Once an exploration company has been awarded the proper permits for a parcel of land they are interested in prospecting, the work begins. After “staking the claim” the next phase is the lifecycle of a mine is the exploration phase, which is also the longest and riskiest phase.
By Leia Toovey- Exclusive to Gold Investing News
Once an exploration company has been awarded the proper permits for a parcel of land they are interested in prospecting, the work begins. After “staking the claim” the next phase is the lifecycle of a mine is the exploration phase, which is also the longest and riskiest phase. The goal of this phase is to incrementally collect data regarding the potential of a mineral reserve.
The overall exploration phase involves many steps. This piece will focus on the preliminary exploration phase, regional exploration, where a company tries to determine whether or not their property hosts a feasible gold reserve; and if so, where the reserve is most likely located. In the next part of these series we will look at the more advanced part of the exploration phase, where a company is more certain that their property hosts a reserve, and therefore is working to delineate the reserve and start the necessary environmental assessments so that mine construction can kick-off in timely fashion
It is important to note that overall, exploration is not a “one size fits all” prescription, and there will be different starting points, and different techniques for different projects. Many properties have a history of exploration work, which a company can leverage. In other cases, they may be starting from scratch. The first goal in preliminary exploration is to narrow down the search area, to determine where a mineral deposit is most likely located. Eventually, the goal is to start drilling. Luckily, long gone are the days where exploration companies would “blind drill.” Now, they have a suite of sophisticated exploration techniques that they can employ to locate where a valuable mineral deposit may lie.
Drilling is conducted with the purpose of furthering the knowledge about a mineral deposit, but proper placement of drill cores is essential, because the assay results from drill cores are reported to the public. In an investment climate where sentiment is paramount, reporting “bad” drill results can be detrimental to share values. On the contrary, investors should take heed when looking at buying into a company that reports one excellent drill core. While gold is a bit finicky because it is so rare, pay attention to average grades, and drill cores that “start and end in mineralization.” Please note that nuances of drill cores are beyond the scope of this piece, and will be fully addressed in the next exploration piece.
The techniques used in gold exploration fit into two broad categories: geophysics and geochemistry. Geophysical methods measure variations in physical properties of rocks as a tool to locate mineral deposits. Geophysical methods are paramount, because they enable geologists to actually “see” into the earth itself; to understand the sub-surface structure and where a mineral deposit is most likely located.
At first, regional scale geophysical surveys are employed. Ground geophysics surveys are not as often conducted at the beginning phases of exploration work because they are costly. A variety of geophysical techniques commonly employed in regional analysis include: remote sensing (aeromagnetic surveys, satellite imagery, and sometimes aerial photographs) magnetic surveying (including Induced Polarization).
Geochemistry, which involves assaying, usually follows geophysical data collection, at least when it pertains to “drill cores.” However, assaying may be conducted on hand specimens collected from outcrops, or it may be undertaken as a spot check- to verify data collected through geophysical tools. Assays are carefully analyzed, not only for actual gold, but also for important indicator minerals that suggest the nearby location of a gold reserve.
If the exploration company continues to collect evidence that supports the nearby location of a valuable mineral deposit on their property, then they will continue to collect data to help pin-point the mineral reserve. On the other hand, if the data does not support a resource, then the property may be abandoned- or the exploration company will turn its focus towards other targets identified in the regional analysis.
The cost of exploration can vary incredibly depending on a number of factors, but can easily run up to about one-quarter of what actually mining costs, when compared on a per ounce basis of mined gold. Unless we are dealing with a major miner with deep pockets, chances are, at some time during the exploration phase, the explorer will try and raise capital. If the company is not already public, you will most likely see the IPO sometime during the exploration phase. If the company is already public, and even once it goes public, you will most likely see multiple financing phases, used to drum up cash to spend on further resource identification. While you don’t want a company to dilute shareholder value, you do want it to raise money so that it has the money to properly conduct its exploration initiatives. The exploration phase is also where investing can really pay off. This phase may be riddled with volatile stock swings and speculation, but this is also where the swings may be in an investors favour.
Next up, in the second part of the exploration phase of the life cycle of a mine series we are going to look at the more advanced part of the exploration phase- where drilling, speculation, and proper data collection (for NI 43-101 and JORC compliant resource estimates) come into play.
Read the entire Life Cycle of a Gold Mine series.