We assessed 500 exploration companies - what are 5 most important learnings
Updated: Jun 28
Over the last 2 years, we have looked at over 500 exploration companies and hundreds of exploration properties. This work has been done as part of our investment process for our private exploration portfolio and work for our clients, which we have helped with acquisitions of new assets or building their own exploration investment portfolios. Below are some of our observations that can help improve exploration success rates in the industry.
Too much focus on historical mineral occurences vs a solid geological model.
Explorers do not know what is the size of their exploration target.
Lack of geologist on the board in exploration company.
Explorers do not know what is the main geological risk on the project.
Clear business model - unclear exploration strategy
1. Too much focus on historical mineral occurences vs a solid geological model.
Unfortunately, the majority of explorers only focus on properties with known historical metal occurrences. These properties do not necessarily have the geological parameters needed to make a significant discovery. The majority of these properties have been worked over the years without any success. This trend is also backed by data gathered by Minex consultants, which shows that known mineral occurrences are a key factor in pegging exploration leases.
Genetic deposit models are very powerful yet simple tools that ensure the set of geological criteria needed to generate a significant mineral deposit exists in location "X." You can think of it as a "recipe." This set of criteria varies for each deposit style. There has been a lot of effort in research institutions over the last decade to synthesize and improve these models. Unfortunately, the models have not yet made their way into junior exploration companies. In our opinion, this will be an important tool to unlock significant resources of battery metals in the next years, as opposed to looking in places that have been heavily explored and are not particularly prospective.
For instance, for magmatic Ni-Cu-PGE sulphide deposits, elements such as proximity to the craton edge, large volumes of mafic rocks, presence of organic-rich sediments, and large structures are some of the important factors. The map below of Western Australia shows how these key geological parameters can be used to generate prospectivity maps, highlighting known mineralized belts and potential new exploration areas that are yet to be worked by explorers. Big data and machine learning play an important role in moving towards more quantified and targeted exploration.
2. Explorers do not know the size of their exploration target.
Very few mineral explorers state on their website what their Low-Mid-High exploration target size is. This is a common practice for oil explorers, where numbers are often reported as P90-P50-P10. No business investment decision takes place in an oil exploration company without this number.
Understanding the size of a potential discovery is critical in making investment decisions, from acquiring property to drilling, acquisition, or divestment. In a nutshell, it forms the backbone of successful portfolio management. From talking directly to explorers, the lack of reporting of these numbers in mineral exploration is not related to market disclosure practices, but often exploration teams do not know what size of deposit they are targeting and operate with a "blindfold."
There is potential for knowledge and practice transfer from oil & gas to mineral exploration. Oil & gas exploration has well-defined workflows for assessing size and even the chance of success (both technical and commercial) of exploration prospects. Below is an example of a mineral explorer that reports the size of their exploration prospect (target).
3. Lack of geologist on the board in exploration company.
In academia and industry, geologists are trained to become technical personnel focused on details and geology, and not necessarily on the business aspects of an exploration company. Few geologists develop the commercial skills needed to progress into board positions. As a result, boards of many exploration companies are composed of financial, legal, and marketing personnel, without injecting the needed exploration skills.
Efforts should be made both in academia and within exploration companies to inject business skills into the next generation of geologists and expose them to the commercial side of the business. The key objective of an exploration company is to make a significant mineral discovery and commercialize it either through sale or development. At Equivest, we do not see how this can be achieved without the presence of geologists in key board/management decisions and company strategy.
4. Explorers do not know the main geological risk on their projects.
Successful exploration entails that all elements needed to form a mineral deposit are present at the prospect location. The example below (simplified) shows important factors for magmatic Ni-Cu-PGE deposit formation. Unfortunately, in the area where our hypothetical project is located, there are no organic-rich sediments needed to provide sulfur to form Ni-Cu sulfides. It really does not matter if the other elements were in place. If one of the elements fails, the prospect fails.
From talking to explorers, there is little awareness of the main geological risk on their projects. In essence, this is the element where successful explorers should spend their time and money to either progress the project or divest it from their portfolio.
5. Clear business model, but unclear exploration strategy.
There is a heavy focus across exploration companies on promoting the battery metals thesis needed for the green transition. The typical business model is, in a nutshell, to "build a battery metals portfolio and unlock significant discovery within it." Unfortunately, what is missing is a clear exploration strategy explaining how this will be achieved.
Very few exploration companies are able to communicate these critical aspects of an exploration strategy. Some important pointers are shown below:
1. Why are you exploring in area "X"? What is unique about this area geologically to produce the next discovery?
2. What is the deposit model on your projects? What are the important geological factors that need to be in place?
3. What techniques are you using, and how are they different from explorers that have already been here?
4. Why is your team the winning team of explorers?
5. What is your portfolio management strategy? What are the criteria to park an exploration project or progress it to drilling?"
Interested to learn more? Check out my video from Deutsche Goldmesse conference on these topics.
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