Chart of the Week

Visualizing the Life Cycle of a Mineral Discovery

Published

4 months ago

September 12, 2019

Nicholas LePan

Visualizing the Life Cycle of a Mineral Discovery

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.

Concept

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.
Pre-Discovery

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

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.
Feasibility

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

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.
Startup/Production

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.
Depletion

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.

Related Topics:disovery exploration investing lassonde mineral mining

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Chart of the Week

Visualizing the Biggest Risks to the Global Economy in 2020

The Global Risk Report 2020 paints an unprecedented risk landscape for 2020—one dominated by climate change and other environmental concerns.

Published

3 days ago

January 17, 2020

Marcus Lu

Top Risks in 2020: Dominated by Environmental Factors

Environmental concerns are a frequent talking point drawn upon by politicians and scientists alike, and for good reason. Irrespective of economic or social status, climate change has the potential to affect us all.

While public urgency surrounding climate action has been growing, it can be difficult to comprehend the potential extent of economic disruption that environmental risks pose.

Front and Center

Today’s chart uses data from the World Economic Forum’s annual Global Risks Report, which surveyed 800 leaders from business, government, and non-profits to showcase the most prominent economic risks the world faces.

According to the data in the report, here are the top five risks to the global economy, in terms of their likelihood and potential impact:

Top Global Risks (by "Likelihood")		Top Global Risks (by "Impact")
#1	Extreme weather	#1	Climate action failure
#2	Climate action failure	#2	Weapons of mass destruction
#3	Natural disasters	#3	Biodiversity loss
#4	Biodiversity loss	#4	Extreme weather
#5	Humanmade environmental disasters	#5	Water crises

With more emphasis being placed on environmental risks, how much do we need to worry?

According to the World Economic Forum, more than we can imagine. The report asserts that, among many other things, natural disasters are becoming more intense and more frequent.

While it can be difficult to extrapolate precisely how environmental risks could cascade into trouble for the global economy and financial system, here are some interesting examples of how they are already affecting institutional investors and the insurance industry.

The Stranded Assets Dilemma

If the world is to stick to its 2°C global warming threshold, as outlined in the Paris Agreement, a significant amount of oil, gas, and coal reserves would need to be left untouched. These assets would become “stranded”, forfeiting roughly $1-4 trillion from the world economy.

Growing awareness of this risk has led to a change in sentiment. Many institutional investors have become wary of their portfolio exposures, and in some cases, have begun divesting from the sector entirely.

The financial case for fossil fuel divestment is strong. Fossil fuel companies once led the economy and world stock markets. They now lag.

– Institute for Energy Economics and Financial Analysis

The last couple of years have been a game-changer for the industry’s future prospects. For example, 2018 was a milestone year in fossil fuel divestment:

Nearly 1,000 institutional investors representing $6.24 trillion in assets have pledged to divest from fossil fuels, up from just $52 billion four years ago;
Ireland became the first country to commit to fossil fuel divestment. At the time of announcement, its sovereign development fund had $10.4 billion in assets;
New York City became the largest (but not the first) city to commit to fossil fuel divestment. Its pension funds, totaling $189 billion at the time of announcement, aim to divest over a 5-year period.

A Tough Road Ahead

In a recent survey, actuaries ranked climate change as their top risk for 2019, ahead of damages from cyberattacks, financial instability, and terrorism—drawing strong parallels with the results of this year’s Global Risk Report.

These growing concerns are well-founded. 2017 was the costliest year on record for natural disasters, with $344 billion in global economic losses. This daunting figure translated to a record year for insured losses, totalling $140 billion.

Although insured losses over 2019 have fallen back in line with the average over the past 10 years, Munich RE believes that long-term environmental effects are already being felt:

Recent studies have shown that over the long term, the environmental conditions for bushfires in Australia have become more favorable;
Despite a decrease in U.S. wildfire losses compared to previous years, there is a rising long-term trend for forest area burned in the U.S.;
An increase in hailstorms, as a result of climate change, has been shown to contribute to growing losses across the globe.

