Successful mineral exploration strategy requires identification of some of the risk sources and

considering them in the decision-making process so that controllable risk can be reduced. Risk is
defined as chance of failure or loss. Exploration is an economic activity involving risk and
uncertainty, so risk also must be defined in an economic context.
Risk reduction can be addressed in three fundamental ways:
(1) increasing the number of examinations;
(2) increasing success probabilities; and
(3) changing success probabilities per test by learning.

First, the number of prospects examined is increased, such as by joint venturing, thereby reducing
chance of gambler's ruin.
Second, success probability is increased by exploring for deposit types more likely to be
economic, such as those with a high proportion of world-class deposits. For example, in looking
for 100+ ton (>3 million oz.) Au deposits, porphyry Cu-Au, or epithermal quartz alunite Au
types require examining fewer deposits than Comstock epithermal vein and most other deposit
types.
In some situations, success probabilities can be increased by examining certain geologic
environments. Only 8% of kuroko massive sulfide deposits are world class, but success chances
can be increased to about 15% by looking in settings containing sediments and rhyolitic rocks.
Because this strategy is easier to apply in some deposit types than in others, the strategy can affect
deposit types sought.
Third, risk is reduced by using prior information and by changing the independence of trials
assumption, that is, by learning.
Perhaps the most important way to reduce exploration risk is to employ personnel with the
appropriate experience and yet who are learning.

Exploration can be characterized as a multistage search process in which only the last stage,
drilling, is usually definitive.

At each stage, an attempt is made to reduce the area to which the next, typically more expensive,
stage of search is applied. Each stage may be viewed as an attempt to discriminate between areas
that contain valuable deposits and areas that do not.
Because deposit detection is probabilistic, at each stage, classification errors of both types (that
is rejecting valuable deposits and accepting non-valuable prospects) and their associated costs
must be balanced against the possible gains of discovering an economic deposit.

Exploration risks can be reduced using strategies based on geology, statistics, and economics.

Among the possible sources of risk in exploration are: variation of deposit sizes and grades
among deposit types, variation in deposit sizes and grades within types resulting from local or
regional differences in geologic settings, variation in economic returns by type, price changes, and
discovery chances, given existence of deposits.
Risk reduction then is considered through the use of targeted geologic settings.
Risk Reduction Among Deposit Types
In mineral exploration, easier to look for more widely occurring and typically smaller deposits, or
in places previously unexplored.

The problem is that at some point, the deposits are so small that they are not
economic to mine. Small deposits and occurrences are so numerous that they quickly would
consume available exploration money if they were the target.
The greatest opportunity for reducing uncertainty and risk in exploration and resource
assessment lies with lowering the uncertainty associated with tonnage estimates followed in
importance by uncertainty associated with grade estimates.

Identification of minimum size deposits can be addressed by recognizing and using the
significant differences in grades and tonnages among different types of mineral deposits (Cox and
Singer, 1986; Singer, 1993; Singer, Mosier, and Menzie, 1993).
World-class mineral deposits, defined as the upper 10% of all deposits in terms of contained
metal (Singer, 1995), are the primary exploration targets of many mining firms (Kouda and Singer,
1997). About 30% of epithermal quartz alunite Au-Ag deposits contain
enough gold to be considered world class, 25% of porphyry copper deposits have enough copper
to be considered world class, 30% of Mississippi Valley Zn-Pb districts have enough zinc, 25%
of sedimentary exhalative Zn-Pb deposits have enough lead, and 35%
of polymetallic replacement districts contain enough silver to be considered world class.

If we are only interested in finding a world-class gold deposit, we can consider the number
of deposits by type that must be examined to locate one deposit containing at least 100 tons of
gold.
Risk Reduction Within Deposit Types

The strategy of focusing exploration only on world-class deposits has the advantage that the risk
of economic loss from mining an uneconomic deposit is reduced significantly at the expense of
having few or no deposits to examine; that is, there may not be any economic world-class deposits
remaining to be discovered in a specific exploration setting.

There also is the potential loss of deposits that are economic but are not examined because they
seem to be smaller than some predetermined size.
The balancing of economic filters, geologic theory, and the distribution of deposit sizes
remaining in an exploration setting provides opportunities for risk reduction.
Discovery chances are a function of deposit size.

For large low-grade deposits, errors in grade estimates are a major source of risk. Reliability of
grade and tonnage ore-reserve estimates is typically a function of the amount of information
gathered. If actual grades or tonnage are below certain values, the deposit
will be uneconomic; that is, there will be economic loss.
 Drilling more holes both decreases the expected value of the deposit and reduces the uncertainty
of the value of the deposit.
There is another form of learning where understanding of the geology and deposit model might
be modified as exploration progresses. This form of learning, if successfully applied, can have a
profound effect on reducing risk in explorationpoorly applied, it can lead to complete failure.

