Visualizing the Life Cycle of a Mineral Discovery
Mining legend Pierre Lassonde knows a little bit about mineral exploration, discovery, and development. Drawing from decades of his experience, he created the chart above that has become a staple in the mining industry—the Lassonde Curve.
Today’s chart of the Lassonde Curve outlines the life of mining companies from exploration to production, and highlights the work and market value associated with each stage. This helps speculative investors understand the mining process, and time their investments properly.
Making Cents of Miners: The Stages of a Mineral Discovery
In the life cycle of a mineral deposit, there are seven stages that each offer specific risks and rewards. As a company proves there is a mineable deposit in the ground, more value is created for shareholders along the way.
This stage carries the most risk which accounts for its low value. In the beginning, there is little knowledge of what actually lies beneath the Earth’s surface.
At this stage, geologists are putting to the test a theory about where metal deposits are. They will survey the land using geochemical and sampling techniques to improve the confidence of this theory. Once this is complete, they can move onto more extensive exploration.
There is still plenty of risk, but this is where speculation hype begins. As the drill bit meets the ground, mineral exploration geologists develop their knowledge of what lies beneath the Earth’s crust to assess mineral potential.
Mineral exploration involves retrieving a cross-section (drill core) of the crust, and then analyzing it for mineral content. A drill core containing sufficient amounts of metals can encourage further exploration, which may lead to the discovery of a mineable deposit.
Discovery is the reward stage for early speculators. Exploration has revealed that there is a significant amount of material to be mined, and it warrants further study to prove that mining would be feasible. Most speculators exit here, as the next stage creates a new set of risks, such as profitability, construction, and financing.
This is an important milestone for a mineral discovery. Studies conducted during this stage may demonstrate the deposit’s potential to become a profitable mine.
Institutional and strategic investors can then use these studies to evaluate whether they want to advance this project. Speculators often invest during this time, known as the “Orphan Period”, while uncertainty about the project lingers.
Development is a rare moment, and most mineral deposits never make it to this stage. At this point, the company puts together a production plan for the mine.
First, they must secure funding and build an operational team. If a company can secure funding for development, investors can see the potential of revenue from mining. However, risks still persist in the form of construction, budget, and timelines.
Investors who have held their investment until this point can pat themselves on the back—this is a rare moment for a mineral discovery. The company is now processing ore and generating revenue.
Investment analysts will re-rate this deposit, to help it attract more attention from institutional investors and the general public. Meanwhile, existing investors can choose to exit here or wait for potential increases in revenues and dividends.
Nothing lasts forever, especially scarce mineral resources. Unless, there are more deposits nearby, most mines are eventually depleted. With it, so does the value of the company. Investors should be looking for an exit as operations wind down.
Case Study: The Oyu Tolgoi Copper-Gold Discovery, Mongolia
So now that you know the theoretical value cycle of a mineral discovery, how does it pan out in reality? The Oyu Tolgoi copper deposit is one recent discovery that has gone through this value cycle. It exemplifies some of these events and their effects on the share price of a company.
- Concept: 15+ Years
Prospectors conducted early exploration work in the 1980s near where Oyu Tolgoi would be discovered. It was not until 1996 that Australian miner BHP conducted further exploration.
But after 21 drill holes, the company lost interest and optioned the property to mining entrepreneur Robert Friedland and his company Ivanhoe Mines. At this point in 1999, shares in Ivanhoe were a gamble.
- Pre-Discovery/Discovery: ~3 years
Ivanhoe Mines and BHP entered into an earn-in agreement, in which Ivanhoe gained ownership by completing work to explore Oyu Tolgoi. A year later, the first drill results came out of drill hole 150 with a headline result of 508 meters of 1.1 g/t Au and 0.8%. To get a sense of how large this is, imagine the height a 45-story building, of which a third of story is copper. This was just one intersection of an area that could stretch for miles.
Wild speculation began at this stage, as steadily improving drill results proved a massive copper-gold deposit in Mongolia and drove up the share price of Ivanhoe.
- Feasibility/Orphan Period: ~2 years
In 2004, the drilling results contributed to the development of the first scoping study. This study offered a preliminary understanding of the project’s economics.
