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SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 1
Wealth Creation Through Sustained, Successful Mineral Exploration –
The WMC Experience
Barton J. Suchomel
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 2
Mineral Exploration Performance
Some exploration groups perform significantly better than others, both in terms of number of discoveries and financial return
What are the conditions necessary to produce sustained success in an exploration organization?
Case history summary - WMC Exploration
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 3
WMC Exploration History
• $ AUD 1.8 billion invested (constant 2004 dollars)
• 149 separate discoveries
92 grass roots
57 mine environment
60 % of discoveries developed to mine
Sources: Woodall, 2004 ; R.Schodde pers.comm.
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 4
WMC Exploration History
• Estimated metal discovered
Gold – 96 million ounces Copper – 57 million tonnesNickel – 5 million tonnesUranium oxide – 1.6 million tonnesZinc – 0.5 million tonnes
• Estimated in-situ value: $ US 150 billion
Source; R Schodde pers.comm.
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 5
WMC Key Discoveries
• Darling Ranges Bauxite (Western Australia)Alcoa JV, AWAC, Alumina Ltd.
• Kambalda Ni (Western Australia)Kambalda town, nickel smelting & refining complex
• Olympic Dam Cu-U-Au (South Australia)Roxby Downs, ODO complex
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 6
WMC Significant Discoveries
Yeelirrie (U)St. Ives camp (Au)Nifty (Cu) Ernest Henry (Cu-Au)Tampakan (Cu-Au)Tiriganiaq (Au)Sertao (Au)West Musgrave (Ni)
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 7
WMC Market Capitalization 1950 - 2000
0
2000
4000
6000
8000
10000
12000
1950 1960 1970 1980 1990 2000
$ AUD Millions in real terms – 5 year moving average
DarlingRangesBauxite
KambaldaNickel
OlympicDam
Cu-U-Au
Tampakan-CuTiriganiaq-Au
West Musgrave Ni
Sources: Bloomberg, ComSec
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 8
Exploration vs Acquisition
• WMC was more successful adding value through exploration than acquisition
In some cases value creation was in the long term
• From its inception, WMC consistently supported exploration
• Three key drivers for successful culture
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 9
Key Conditions for Sustainable Performance
• Consistent management support
• Excellent people
• Commitment to innovation
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 10
Management Support
• Strong Board and Executive support
• Technical leaders on Board and-or Executive team
Robust technical discussion
Performance measurement and understanding of risk
Long-term business horizon
Trust and confidence
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 11
Excellent People
Recruitment – what attributes did WMC look for ?
Solid academics
Passion and commitment
Intense curiosity
Drive to succeed
Finding and retaining people with these attributes is hard work
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 12
Excellent People
Competency and capability
Commitment to continuous learning
Individual training plans
Study leave options
Geoscientist rotation between mine operations, mine-area exploration, and global exploration was a very beneficial strategy for WMC
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 13
Excellent People
Specialists and multi-disciplinary teams
Focused application of competencies and skill sets
Good for morale and camaraderie
Specialist vs Generalist – always a debate
Worked well for WMC – especially in execution phase
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 14
Excellent People
Exploration staff consistency
Of 300 geoscientists hired by WMC from 1933 to 1995:
• 50% worked 10 or more years• 30% worked 10 - 19 years• 15% worked 20 - 29 years
Head of Exploration changed 3 times in 40 years
Data partially from Reid, 1998
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 15
Innovation
WMC was committed to innovation based on solid science
Deliberate activity aimed at creating value
Managed process
Expected and rewarded
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 16
Innovation –WMC Examples
Aerial photography in 1930’s
Low-detection analysis for gold
Geophysics (TEM, Geoferret)
Conceptual exploration targeting models
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 17
Summary
What are the conditions necessary to produce sustained success in an exploration organization?
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 18
Summary
In the case of WMC, a company characterized by successful exploration over a 50-year period, the conditions seem to be:
Management Support• Consistent at top level, with long-term view• Leadership that both creates space and maintains discipline
Excellent people• Recruit well, then build competency and capability
Innovation• Deliberate process to create value
SEG 2006—Wealth Creation in the Minerals Industry May 16, 2006 19
Thank You
