The returns on mining exploration investments

Abstract

This paper explores the state of the art of the research regarding the returns on the investments in mining exploration from different perspectives. The analysis begins with an introduction to population trends, economic growth and world mining. Then we go through a detailed analysis of the different options for examining the returns obtained from mining exploration: exploration versus deposit discovery, ROI, mining exploration success rate, TSR, exploration costs versus resources found, and mining companies and the benefits from mining investment funds. This review concludes that although ROI analyses are in general negative for mining, nevertheless when an important deposit is found as a result of exploration, ROI becomes highly positive. Besides, there is a consensus in that the greenfield exploration rate of success is from 0.5 to 1% whereas in brownfields the figure (as expected) rises to 5%. TSR studies indicate that mining indexes can reach return rates of 17.5% in some periods and negative rates with respect to other indexes, clearly highlighting its very cyclical nature. The case we present for the returns for gold exploration in Australia shows high benefits for mining companies, but, in general gold deposits with processing costs over 1,000$/ounce can produce losses. In any event, the overall results of the main global mining companies show long periods with benefits intercalated with short periods of high losses, which again highlights the cyclical character of the global mining business. Investment funds advocating mining show similar behaviour. We also show the future of the world mining sector from different prospective studies which suggest that mining will no doubt survive to due to its cyclical nature. In this respect we will see a more sustainable consumption of mineral resources in a more sustainable world, which will also see an increment of recycling within the framework of the new circular economy. However, all this will only happen if adequate infrastructures, regulatory framework and competitive costs are provided by the social, economic, and industrial stakeholders. Technology will be a decisive key factor in the future, as will be a better understanding of the supply chains and client preferences.