Using this study, the company needed to secure enough money to build a mine to extract the valuable ore. It was not until two years later, when Ivanhoe Mines entered into an agreement with major mining company Rio Tinto, that a production decision was finalized.
- Development: 7 years
By 2006, the Oyu Tolgoi mineral deposit was in the development phase with the first shaft headframe, hoisting frame, and associated infrastructure completed. It took another two years for the shaft to reach a depth of 1,385 feet.
Further development work delineated a resource of 1.2 billion pounds of copper, 650,000 ounces of gold, and 3 million ounces of silver. This first stage of development for Oyu Tolgoi made Mongolia the world’s fastest growing economy from 2009 to 2011.
- Startup/Production: Ongoing
On January 31, 2013, the company announced it had produced the first copper-gold concentrate from Oyu Tolgoi. Six months later, the company stated that it was processing up to 70,000 tonnes of ore daily.
- Depletion: Into the Future
The Oyu Tolgoi deposit will last generations, so we have yet to see how this will affect the value of the mine from an investment perspective.
It’s also worth noting there are still other risks ahead. These risks can include labor disruptions, mining method problems, or commodity price movement. Investors will have to consider these additional conditions as they pan out.
The More You Know
Mining is one of the riskiest investments with many risks to consider at every stage.
While most mineral discoveries do not match it perfectly, the Lassonde Curve guides an investor through what to expect at each stage, and empowers them to time their investments right.
The Critical Minerals to China, EU, and U.S. National Security
Ten materials, including cobalt, lithium, graphite, and rare earths, are deemed critical by all three.
The Critical Minerals to China, EU, and U.S. Security
Governments formulate lists of critical minerals according to their industrial requirements and strategic evaluations of supply risks.
Over the last decade, minerals like nickel, copper, and lithium have been on these lists and deemed essential for clean technologies like EV batteries and solar and wind power.
What are Critical Minerals?
There is no universally accepted definition of critical minerals. Countries and regions maintain lists that mirror current technology requirements and supply and demand dynamics, among other factors.
These lists are also constantly changing. For example, the EU’s first critical minerals list in 2011 featured only 14 raw materials. In contrast, the 2023 version identified 34 raw materials as critical.
One thing countries share, however, is the concern that a lack of minerals could slow down the energy transition.
With most countries committed to reducing greenhouse gas emissions, the total mineral demand from clean energy technologies is expected to double by 2040.
U.S. and EU Seek to Reduce Import Reliance on Critical Minerals
Ten materials feature on critical material lists of both the U.S., the EU, and China, including cobalt, lithium, graphite, and rare earths.
|Mineral / Considered Critical||🇺🇸 U.S.||🇪🇺 EU||🇨🇳 China|
Despite having most of the same materials found in the U.S. or China’s list, the European list is the only one to include phosphate rock. The region has limited phosphate resources (only produced in Finland) and largely depends on imports of the material essential for manufacturing fertilizers.
Coking coal is also only on the EU list. The material is used in the manufacture of pig iron and steel. Production is currently dominated by China (58%), followed by Australia (17%), Russia (7%), and the U.S. (7%).
The U.S. has also sought to reduce its reliance on imports. Today, the country is 100% import-dependent on manganese and graphite and 76% on cobalt.
After decades of sourcing materials from other countries, the U.S. local production of raw materials has become extremely limited. For instance, there is only one operating nickel mine (primary) in the country, the Eagle Mine in Michigan. Likewise, the country only hosts one lithium source in Nevada, the Silver Peak Mine.
Despite being the world’s biggest carbon polluter, China is the largest producer of most of the world’s critical minerals for the green revolution.
China produces 60% of all rare earth elements used as components in high-technology devices, including smartphones and computers. The country also has a 13% share of the lithium production market. In addition, it refines around 35% of the world’s nickel, 58% of lithium, and 70% of cobalt.
Among some of the unique materials on China’s list is gold. Although gold is used on a smaller scale in technology, China has sought gold for economic and geopolitical factors, mainly to diversify its foreign exchange reserves, which rely heavily on the U.S. dollar.
Analysts estimate China has bought a record 400 tonnes of gold in recent years.
China has also slated uranium as a critical mineral. The Chinese government has stated it intends to become self-sufficient in nuclear power plant capacity and fuel production for those plants.
According to the World Nuclear Association, China aims to produce one-third of its uranium domestically.
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