• 4 hours Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 9 hours British Utility Companies Brace For Major Reforms
  • 13 hours Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 15 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 16 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 17 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 18 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 20 hours Rosneft Signs $400M Deal With Kurdistan
  • 22 hours Kinder Morgan Warns About Trans Mountain Delays
  • 1 day India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 1 day Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 2 days Russia, Saudis Team Up To Boost Fracking Tech
  • 2 days Conflicting News Spurs Doubt On Aramco IPO
  • 2 days Exxon Starts Production At New Refinery In Texas
  • 2 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 3 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 3 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 3 days China To Take 5% Of Rosneft’s Output In New Deal
  • 3 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 3 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 3 days VW Fails To Secure Critical Commodity For EVs
  • 3 days Enbridge Pipeline Expansion Finally Approved
  • 3 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 3 days OPEC Oil Deal Compliance Falls To 86%
  • 4 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 4 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 4 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 4 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 4 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 4 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 7 days Texas Shutters More Coal-Fired Plants
  • 7 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 7 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 7 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 8 days Husky Energy Set To Restart Pipeline
  • 8 days Russia, Morocco Sign String Of Energy And Military Deals
  • 8 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
Alt Text

World’s Biggest Miner Prepares For The EV Boom

The world’s top mining company…

Alt Text

Busting The Lithium Bubble Myth

Lithium demand continues to grow…

What to Look For When Investing in an Exploration Company

What to Look For When Investing in an Exploration Company

Calling all mineral explorers. Australia needs your help.

The Australian Institute of Geosciences (AIG) this week released a report noting that the Aussie exploration sector is suffering.

AIG blames the decline on a few things. Major producing companies moving out of greenfields exploration, to focus on near-mine exploration. And lack of a "flow-through" tax scheme that would allow investors in exploration companies to claim significant tax credits, making investment in exploration more attractive.

The upshot being that companies with money are choosing not to explore. And companies that want to explore are having a hard time getting money.

AIG sees this (rightly) as a big issue. The group notes that just six Aussie mines account for a disproportionate amount of output: 86% of copper production, 93% of lead production, 69% of zinc production and 77% of silver production.

More worryingly, five of these six mines are classified as mature (Olympic Dam being the only "young pup"). Across the top gold producing mines in the nation, the average age is a ripe 24 years.

Exploration is obviously critical to ensuring the development pipeline that will keep the smelters in business over the coming decades. But how to pay for it?

This is global problem. Countries like Canada have dealt with it to a certain to agree by introducing the aforementioned "flow-through" tax scheme. Exploration companies get tax credits for the geophysical surveys they fly and the drill holes they put in the ground. They then pass these credits to investors, increasing the likelihood of a positive return on investment.

But this alone can't make up for the hard truth: exploration is a tricky business. How do you attract capital to sector where success rates run below 1%?

With exploration increasingly being left to the junior sector (a number of majors have recently down-sized or eliminated their exploration departments), a few answers are emerging about how exploration will get funded.

The first and most prevalent way is through manias. Irrational enthusiasm for a country or a particular metal tends to loosen investors' purse strings.

Millions of dollars have been raised for exploration in Colombia and the rare earth metals over the past year. Not because prospects in either of these spaces are head-and-shoulders above other areas. Simply because investors got fired up on these stories.

Smart (or opportunistic) explorers use these boom times to stock up on capital. The smart ones will make it last through the inevitable downturn.

Another way to finance exploration is come up with a better business model. The "project generator" companies have been doing this for years.

These companies are in the idea business. They apply their geologic knowledge and come up with mostly-conceptual exploration plays. The good ones then sell these ideas to other, well-funded companies (majors or the opportunistic juniors who raised capital in a boom and have now run out of their own ideas).

Project generators retain interests in all of their projects without having to spend much capital on exploration. Companies like Auex Ventures have used this model to succeed with important greenfields discoveries recently.

Then there's the rarest type of explorer. The truly excellent.

There are a few exploration teams on the planet that seem to be capable of reliably coming up with really, really good concepts. Usually this involves a combination of technical skill and patience.

These teams (or sometimes just one individual) are willing to sift through thousands of exploration ideas until they find the one they know will work. Most companies identify the successful 1% of exploration projects through drilling. The great ones do it in their heads, appraising potential projects against their well-honed internal checklist for success and then relentlessly discarding plays until they find one that fits the bill perfectly. The follow-on drilling is simply confirmation.

These are people like David Lowell. They're certainly not common. But the few that do exist are good enough to attract funding no matter what is going on in the wider sector.

Next time you look at buying into an exploration company, ask: which model am I paying up for?

By. Dave Forest of Notela Resources




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News