The Curious Case of Metal Bias

By:

Erik C. Ronald, P.Geo
01-April-2018

Conscious Bias in Mineral Exploration and Mining

This article looks at how many exploration and mining companies fail to fully maximize their deposits. They often do this in two ways: by focusing on a single commodity/product and not thinking outside the box in order to maximize potential revenue streams from an ore body.

An observation I’ve repeatedly noticed in mining and exploration is some companies have a cultural mindset and conscious bias that deposits can only host a single commodity. This mindset is most often present with junior companies where there is a particular focus, fascination, or obsession on a single metal or product which results in bias toward that metal and away from potential by-products or secondary sources of revenue. Often we hear the phrase “We are a (insert commodity here)-focused company” which can translate to mean that the company doesn’t care about making money as much as producing a single commodity or product. In some cases, it may be warranted as I can appreciate pure gold companies purposely focusing solely on gold due to the valuation multipliers applied to gold company stock. Pure gold companies are an exception but still may learn something from this article.

There is certainly something to be said for a company to have a focused strategy, dedicated management team, and grit to stick to the plan over the long run. The market is full of unsuccessful companies that change their focus resulting in misallocation of capital, misled shareholders, and general dysfunction. That stated, a mining company’s focus and primary mission is to maximize profit from their foundation assets. In other words, they need to squeeze as much cash out of their rocks while minimizing capital expenditure. Mining investors should demand that management teams explore all options to increase revenue through potential by-products and ensure they are not leaving money on the table by biasing efforts on particular metals or products. The capital required may be too high to recover some elements but that doesn’t mean it shouldn’t be investigated and understood as price fluctuations and advances in technology may change the viability of recovering a co-product in the future.

Figure 1: Freeport’s Grasberg Mine in Indonesia is the world’s largest gold mine that is actually a copper mine. 

Columbus Syndrome

We all know the story of Christopher Columbus. The Italian explorer set off in 1492 from Cádiz, Spain, funded by the Spanish monarchy to find a faster route to Spanish colonies in the Spice Islands (Indonesia) amidst strong competition from other European kingdoms. While looking for one thing he found another, sailing upon the Island of Hispaniola in the Caribbean. Fast forward 100 years and the Spanish Empire is the richest and most powerful nation on Earth. Sometimes, at no fault of our own, we stumble upon something great when we’re looking for something good. There are more than a few case histories out there of explorers and geologists searching for one thing and discovering something else.

Everyone loves gold. It’s shiny, it’s worth a lot and most people have a bit on a finger, around their neck, or stuck in their ears. If you’re a geologist logging core, one would assume you’d notice it, make note of it, and perhaps even get excited by it. After all, the purpose of a geological log is to capture all the lithological, textural, and structural attributes including alteration and mineralogy. So then how would a geologist miss a nice shiny piece of visible gold? The easy answer is they aren’t looking for it. A friend of mine mentioned once he was tasked with relogging core at an industrial minerals operation not far from a world-class gold district when he came across VG in the core. One would obviously second-guess themselves as the original logger missed it entirely – but did find the industrial mineral. I didn’t believe him until I saw the core and logs for myself. The moral is when you’re focused on finding one thing and ignore the big picture, one often misses the gold deposit right under foot. Amusingly, the mine had operated for about a decade before they decided to drill out the gold anomaly. As you’d guess, they found some nice grades at depth but as they “are not a gold company”, they sold off the land package for a song.

Figure 1: Visible gold hosted in carbonate. (Luckily, the author cleaned his fingernails prior to this photo).

Mineral Deposit Models Matter

For geologists, mineral deposit models are important. They tell us what should be associated with a deposit and why. We love to argue about whether a prospect is a porphyry or a skarn or if there is such a thing as an intermediate sulphidation epithermal deposit. The reason geologists like to put a deposit into a nice, neat little category is it helps them to understand the chemistry, mineralogy, and genesis of the ore body. These aspects may seem academic to some in the industry but they are critical concepts in exploration as they help us understand the potential for by-products and deleterious materials. For instance, a few years ago some colleagues and I toured a porphyry project in Eastern Australia. The junior company was solely focused on their marginal Cu-Au grades, which was understandable. They failed to recognize that many Paleozoic island arc porphyry deposits also host economic amounts of Ag. A quick look at their assay database proved it, they had been ignoring appreciable Ag grades. This allowed them to re-evaluate the project using a copper equivalent cut-off grade instantly increasing their Mineral Resources by 10%.