For example, a sediment hosted gold (Carlin type) deposit is more likely to be world class than
is a low-sulfide quartz gold vein deposit.

Linking Mineral Deposit Models to Quantitative

Risk Analysis and Decision-Making in Exploration

Our approach integrates these critical mineralization processes and conditions with concepts of
probability theory, decision analysis, and financial modeling. The principal objective is to make
mineral deposit models amenable to financial risk and value analysis
and suitable for communication of value-creating geologic concepts to financial stakeholders in
economic terms.

Risk Analysis
Technical/Exploration Models Economic/Financial Modeling Political risks

Area Target Practical Labor

selection Generation Cost Cost

Prefeasibility
Administration
Exploration Project Study Decision-Making
Cost

Business Scientific Employment Probability theory

Joint venturing Deposit Types Experienced Team No. of examinations

Risk Reduction
Designed by G/K. Amin

The Risk, Uncertainty & Probability.

There are definitions for some authors for the both terms, in mineral exploration context; Risk is
the related to the facing of losing the capital investment, while Uncertainty is there no guarantee
of finding a target deposit with availability of the appropriate geological settings.
Probability statistically is the mathematical likelihood of the project success with taking into
account the factors of the risk (Risk analysis & Risk Reduction) and decreasing the uncertainty of
the exploration factors within the best understanding of the geological models.
There are many mining companies faced the loss of the capital investment for some gold projects
where they discovered a small tonnage/grade deposits were not appropriate to their expected target
of mine scale or with the current commodity prices.
Understanding these terms and their influence factors will help the investors to best dealing with
their investment and evaluation of the project for decision making.
Besides the decision of accepting a mineral exploration licensed tract, each stage in mineral
exploration program needs at the end of it a decision to continue in going exploration, spend more
capital and raise the cost of exploration. So evaluation of each stage and estimation the degree of
probability by analyzing the results and the expecting the next will help in making the right
decision and decreasing the overall risk investment.

Risk Analysis
Risk analysis can be defined in many different ways, but how much it relates to our mineral
exploration projects that will be the main explanation.
So, Risk Analysis is the examination of the main important factors that help you identify, manage
potential problems that could undermine key business initiatives or the exploration project and
perhaps causing its failure.
The main two factors of risk analysis here are;
1- Exploration models.
2- Financial modelling.
Exploration modelling/ model covers the understanding and interpretation of the geological
concepts and ore forming processes and theories with integration of geological settings,
geochemical analysis, geophysical investigation, tectonic settings, and grade/tonnage estimations
. etc. input into a different Skelton-model shape or using GIS tools for visualization and
analyzing.
There are about ten different types of Exploration models have been presented by S. K. Haldar
2013 with sufficient details in his published book.
So applying such different models on our collected different data will organize and management
them in such ways to analysis and examine the probability of the existence a target ore for mining.
In each step of the exploration follow-up program the quality and quantity of data will differ and
the updating and using different type of models will be necessary for evaluating the net results and
the probability of reaching the exact target.
So, we can classify the different models according to each exploration stage with its level of
different data.
 (1) Empirical
(2) Descriptive Reconnaissance Stage
(3) Conceptual Area selection

(4) Genetic

(5) Predictive
Target Generation
(6) Statistical and geostatistical

(7) Orebody
Prefeasibility Study
(8) Grade-Tonnage Study

Remote Sensing Reconnaissance Stage

Area selection
Methods and
Geological Mapping
Techniques
Geochemical Analysis Capital cost for
Cost of methods Target Generation each stage with
Geophysical Surveying & Techniques different
techniques
Surveying
Best effective
Trenching/pitting Prefeasibility Study
Method selection
Study
Drilling

Minimum Exploration
Maximum Decision Tree

Most likelihood
Investigation of factors influencing
the determination of discount rate in the economic evaluation
of mineral development projects by S-J. Park* and I.I. Matunhire

During initial exploration, for example, many outcomes are possible, ranging from no indication
of commercial mineralization to geological evidence that eventually leads to a producing mine.
During the development of a deposit, initial ore reserve estimates may have to be revised, thus
altering estimates of future production and revenues. During production, mineral prices may be
higher or lower than predicted at the time of investment, leading to higher or lower revenues than
anticipated. These factors can be grouped into three categories of mineral-development risk
according to the cause of the risk: technical risks, economic risks, and political risks.
The Mining Valuation Handbook
Following an exploration success, a mining company will undertake a drilling program to define
the resource. As the number of holes drilled increases and additional information is obtained, the
confidence level in the amount of ore (tonnage).
Confidence will also grow in the quality or level of the economic element contained within the
resource. The industry has a number of standards that define the operators confidence.
The feasibility (resource reserve estimation code) study that will give the confidence level to a
project and an economic decision will need to be made on whether to develop the project or not.
Mining companies should always ensure that quoted reserves and resources are clearly defined,
and investors should always check and ensure that they fully understand how the companies have
compiled and quoted their figures.
Early Stage Exploration Projects
Although the probability of success for an individual early stage exploration project is very low,
the amount of money required to test the viability of the project is also low or should be if the
project is the result of knowledgeable, strategic project generation and is well managed. In a
portfolio of such exploration projects, capital needs to be committed only as long as the project is
returning positive results.

