Costs, Risks, and Returns of Copper Exploration: Assessing Trends in Discovery and Maturity with Particular Reference to Chile
Richard A. Leveille, Michael D. Doggett, 2005. "Costs, Risks, and Returns of Copper Exploration: Assessing Trends in Discovery and Maturity with Particular Reference to Chile", Wealth Creation in the Minerals Industry: Integrating Science, Business, and Education, Michael D. Doggett, John R. Parry
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Meeting the increased global demand for copper over the past several decades has required the discovery and development of significant numbers of new copper mines. An analysis of the copper industry during the period 1950 to 2004 is presented to highlight the role that exploration has played in maintaining a sufficient reserve base. On this basis, copper exploration has been highly successful, with net reserve additions nearly double primary production and 65 lb of copper being added to reserves for every dollar of exploration expenditure. Analysis of time trends within the overall period reveals that exploration performance dropped sharply during the last half of the 1970s and first half of the 1980s before rebounding in the 1990s and beyond. A more detailed economic analysis of the deposits discovered and developed during the 1992 to 2004 period indicates that the mean and median discounted returns to development were above breakeven. When the cost of exploration is added, the returns to the industry overall are below breakeven. Only the best 26 percent of deposits could cover the average cost per deposit of discovery, delineation, and feasibility. Given the important role that Chile has played in the expansion of the copper industry, special attention is given to exploration analysis in that country. From 1970 to 2004, copper exploration in Chile has been highly effective in replacing production and adding new reserves. Time-trend analysis indicates, however, that returns to exploration have been in decline since peaking in the early 1980s. In spite of this decline, Chile outperforms the rest of the world, as evidenced by a comparison of returns to development and to exploration over the 1992 to 2004 interval.
While the returns to development in Chile were only slightly higher than those for the rest of the world, the returns to exploration were significantly higher due to the lower discovery cost for Chilean deposits.