Iron Ore Copper Gold (IOCG) deposits are pretty cool ore bodies. Probably the best and worst named of all deposit types, it doesn’t take a PhD to recognize what types of ore you may encounter. A tricky thing about them though, is that not all contain the mineral wealth of Olympic Dam and there are end-members between the Cu-rich Prominent Hill to the iron-rich members in Sweden and Northern Finland. That said, I was in Chile recently looking at some IOCG deposits and was surprised to find a company operating several IOCG’s focused solely on copper. Nothing against copper of course; but when your deposit hosts an average Fe grade of 40% and consistently runs between 0.25-0.4 g/t Au and 2 g/t Ag a company should likely aim to maximize what Mother Nature provided.

When is Waste not Waste?

For most miners, waste rock is a natural part of operations with little thought given to it other than trying to find enough real estate to dump it on. Waste rock can be tricky as it is rare that anything economic may come out of it. In metal mines, this could be areas of material below cut-off grade, material containing high deleterious minerals, or just altered “junk” rock with no economic benefit or use. For some more entrepreneurial open pit operations however, I’ve seen waste rock classified and stockpiled for aggregate production. In these cases, a third-party aggregate or construction company is brought in to process and sell it.  For the mining company, they now have an additional revenue stream to help offset costs for waste rock removal thus changing their project economics, allowing for an increased strip ratio and a longer mine life.

One of the most creative uses of mine waste I’ve seen was in Montana, USA where an industrial minerals company sells waste rock to local landscapers as decorative rock because it contained a beautiful combination of iron oxides, calcite, and quartz crystals. Of course, everyone in town wanted a front yard with some sparkly rocks mixed in with their flower gardens.

Figure 2: Waste rock at -US$15/tonne or crushed landscaping rock at +US$40/cubic meter?

Another interesting development over the past year has been groups investigating the potential to extract economic elements from coal waste. There are several current studies by the U.S. Department of Energy and several universities looking at recovery of rare earth elements (REE) from coal waste. Eastern U.S. (Appalachian) coal ash contains recoverable concentrations of neodymium, europium, terbium, dysprosium, yttrium, and erbium. Some Appalachian coal ash contains over 600 ppm of total REE. Not bad for something that is typically considered a problem or a useless waste product.

A Zero Waste Mine?

There are a few innovative companies out there that are diligently looking at maximizing revenue by trying to sell every ounce of material they mine, thus creating virtually zero waste products from their operations. One in particular is a Canadian junior looking at developing an orthomagmatic layered mafic intrusive deposit that hosts economic concentrations of Fe, V, and Ti. They are designing their process to create high purity pig iron, ferrovanadium steel additives, titanium feedstocks, and even TiO₂ pigment. Waste rock is primarily high purity feldspar that has applications in the ceramics industry. Zones below cut-off grade or country rock are being planned as construction aggregate. The whole aim is to sell every tonne that is dug up. It is certainly a progressive and innovative ideology that the company’s management team is taking which will hopefully become the norm in the future.

Summary

In mining, Mother Nature has provided us a limited supply of economic metals and non-metals. Ore bodies, by definition, are anomalous and the industry often does not optimize the true economic value of deposits. This may be due to metal bias, high corporate overheads, inefficiencies, or just good ol’ fashioned ineptitude. Either way, it is essential for mining management to leave no stone unturned (pun intended) to maximize revenue streams while reducing costs. This is most often done by:

• Detailed pre-mining geological and metallurgical characterization of a deposit and waste rock for current and potential products;
• Economic cut-off based on net smelter return (NSR) or a metal equivalent to take into account all potential sources of revenue. This must be reviewed regularly as recovery technology improves and prices fluctuate;
• A big-picture view, understanding of the mineral deposit model, and willingness to think outside the norm, and;
• Open-minded management team willing to explore all possibilities of joint venture, long-term capital investment, alternative revenue streams, and support for detailed technical studies to truly squeeze every last dollar out of a deposit.

I hope this article has provided some items to consider, contemplate or perhaps just make you re-check your assay database tomorrow. Thanks for reading and be sure to leave a comment or story below.