Sustainability of grassroots exploration programs

Transcription

1 Sustainability of grassroots exploration programs The role of the Prospect Generator Eric Jensen General Manager of Exploration Eurasian Minerals, Inc. TSX-V: EMX NYSE: EMXX EMX Copper Basin Project, Arizona

2 Action plan Discuss current exploration market» Challenge s in funding exploration Provide overview of the Prospect Generation (PG) business model» Definition» Strategies» How we serve the industry and investors EMX Geologist at Copper Springs, AZ» Summary: keys to business model

3 Current State of Resource Sector Metal prices have been decreasing for 4+ years» IMF has predicted a decrease of 22% in 2015 and another 9% by the end of 2016 Market cap of mining industry: US$934 B» 9% Decrease in past month» 43% Decrease in past year Comparison: Apple Inc has a market cap of ~US$700 B

4 Market Trends Mt /yr Supply and Demand Fundamentals IMF Metals Price Index GFC Metal Prices vs Costs IMF Cu Price Index $/t $10K $6K Reserve Replacement Cost (Cu) $/t $3K $1K $4K Various sources IMF (2015) SNL (2015) IMF (2015)

5 Impacts on exploration Exploration spending dropped by 49% » $30.7B to $15.6B Greenfields spending < 30 % of exploration funds» Lowest ratio and levels in past decade Financings and IPO s have flatlined in » Publically listed junior resource companies are starved for capital

6 Consequences Current market is not supporting exploration» Conventional junior resource model is non-functional» Majors in states of retraction Little or no money for generative work or early stage exploration (some exceptions) Common complaint of lack of quality in pipeline

7 Causes for Optimism Downturns (and bull markets) have more to do with market psychology and perception than actual supply/demand fundamentals # s of new drill campaigns and significant success has remained relatively constant (SNL Data)» Success restore investor confidence

8 The Prospect Generator model as an alternative approach

9 What is a Prospect Generator (PG)? Simple sense: a company (or person) that generates new exploration projects As used in the industry:» Company that generates exploration projects» Uses partnerships with other companies to advance projects

10 Keys to business model Generate exploration projects» Using in-house expertise and collaborative advantages» Create a portfolio instead of focusing on 1-3 projects» Put up initial at-risk capital Partnerships via JV or option/royalty agreements When?» As soon as commercially viable Peter Mitchell, Tynset, Norway

11 Exploration strategies: Main selection criteria: viability of partnerships Follow people and technical strengths Must maintain discipline and commitment to model» Careful about sending mixed messages to investors and partners Duncan Large, Kiruna, Sweden

12 We are not in the business of making discoveries Exploration trip, Norway

13 We generate opportunities for partners to make discoveries Who benefits? Partners Our Shareholders Local Stakeholders Drilling at Akarca project, Turkey Winter drill project, Sweden

14 Prospect Generation Model Ideas and concepts Target Generation Acquisition Work (drill targets defined) Partnership JV or Royalty Advancement via partnership Discovery Recoveries

15 How do we serve the industry? Creation of new opportunities» New country entry/frontier type opportunities» Rethinking historic districts and mature terrains Speed and dynamism» Fast = higher NPV and IRR Focus on generative/greenfields phase» Allows for specialization, efficiency Dave Maher describing new Cu targets in Arizona

16 Exploration is being outsourced to juniors 25 Discoveries vs Expenditures Canadian companies After Schodde, 2013 and 2015 $B 5 Discoveries in past 5 years PG s share of Junior sector PG s 2-3% Juniors 80% Expenditure category Conventional Juniors Data from various sources, including Schodde (2015), MEG (2013), USGS (2013), SNL (2015)

17 How do we serve our investors? Sustainable, leveraged investment vehicle» Low relative burn rate and less dilution» Use project equity as capital instead of financings Provide alternative to high risk/high reward approach» PG s leverage long term natural resource demand Diversity via portfolio effect EMX on floor of NYSE

18 The Royalty Generation Company

19 Key points: Execution of PG Business Model Early stage exploration is inherently risky» Portfolio effect employed by PG s balances risk and upside Help satisfy demand for grassroots exploration Deliver new, drill ready projects to industry Driven by creative, entrepreneurial explorers and generators» Critical to find the right people

20 Key points: Execution of PG Business Model Partnership business model provides sustainability» Recoveries and cash flow» Less shareholder dilution Scalable and sustainable model that leverages long term value of mineral resources and discovery M Sheehan, EMX Alankoy Project, Turkey

21 Thank You