,
Reactions to foreseeable events are planned -- time spent
on proper risk assessment and management is far less than
time involved in reacting to unplanned events
Facilitates project review and effective portfolio
management
Provide the commercial context for ranking the project
Enable apples to apples comparisons of opportunities and
projects across the portfolio
125
Managing Objectivity
Objective results are essential to CRM Process integrity and

effectiveness
Management drives the Process, but individual components
of the Process, should not be a managers day job
A Senior Exploration Manager for instance probably should
not manage new opportunity risk assessment puts the fox
on guard at the hen house
Managing Consistency
Consistency requires that the CRM Process should cover all

commercial (non-technical) risks associated with
mineral exploration
opportunity acquisition and development
operational project management
Consistency also requires that non-technical risking and risk

management should be comparable across the business group
or Exploration portfolio
126
Managing Consistency
The process may be tailored as necessary due to project

or opportunity characteristics
But
Management and those responsible for the CRM process

must resist pressure to change/lower standards based
on size of reward or other considerations that are not
part of the CRM context
Managing Accountabilities
Exploration Management must define the primary

accountabilities for the CRM Process, accountabilities
such as
Budget /pay for the tasks required by the Process
Identify risks associated with a project or opportunity and
assess their manageability
Make the go-no go decision
Develop the risk management plan
Implement the plan components
Monitor process and plan compliance
127
Managing Accountabilities
Management must work on a broader scale to define

and identify the support accountabilities -- those
without which the Process wont happen
Find and engage external service providers
Identify and engage internal service providers
Legal
H&S
Environment
Community
Security
Others?
Develop the necessary tools and train their use
CRM Process
Triggering Risk Identification and
Assessment
128
Process Triggers
Trigger the process at important decision points --

decisions to get in, stay in or get out
Such as:
Early field evaluation (both in-house generated and
externally sourced projects)
Planning to acquire ownership
St ki
Staking, pegging,
i any actt off direct
di t title
titl acquisition
i iti
Closing the acquisition -- signing the deal
Technical review and ranking of project
Any decision to exit
Risk Categories
If the trigger is pulled, what happens, what risk analysis

gate does the opportunity/project go through?
1. Use defined risk categories to identify the non-technical risks
that new opportunities (exploration, acquisition) or other
projects can present
2. Develop guidelines for each category to show what
information is required,
required the scope of review in that category,
category
and who does it
3. Assess the manageability of the risks that the particular
opportunity/project presents in each relevant category
129
Risk Categories
Health, Safety, Security

Security of persons and property
Personal health and safety
Travel security and safety
Evacuation and crisis management
Internal Asset Risk
Security of title ability to own and retain discovery or new
acquisition
Adverse impact on Company reputation
Immigration and import/export risks
Data (government and private) handling risks
Risks associated with the movement of funds
Risk Categories
Economic Risks and Analysis

Project economics
Deal terms
Tax and financial due diligence
Risk of adverse impact on
Local cultures and antiquities
Local communities
Natural environment
L
Legal
l
Licensing/permitting risks
Partner Due diligence
Deal terms
Risk of inheriting past problems/mistakes
130
Importance of Risk Trends
Dontt limit the analysis to information snapshots

Don
The process must emphasize the importance of
researching risk trends, up or down
A SWOT analysis approach is a helpful tool in meeting
this challenge
Opportunity/Threat analysis helps keep the scope of
the analysis on the right scale
The process should include steps to revisit the trend

information regularly
CRM Process Parameters

Corporate / Business Unit Policies
Country Risk Analysis
Corporate Governance
Stakeholder Relationships
License to Operate
Risk Management Plans
131
Relevant Policies (1)
Th
The policies
li i that
th t govern the
th behaviors
b h i andd transactions
t ti
of the Business Unit are a significant part of the CRM
Process
These can be directed from above and/or developed
internally
If not actually developed by the Business Unit
Unit, the policies
should at least be work-shopped by Unit management
And in global organizations, then work-shopped with
regional groups using the language and facilities most
conducive to learning and participation by those groups
Relevant Policies (2)
These policies have significant potential external value among

stakeholders
t k h ld
Translate them into key languages so that they can be used to
the advantage of the Business unit in local communities and
regulatory environments
Use them to
Build strategic relationships
Learn important information about potential partners
Lower barriers that might prohibit access to opportunities
Identify and assess risks that might not have been obvious
otherwise
132
Policy Focus Areas
(Exploration)
Using Exploration as an example, important

policy focus areas are
Country Risk
Corporate Governance
Personal Behaviour (Code of Conduct)
Community
Safety/Health
S f t /H lth
Environment
Property and Data Management
Country Risk Analysis (1)
When the new business opportunity exists in a country or region that is

new to the Company,
Company the CRM Process of risk identification and
assessment occurs as part of Country Risk Analysis
It helps answer the

basic question:
Should we even be
here?
133
And it provides those responsible for evaluating the new opportunity

with the tools necessary to do so safely and effectively.
Im here --
What do I do now?
Country Risk Analysis(2)
Think about what approach works best for the Company

