The Role of World-Class Mines in Wealth Creation
Richard C. Schodde, Jon M. A. Hronsky, 2005. "The Role of World-Class Mines in Wealth Creation", Wealth Creation in the Minerals Industry: Integrating Science, Business, and Education, Michael D. Doggett, John R. Parry
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Owing to the size (as measured in terms of contained metal) of world-class mines and their ability to create significant wealth, most mining companies are eager to discover and develop such deposits. This paper reviews current definitions for the term “world-class” deposits. The existing frequency- and size-based definitions do not capture the “essence” of the term. In its place, the authors propose an economic definition for gold, diamond, and base metal deposits that is based on achieving a minimum Net Present Value (NPV, at the decision-to-build stage) of $250 M in constant 2004 U.S. dollars. In turn, this minimum NPV is based on a discount rate of 7 percent after-tax. In practice, to meet this NPV target the deposit must contain at least 6 million ounces (Moz) of gold or 5 million tonnes (Mt) of copper-equivalent metal.
The size of the NPV threshold was based on studies of 143 major base metal, gold, and diamond discoveries made in low-risk countries over the period 1985 to 2003. The analysis showed that deposits above this threshold have special economic and geologic characteristics. Over the study period, only two world-class deposits were discovered on average in the world each year.
Of the 74 major base metal deposits studied, 14 percent of the total number of deposits were considered world-class and these deposits accounted for 32 percent of the total metal content, 60 percent of the total taxes paid and 67 percent of the total NPV created.
Similarly, of the 63 major gold deposits studied, 15 percent of the total number of deposits were world-class, and these accounted for 30 percent of the contained ounces and 53 percent of the total NPV. Clearly, much of the industry’s wealth is captured in a handful of (world-class) deposits.
Of the 19 world-class deposits studied, 11 are in production, three are under construction and five are under feasibility. By comparison, of the other 95 deposits evaluated, 62 are (or were) in production, seven are presently under construction, 17 are at the feasibility study stage and 39 are undeveloped.
In addition to the wealth generated for investors, world-class mines are of great importance to industry and society. The benefits include being a driver for creating new companies and funding additional exploration and innovation. They can also stimulate other (smaller) mines to open up in the area, and encourage ancillary industries and downstream processing.
The paper also assesses the employment aspects of world-class mines. An analysis of 22 prior economic studies demonstrates that world-class mines create nearly twice as many jobs in the general economy as other mines.
Given that the majority of the mining industry’s wealth is captured in a handful of (world-class) mines, it is these deposits that give the industry the best opportunity to make a positive and lasting impact on society. For this reason, the mining industry must continue to focus on finding and developing world-class deposits.