What do Australia’s new class of successful explorers have in common?
An extraordinary number of company-making, ‘frontier-type’ mineral discoveries have been made in Australia over the past six to eight months. What are some common denominators between these explorers?
In September, small cap gold producer Alkane Resources (ASX:ALK) discovered a potentially massive porphyry gold-copper system in Central NSW.
In December, Legend Mining (ASX:LEG) announced a ‘Nova-like’ nickel-copper intercept in WA’s Fraser Range.
For Pilbara explorer De Grey (ASX:DEG), the first signs of a discovery at the Hemi prospect at Mallina emerged in December last year, but it wasn’t until early February, when thick, high-grade gold intercepts were returned from two zones, now known as Brolga and Aquila.
That same month Sky Metals (ASX:SKY) hit a massive 93m grading 4.24 grams per tonne (g/t) gold, 56m from surface, in maiden drilling at the Hume prospect, part of its Cullarin project in NSW.
Then in March, Chalice Gold Mines (ASX:CHN) gave investors something unexpected to cheer about, hitting high-grade nickel-copper-palladium with the first-ever drill hole into the Julimar project, about 60km from Perth in WA.
These new project discoveries have created a huge amount of value for these explorers and their shareholders.
Just look at the charts:
This cluster of discoveries stand out because greenfields (unexplored) exploration is a tough game.
Most exploration targets will be dogs. Even successful discoveries are usually the product of years and years of hard work.
“A geologist/analyst colleague of mine said he can’t remember a period, a six-to-eight-month window, where we have seen so much exploration success,” Minelife senior resources analyst and founding director Gavin Wendt told Stockhead.
“We are talking about high-quality, greenfields exploration success, often in ‘frontier’ areas.
“If you have a look at the 20-year period in Australia between 1990 to 2010 there were very few greenfields successes like the type that we are talking about now.
“There would have been billions of dollars raised over that period for exploration, and investors didn’t necessarily see much in return.”
There was also a period there where explorers were going overseas because there was a feeling that the big discoveries in Australia had already been made, Wendt says.
“They were saying that the low hanging fruit in Australia had already been picked,” he says.
“It’s taken another 10 years for well-credentialled explorers to show that that is certainly not the case.”
Obviously, the next question is, why? What are the common denominators between all of these companies?
Boda, Hemi, Julimar, Thursday’s Gossan — these are virgin discoveries in areas that have had limited exploration in the past. That’s what gets the market excited, Wendt says.
“Chalice’s Julimar discovery in WA, for example,” he says.
“You have to go back decades, really, until you find the last meaningful exploration activity carried out by the majors in that area. It was dropped and forgotten about for a long time.
“When it comes to Legend, while we had the Nova discovery in Fraser Range, it is still a relatively ‘new’ exploration address.”
The next common denominator – if you look at Chalice, De Grey, Legend, Alkane, Sky and Stavely – is the quality of the leadership group.
Chalice exploration manager Dr Kevin Frost won AMEC’s Prospectors Award in 2009 for discovering the Spotted Quoll nickel sulphide deposit in WA.
Sky’s exploration success at Hume was spearheaded by former boss Peter Duerden (now at Magmatic Resources (ASX:MAG) – who is considered an expert on NSW mineral systems.
Sky Metals also is chaired by successful mining boss Norman Seckold, who helped complete the $200m float of Nickel Mines (ASX:NIC) as the company’s deputy chairman.
Nickel Mines now has a market value of nearly $1bn after about 18 months on the bourse.
The list goes on. A common trait here is experience and success, says Wendt.
“You’ve got crusty old geologists there who, in most instances, have seen it before, done it before, and had success before,” he says.
“That seems to be a common denominator – very experienced boards who are prepared to go out there and drill some dud holes if necessary, because they know what it takes to vector in on something big.”
Successful exploration teams also do a lot of background technical work to ascertain where potential opportunities might lie.
Hedley Widdup, investment manager at Lion Selection Group, has often wondered if some of these discoveries “are born from years of confinement”.
“Maybe the inability to raise funds for greenfields work between 2011-2017 had a bunch of exploration managers saying to themselves ‘when all this is over, I know exactly where I’m going to go’,” he told Stockhead.
“A long period of inability to spend much money means good exploration managers are combing over data, deciding what ground to peg, turning over old [geological] models in their head.”
Big discoveries still usually need a lot of lead time, Widdup says. Explorers don’t often spend five to six years ‘thinking’ about a concept, then go in and drill a discovery hole straight away.
“But it might mean that when they can spend money, they can peg an area which contains a great idea but needs considerable refinement to know where to drill,” Widdup says.
“That starts them off mapping, collecting geophysics and soils, and so on.”
This early stage work is important. Even then, Chalice at Julimar being the exception, most explorers won’t get success with their first drill hole.
You don’t usually get the ‘sniffs’ of mineralisation and the bonanza hits all at the same time, Wendt says.
“Typically, there will be initial exploration that shows whether a company might be on the right or wrong track. It’s all trial and error,” he says.
“That’s when they start to vector in on where the elephant may be hiding.”
Wendt says the only certainty in exploration is this; if you aren’t drilling, you won’t find anything.
That takes a lot of work. This is why the successful greenfields explorers don’t necessarily have their fingers in a whole bunch of different pies.
Legend is focused on the Fraser Range, Alkane on NSW, and Stavely on similar geology in Victoria and NSW.
De Grey has held its Pilbara tenement package since 2002 but renewed its focus on the region in 2016 when Andy Beckwith came on board.
Even Chalice’s focus until now has been methodically exploring the Pyramid gold project in Victoria, where they are now starting to enjoy early stage success.
There’s a real ‘single-mindedness’ in what all these companies are doing. They have confidence in their projects with the technical nous to back it up.
“It takes a significant amount of trial and error. They are prepared to be in this for the long haul,” Wendt says.
“In the case of Stavely, they have been drilling for years. They didn’t just start drilling six or 12 months ago. Legend has been persisting for years in the Fraser Range.”
And successful companies are often exploring throughout the cycle, irrespective of what the price is doing at a particular point in time.
“If you are a company management team that worries about ‘only being active when the market is supporting us’ or when commodity price is high; well, that’s not the way the market really works,” Wendt says.
Another reason for this string of successes are the investors which are prepared to back a company through the cycle, irrespective of what is happening with prices for metals like nickel and copper.
“The companies we are talking about have access to sophisticated investors who are prepared to back them,” Wendt says.
“If you a find a Nova or a Julimar it doesn’t matter what the nickel price is. It’s going to be an outstanding, world-class deposit that will make money.”
Having cash gives these explorers the financial security to explore ‘frontier’ areas and test new ideas.
“They can look at something that is a little bit left field perhaps, because they have the confidence of knowing they have the funds to do it,” Wendt says.
“They don’t need to explore where the market wants them to explore in order to raise funds.
“That is often the difficulty for small companies. They are commercial beasts, and sometimes it becomes easier to chase ‘nearology’ or the commodities that are hot right now.”
And if the market won’t do it, the majors often will. Major miners are increasingly teaming up with quality junior explorers through lucrative joint ventures.
“They are like the extension of a sophisticated investor who can see which explorers have a really good chance of making a discovery,” Wendt says.
“The bigger miners realise that it makes financial sense to team up with the juniors — who are typically a lot better at finding things — and give them cash to go out into the field and drill.”