Numeric
N i systems
t (can
( lead
l d to
t rigid,
i id dogmatic
d ti results)
lt )
Subjective results analysis (can lead to lack of integrity)
Some combination may be the best way to temper the need for
consistency and standards with the need for flexibility
For instance,
A numeric system tailored to your Exploration strategy from
which conclusions are drawn that are then managed with
good leadership
At the end of the day it will be people making subjective calls
based on data, with the variable being how much data
134
Country Risk Map
28
28
Russia
26 Russia
Far East 50
30 Baltic 48
Serbia 48 39 39
54 45
51
33 42
54 46
41
49 52
45
43
Note: Many of the No-Go countries 44
(such as Iraq & North Korea) have low
61
geological potential and so are of no 55
interest to WMC 52
47
38 46 Malawi 55 Indonesia
46
PA-CR Risk Rating 60
46
60
44 42 41
No
No Go
Go Chile
36
30
Mozambique 48
46
Very High (55-64)
High (45-54)
Moderate (35-44) Not yet Rated
Low (<35)
269
Country
KIGAM Risk
International School for Geoscience Resources March 2011 1
Important Principles for effective country risk analysis

Exploration must have full Company support before going
into new countries/regions
Gaining that support will probably require work and

knowing your audience
As Exploration pursues new opportunities globally, it needs

to know,, and accept,
p , the Company
p y capacity
p y for risk
Exploration needs to understand whether that capacity

varies with reward potential and/or project stage
This knowledge will focus the analysis so that useful

information is researched and developed
135
Country Risk Analysis
(Exploration)
Important risk focus areas for Exploration:

personal and travel security
personal safety and health
security of title and key legal requirements that could
adversely impact exploration/mining
ability to move funds in, products/funds out
data sources and information gathering
The intensity of the research in each area may vary
with project stage, but the key is to be through
enough and record the results so that topics covered
dont have to be revisited
Country Risk Summary (1)
Risk assessment should precede the investment in new

countries or in politically or culturally different regions of
familiar countries and should be tailored to the stage of the
project
Define Corporate and Business Unit (Exploration) no-go risk
factors up front and select sources of data tailored to key risk
factors
Pick a horse and ride it use the same approach each time
globally
136
Country Risk Summary (2)
Maintain objectivity (and credibility) in data gathering and

analysis no foxes auditing hen houses
Focus on trends, not snapshots in time, and revisit periodically
Generate useful practical results the time and expense that
go into country risk analysis should generate useful
information for risk management plans when and if the project
goes forward avoid boilerplate analysis that costs $$ without
practical results
Corporate Governance (1)
Comprised of the policies, standards and internal rules

necessary for legal compliance in a given jurisdiction
For example,
government data management
financial audit requirements
other
th iimportant
t tddoing
i b business
i h
hurdles
dl from
f the
th country
t
risk analysis
Corporate Governance policies/rules, more often than

not, are simply good business
137
Corporate Governance (2)
Compliance is usually relatively easy once the rules are in

place, understood,
place understood properly work-shopped and incorporated
into planning
Standards to meet specific local requirements can be tailored
and adapted on a case by case basis for the specific situation
Should address the absolutes of good business (exploration)
Security
y of title
Documentation of transactions
Data handling and management
Financial controls in foreign country
Code of Conduct
Key parameters to consider
This is about personal behaviour -- key behaviours that
Exploration personnel adhere to and are accountable for, both
internally and externally
It must be simple, concise, understandable this is not a
kitchen sink document
Nor it is a top down document it should be the subject of
organizational workshops in whatever language is best to
facilitate communication and buy-in
buy in locally
It is an important risk management tool should be translated
and distributed so that stakeholders know what to expect
It is a positive tool -- this is what Exploration leads with and is
proud of as it goes into new areas chasing opportunities
138
Community Policy (1)
The Company Community Policy becomes a key

component of the License to Operate (discussed later)
The policy should be based on a standard that requires
understanding of and respect for the indigenous and
local cultures and governments (Stakeholders) that can
be affected by an exploration project
Eff
Effective
ti implementation
i l t ti off the
th policy
li isi groundedd d in
i the
th
reality that a project requires local support if it is to have
any chance of success
When the local residents are lying across the road to exploration sites,
its probably too late for a Company Community Policy
Community Policy (2)
Like the Code of Conduct, the Mining Company

