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What is an exploration company ?
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The role Exploration firms play within the metal industry
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Key drivers for exploration companies
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Potential
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Mining project cycle
What is an exploration company ?
During the first phase of mining ventures, the exploration stage aims to delineate mineral deposits of economic interest. Exploration activities include
geological mapping, geophysical surveys, geochemical analysis, trenching and drilling
When a deposit is found, economic figures are integrated into the resource model to determine its economic viability. Three principal types of feasibility studies are often undertaken in making a decision to develop a project. These are:
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the pre-feasibility study (reliability: +/- 30 to 50%),
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the feasibility study (reliability: +/- 10 to 20%.) and
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the 'bankable' feasibility (BFS)which is used by financial institutions to assess the credit-worthiness for project financing.
During the feasibility stage, all technical and economic assumptions are detailed and modelled to provide a comprehensive technical report. During this process, further independent engineering review and complementary metallurgical sampling program can be undertaken to provide better cost estimate along with the mine design and the development plan.
Thus the quality of an exploration company depends on its:
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Property - Field: Strategic location
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People: Experience management team, professional geologists, engineers & financers
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Partners: Partnership with major mining companies
The role Exploration firms play within the metal industry
Explorer companies are the lifeblood to the industry as they assure the replacement of depleting existing mines. Without exploration, producer companies will eventually run out of metals over time.
Experienced geologists are constantly searching for new places to drill using traditional and very sophisticated tools.
Exploration is a high risk, high return business. To many investors buying exploration stocks is like buying a lottery ticket: Drilling and digging without result will end in bancrupcy - successful drilling can bring a fortune.
Mining producers companies prefer buying mining permits with proven reserves at an elevated price rather than to spent huge amounts for potentially unsuccessful drilling.
Key drivers for exploration companies
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Know-how
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Low capital expenditure relative to possible high reward
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Ownership of exploration & mining rights
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Diminishing reserves of certain minerals
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Degree of bidding competition among producer companies (Takeovers)
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Potential solution for reserves' renewal for mining companies (i.e. location)
Potential
The comparison of Exploration to a lottery ticket gives a sense of risk and reward. Betting on only one single junior Explorer fits definitely within this analogy.
The risk-reward equation can substantially be scewed to the right through diversification. Yes, even a broadly diversified portfolio will have some fallouts. But some of these small capitalized firms offer such a leverage should they be successful in finding metals that stock performances of several thousand percents can be seen. In other words: downside 100 %, upside unlimited.
Mining project cycle