The junior companies must also apply the latest technology and concepts, at all relevant
scales.
..
Mining companies may also commence production from a deposit with only a small amount
of reserves, in the hope that additional reserves will be discovered as mining proceeds. The
Dome mine, owned by Placer Dome (and now Goldcorp) is a good example: it has now been
mined continuously for 88 years and it has never had more than about 3 years mine life.

MINERAL EXPLORATION AND DEVELOPMENT:

RISK AND REWARD
The level and location of investment are determined by expected revenues and costs, adjusted for
time and risk. The higher the expected revenues or the lower the expected costs, the more attractive
an investment opportunity is.
In the mineral sector, the factors that influence expected revenues, costs, and risks can be grouped
into four categories:
Geologic Factors: Does a mineral resource exist in a region, in what quantities,
and of what quality? Geologic risk can be thought of as the likelihood and degree
to which actual mineralization (its quantity and quality) differs from what is
anticipated at the point a decision is made to undertake exploration or
development. For example, what is the likelihood that a mineral deposit exists in
a region undergoing initial geologic investigation? Or during mining, what is the
likelihood that the grade and quality of ore differs from what was expected at the
time the mine was initially developed?
Technical Factors: Can a known resource be extracted and processed with
existing or likely future technologies? Technical risk can be thought of as the
likelihood and degree to which actual recovery of a mineral during mining and
processing differs from what was anticipated. In other words, are there
unanticipated technical problems or complications associated with mining,
mineral processing, and extractive metallurgy?
Environmental, Social, and Political Factors: Can a resource be extracted in ways
that are consistent with a nations preferences and policies for environmental
protection? Can it be extracted in ways consistent with preferences and policies
of local communities? Risks in this category can be thought of as the likelihood
and degree to which actual environmental degradation or impacts on local
communities differ from what was expected. Or the likelihood and degree to
which public attitudes, public policies, and the overall business environment
differ from what was expected at the time of initial investment.
Economic Factors: Overall, can a mineral resource be extracted at a profit?
Economic risk can be thought of as the likelihood and degree to which actual
revenues and costs differ from what was anticipated at the time of investment?
Economic risk is an overarching type of risk because it incorporates and reflects
the three other categories of risk cited above. It incorporates the purely economic
risks that actual mineral prices and production costs are different than anticipated
at the time of initial investment.

A company can emphasize grassroots exploration; should it discover a mineral deposit, it then
chooses whether to continue with advanced exploration, take on a partner to jointly undertake
further exploration, or sell its rights to further exploration to another company.

MINERAL POLICIES INCLUDE

The role of the state. Who owns subsurface minerals? Is the state an owner operator of
mines, or a lessor-regulator?
 Access to land and mineral resources. What areas are available or closed to mineral
exploration and development? What are the processes and requirements for obtaining the
right to explore or mine? Are the processes transparent and predictable?

Exploration and mining rights and obligations. What are the time lengths for an
exploration or mining right? What are the requirements for maintenance and
renewal? Is a right transferable and, if so, how? How secure is a right? Are
obligations of a right holder clearly defined? Are cancellation criteria and
procedures clear? Is the right to proceed from exploration virtually automatic,
subject to meeting clear and objective requirements?

Environmental and social issues. What are the requirements for environmental
protectionbefore mining, during operations, and post-closure? What is the role of local
communities and what are their rights?

Mining taxation. What is the basis for taxation (revenues, profits, etc.)? At what rates?
What are allowable costs in determining taxable income? This subject is sufficiently
important to warrant a lengthier discussion in the next section of the paper.
Mining taxation. Much mineral exploration is carried out by junior exploration companies, which
typically do not operate mines. These relatively small companies specialize in mineral exploration
and aim to sell any partially explored deposits they discover to larger companies that will conduct
subsequent activities to determine whether the mineral resources can be developed into reserves
and, in turn, a mine.
Most fiscal systems take one of four forms:
(a) units-of-production taxes, in which tax liability is based on the weight or tonnage of produced
mineral (for example, dollars per tonne produced),
(b) gross-value taxes, in which tax liability is a percentage of revenues (or revenues perhaps
slightly adjusted for a few expenses or costs, such as net smelter return royalties),
(c) net-income or profits taxes, in which tax liability is a percentage of gross value less allowable
costs, and
(d) upfront bonus payments, in which a company pays money up front to obtain the right to carry
out mineral exploration or mine development.