Community Policy is a risk management tool
It should be translated into relevant languages so that it
can be communicated to the Stakeholders whose
approval is necessary for continued project viability
Keys to effectiveness:
Openness
Planned disclosure of thorough, accurate information
Clear internal accountabilities
Expertise and training (this cannot be overemphasized)
139
EHS Policy (1)
Mining Company may have strong corporate EHS policies, but

the key is how they are implemented in the remote Business Unit
(Exploration)
What is the culture of Exploration Group
To what extent are these EHS policies part of planning
What is the accountability the people issue: role definition,
performance, performance review
So, the EHS policy standards must
Be realistic / achievable
Be supported by the planning and accountability definition that is
necessary to meet the standards
Guide the behaviours of all personnel including contractors
EHS Policy (2)
In the context of the CRM Process, this policy should require

working
orking with
ith the comm
community,
nit local government
go ernment and other
Stakeholders to
Identify and understand potential impacts
Avoid adverse impact that can not be mitigated
Assess the manageability of EHS impacts (risks) that can not be
avoided
Address all impacts responsibly
Implementation of this policy requires a standard bag of EHS

tools, but achieving desired goals depends on clearly defined
roles: who provides the tools, uses them, trains the users?
140
Data Management Policy (1)
Recent experiences for unwitting(?) geologists

in China should mean that all mining
companies take note and adopt a
comprehensive data management policy if
they havent already
Scope
All data from any source is handled pursuant to
a plan
All data means electronic and hard copy
Any source means just that and includes foreign
governments as well as presumably friendly JV
partners
Data Management Policy (2)
The policy should require

That data is not to be taken from an outside source without
identification of all parties that own any rights to the data as well as
agreement on use and handling restrictions and on requirements
for its return
Some mechanism for recording the condition and scope of the data
as received so that there is a baseline against which to measure
future allegations of loss or harm
Exploration to verify through representations, warranties or

otherwise that the data source has the unrestricted right to share
the data.
141
1. Identify:
Opportunity What are the
Non-Technical Risks?
2. Assess:
Company Strategies Potential Impact
Policies, Plans Are they manageable?
CRM Process
3. Decide: EXIT
Go No-Go
4. Plan:
Create Risk
Management Plan 5. Manage
(RMP) Implement
Commercial Component in
RMP Project Ranking/Gating
Project
Value
283
Go-No Go
The risk identification and assessment stages g of the CRM Process

help define the issues and provide the standards for the non-
technical input into the initial go/no-go decision
The objective is no commitment of human or financial resources to a

project that shouldnt be a Go
This decision puts significant pressure on the quality of the risk

identification stages of the Process puts a premium on accuracy,
completeness and useful resulting information
Saying No is harder than saying Yes (especially for geologists), and it

takes courage grounded in robust, accurate information to make a No
decision in the face of an enticing opportunity
142
The Risk of Saying Yes
Thus, for Mining Company,

Thus Company the risk of a faulty Yes decision is
greater than the risk of saying No to an opportunity that
hindsight determines should have been pursued
Two key factors in managing this risk,
1. There is always an array of new opportunities to pursue
2. Making a bad decision in pursuit of one opportunity leads to loss of

time and resources involved with that pursuit and creates an
opportunity cost that will undoubtedly affect several other potential
opportunities
Risk Management Plans
The risk identification and assessment stages of the CRM

Process also provide the input necessary for the project risk
management plan (RMP)
The RMP
Governs the commercial life of the project
Maintains the granted License to Operate
Leads to clean, compliant project exit at a defined milestone
Addresses the relevant Mining Company policies (EHS,
Community, Code of Conduct, Data Management, etc.) in the
context of the particular project
Identifies key project Stakeholders and assigns accountability for
relationship management
143
Identify key stakeholders during the risk identification and

assessment stages of the CRM Process
Company and its investors
Regulators
Employees
Sources of title, data -- anything essential to the project
Access -- sources of surface rights
Local
L l communities
iti
Global communities and NGOs
Cover each stakeholder group (or individually if appropriate)
in the RMP
Goal -- no surprises
No Tampakans
144
License to Operate
Not necessarily a term of art which means the term should be

work-shopped in Exploration and defined internally
This license is perhaps the primary objective of non-technical
risk management in mineral exploration
At a minimum, it is both formal and informal permission for the
project to commence and continue as planned
This license is both granted and re
revocable
ocable by
b project
stakeholders
Therefore it is usually more about relationship building than it
is about legal rights
RMP Step 1
Identify risks and assess manageability of each

