Major producers have taken the lead in the 2016-2017 push for copper exploration, claiming 68% of the global budget for such exploration (versus 57% at the peak of the exploration cycle in 2012). Indeed, as a group, the 12 largest majors active in exploration boosted their copper exploration budgets by as much as 32%.

A shrinking resource, and growing demand

This incipient but strong recovery in exploration spending highlights once more the question of how best to manage exploration spending to maximise returns.

Key considerations for miners include the following:

•             Exploration tracks with price: Increasing copper prices go hand in hand with exploration spending, and the two have shown a strong correlation in the past (a surprising R2=0.8 for 1998-2017). Naturally, miners start boosting their exploration spending with their long term back in focus when their bottom lines become healthier. But, as a result, they also rush after the same resources (such as drilling services and geologist experts) at the same time—which pushes exploration costs up.

•             The number of significant copper finds has dwindled, even as exploration budgets reached record heights (figure 2, below): The draught in recent-year discoveries has come at a time of significant expenditure, resulting in an increasing cost-per-discovery for investment in exploration. And as stated in in our report Tackling the crisis in mineral exploration, this is a common theme across gold and base metals as well. Moreover, high-grade deposits are becoming ever scarcer. Aside from the exceptional finds of Timok and Kakula, the grade of major copper discoveries made after 2010 is below 1% copper.

•             Only a handful of discoveries will make it to the production stage: Of all the major copper deposits (those with more than 0.1Mt Cu) that do get discovered, just 50%-60%, on average, will ultimately be developed. Pitfalls on the road to development include low ore grade (which makes mining economically unviable), difficult geographies and inbound/outbound logistics, regulatory challenges, and a dearth of sound infrastructure (to name just a few).

The upshot? At its current rate, discovery of copper deposits stands little chance of satisfying demand expected to be seen in the long term. So producers will likely see strong support for copper prices in the long term. But this situation may also justify development of low-grade deposits that were previously deemed unprofitable to mine.

Rethinking exploration strategy

To take advantage of heightened demand for copper and improve their chances of finding and developing the quantity and quality of ore needed to satisfy that demand, miners will have to take a fresh look at how they approach copper exploration. Some of the majors are already moving on this, including expanding copper reserves and resources to support additional future production capacity, acquiring juniors and mining projects to improve the permitting process, and partnering with state-owned copper producers to advance projects to the feasibility stage. 

We also think that now is the time for miners to take a fresh look at exploration success factors that we identified in Tackling the crisis in mineral exploration. By integrating these practices into their exploration strategy formulation, miners can sweeten their odds of not only spending the right amount of time and money in the quest for ore bodies but also discovering these bodies in the first place.

Let's take a look:

1.            Pursue mineralised districts. Forgo frontier areas that have no definite sign of mineralisation. Although synonymous with new frontiers, greenfield exploration does not mean searching areas that have no clear signs of mineralisation and "prospectivity". Indeed, Sig Muessig, who led the team that discovered Chile's Escondida, stated that the odds of exploration success were much better "in the shadow of the head frame".

2.            Aim for simple, large targets. Work with—not against—nature. For instance, large orebodies make much easier targets for exploration than shoots or veins do. While pursuing complex or exotic deposits may be tempting, remain pragmatic.

3.            Commit to drilling. Minimising drilling to save money may seem sensible on the surface, but successful explorers are those who drill the most holes. You only have to be right once, and that one victory can compensate for numerous unsuccessful attempts. Consider drilling as soon as possible after acquiring a property, too, to generate hard data that can help you use modelling to further optimise additional investment.

4.            Balance greenfields and brownfields. In today's risk-averse environment, many companies favour near-mine, or brownfield, exploration over greenfield exploration. But the assumption that greenfields are riskier than advanced projects in near-mine locations rests on flawed logic. The fact is, as projects approach depletion, they become riskier than greenfields. So, mix the two types of fields to create a diversified portfolio with projects on different development time lines.

5.            Align drilling strategy with return on investment. Find ways to stretch the return from money invested in drilling. For example, use inclined holes to penetrate targets lying directly beneath difficult surface terrain, and deploy new caving methods to start development of deposits farther underground.

6.            Augment digital tools and modelling with ‘boots and hammers'. Technologies such as artificial intelligence have boosted computers' ability to identify ore deposit patterns. But be sure to combine use of such technologies with the experience and skills of geologists in the field. In particular, enable geologists to spend extended time in the field (versus the ‘fly-in, fly-out' way of working). They'll generate insights and observations that augment findings from digital tools.

7.            Consider joint ventures. To accelerate entry into countries where you have little or no prior experience, partner with local companies that understand key characteristics such as the political landscape.

8.            Be persistent and patient. At a minimum, allow three years for testing a greenfield terrain with confirmed mineralisation. And be patient; discovery to mine startup can take as long as 12 years.

Copper exploration today comes with some daunting hurdles.

To overcome them, miners will need to devise savvier exploration strategies. The practices described here require the willingness and ability to challenge some long-held assumptions and make moves that may seem counterintuitive.

But given the ever-tightening constraints affecting the copper mining industry, no company can afford to be complacent about their approach to exploration.   

*Gustavo Nieponice (Nieponice.gustavo@bcg.com) is a senior partner and managing director at The Boston Consulting Group Agustin Costa (costa.agustin@bcg.com) is a partner and managing director at the firm; and Xinying Chia (chia.xinying@bcg.com) is a senior knowledge analyst in BCG's Metals & Mining practice.