The Ball Is In Our Court

It’s clear that the environmental issues we face are beginning to have a larger real impact. Despite growing awareness and preliminary actions such as fossil fuel divestment, the Global Risk Report stresses that there is much more work to be done to mitigate risks.

How companies and governments choose to respond over the next decade will be a focal point of many discussions to come.

Chart of the Week

The Sum of Its Parts: The Smartphone Multiplier Market

Every day, 3.3 billion people rely on their smartphones to stay connected. The products and services enabling this—the smartphone multiplier market—is now worth $459 billion.

Published

1 week ago

January 10, 2020

Iman Ghosh

The Sum of Its Parts: The Smartphone Multiplier Market

There’s a 60% chance you’re reading this article on a smartphone right now—a testament to how ubiquitous these devices have truly become in our lives.

We rely on smartphones every waking minute to stay connected. However, the various products and services—also known as the smartphone multiplier market—that allow us to use these devices in the first place can often be an afterthought.

Today’s chart uses data from Deloitte Insights to show just how sizable this ecosystem is becoming, and why it’s heating up as a battleground for big technology companies such as Apple, Alphabet, and Amazon.

The Smartphone Plateau

There are over 3.3 billion smartphone users in the world today.

The smartphone economy—estimated to pull in $944 billion in total revenue in 2020—is so massive that it rivals the GDP of countries like Indonesia and the Netherlands.

At the moment, the smartphones themselves contribute over half the market value. Despite the continued hype surrounding the release of new models, global unit shipments of smartphone devices appears to have reached a saturation point:

Smartphone Sales

There are two theories as to why shipments are leveling off. First, product innovation is more iterative today than in the past, which means there are fewer groundbreaking features to entice consumers into purchasing new devices. A second factor is that people are simply holding onto their devices for longer than in the past.

As device sales plateau, tech giants are diversifying efforts to find new ways to lure customers back in—and another related market is growing more lucrative as a result.

What is a “Smartphone Multiplier”?

When people think of the smartphone market, hardware likely springs to mind first, but an equally important part of the equation is the plethora of apps, services, accessories, and complementary devices that help us connect with the digital world.

The ecosystem of these products and services are known as smartphone multipliers. According to Deloitte, this ecosystem will drive $459 billion of revenues in 2020, an impressive 15% increase from the prior year.

The market can be broken down into three main categories:

Category	Market Value (2020e)	Sub-categories
Content	$312B (68% of total)	$176B: Mobile ads $118B: Apps $10B: Music $8B: Video
Hardware	$111B (24% of total)	$77B: Accessories $25B: Wearables $9B: Smart speakers
Services	$37B (8% of total)	$18B: Insurance $12B: Repairs $4B: Others $3B: Storage

Largely driven by mobile advertising and app sales, content is by far the largest subcategory, accounting for 68% of revenues:

Mobile advertising surpassed TV as the largest advertising channel in 2019, partially thanks to the relentless growth of online video and social media, making ads virtually unavoidable on a smartphone.
Gaming apps are benefiting from the immense processing power of today’s smartphones—and will bring in over two-thirds of total app revenue in 2020. Apple’s app store brought in approximately $1.8 billion in sales between Christmas Eve and New Year’s Day alone.

If you’ve ever owned a pair of headphones or a powerbank, it’s easy to understand why accessories are the third-largest subcategory in the smartphone multiplier market. With more people ditching the cable for wireless headphones, this subcategory is also set to grow even more.

The Next $1T Economy?

In the U.S., 73% of adults go online several times a day or almost constantly, which makes it clear that they aren’t going to give up their smartphones anytime soon.

As a result, smartphone multipliers will continue to evolve and flourish, presenting a unique opportunity for investors and businesses.

Altogether, it’s expected that the smartphone multiplier market will grow between 5 and 10% annually through 2023, likely propelling the entire smartphone economy past the $1 trillion benchmark in the coming years.