P
Project
j t non-technical
t h i l risks
i k from
f commercial
i l research,
h due
d
diligence work, country risk analysis
Focus on key risk factors
Revocability of LTO EHS, community
Personal security and travel
Title security and management of title source
Movement of funds/resources into and out of project
Potential impact on corporate reputation
Data / property management
Assess manageability of each identified risk and define skills
and resources needed
145
RMP Step 1
The scope should cover risks that are easier to plan for
RMP Step 1
And those
that arent
146
RMP Step 2
Initial draft of PRMP

Collaborative effort buy-in across the project team essential
Create and use a template if possible
Populate with data compiled under Step 1
Weigh risk manageability against project reward -- projects

compete based upon the result
Thus, key initial hurdle for each project becomes a

combination of technical information and competent, relevant
non-technical input
RMP Step 3
Finalize /Adopt the PRMP

Allocate resources to manage each identified risk
Assign clearly-defined, and accepted, accountabilities for risk
management
Provide for a system of risk management reporting

As p
project
j proceeds,
p , the PRMP allows for
Continuing analysis of project risk manageability
Periodic review of estimated project reward against risk
manageability
Process of non-technical gating for project - post commencement
no-go decision making
147
CRM Process
CONCLUSION
Why the CRM Process?
Key commercial show stoppers, and the most effective means of

managing
i them,
th are identified
id tifi d early
l
Avoid the opportunity costs involved in pursuing projects that are

ultimately untenable (as operations) despite technical success
Protect persons, property, environment , corporate reputation as

projects are pursued globally in varied cultures and settings
Facilitate project advancement: key questions about how to

proceed are asked and answered proactively, not reactively -- i.e.,
reactions to foreseeable events are planned
Time spent on proper risk assessment and management is far less

than time involved in reacting to unplanned events
We found a lot of gold but

148

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KIGAM International School for Geoscience Resources

KIGAM International School for Geoscience Resources March 2011 1

Session 2: Mineral System Science

Session 3: Mineral Exploration Targeting Science

Session 4: Mineral Exploration Tactics

Session 5: Human Aspects of Mineral Exploration

KIGAM International School for Geoscience Resources March 2011 2

KIGAM International School for Geoscience Resources March 2011 3

Mineral Exploration Principles,

KIGAM International School for Geoscience Resources March 2011 4

Mining Industry Environment

Roles of Mineral Exploration

Value of Exploration and Exploration Opportunities

Acquisition and Exploration: Buy or Explore?

Brownfields and Greenfields Exploration

Greenfields Exploration Philosophy

Luck and Persistence

General Role of R&D in Exploration

The Importance of Culture

KIGAM International School for Geoscience Resources March 2011 5

Mining Industry Environment

China will continue to drive global metals demand

Other emerging countries will have significant impact

Long-term demand and price forecasts strong

Governments taking note (higher taxes & royalties)

KIGAM International School for Geoscience Resources March 2011 6

KIGAM International School for Geoscience Resources March 2011 8

Barrick, TD Newcrest Conference, Jan. 2011

Excellent cash flows

Re-emergence of mid-tier companies

Resources and grades dropping at flagship mines

Scarcity of new high-quality projects

Project permit timeframes longer

Exploration spending increasing

Looming shortage of qualified & experienced people

KIGAM International School for Geoscience Resources March 2011 15

Robust exploration spending to continue

Need to find new high-quality deposits

Commercial risk management

Need to find and develop talented people

KIGAM International School for Geoscience Resources March 2011 21

Roles of Mineral Exploration

KIGAM International School for Geoscience Resources March 2011 22

Fundamental activity that locates minerals required/desired

This course focuses on mineral exploration in the mining

KIGAM International School for Geoscience Resources March 2011 23

Mineral Exploration in the

Essential component of most mining operations and

A relatively low-cost (but high-risk) growth alternative

Innovative R&D that identifies new business opportunities

Investment alternative (e.g. Tecks investment in Diamond

KIGAM International School for Geoscience Resources March 2011 24

Expected Monetary Value (EMV)

Probability of Success & Base Rate

Risk Preference (Utility Theory)

Long-Term Option Value

Exploration Search Space

False Positives & False Positive Rate

KIGAM International School for Geoscience Resources March 2011 25

Corporate Growth Strategy (1)

Mining companies have a number of strategic options for

The growth path chosen will depend on a combination of:

KIGAM International School for Geoscience Resources March 2011 26