In a generalized, ideal scenario, gold exploration:
1. Begins with an area of land chosen for it’s likelihood to host a gold deposit.
2. Appropriate exploration techniques are applied to this land.
3. Rocks are found containing a gold content high enough to be of interest. This usually means ~1 gram gold per tonne of rock (equivalent to 1 part gold per million parts rock).
4. Further sampling shows that the gold bearing rock is not limited to the initial sampling area of several meters, but extends in several directions to at least several 100’s of meters.
5. Sampling continues until enough data is available to support an estimate of the amount of gold under the ground which meets reporting rules such as JORC and NI-43-101. While the amount of data needed arise between deposits based on their complexity, general rules of thumb exist which not only require data, but transparency and quality assurance checks to be demonstrated.
Technically this last stage may not be included in many definitions of exploration, since the discovery has already been made and work is concerned with definition of a known gold occurrence.
In reality, 99% of exploration programs fail to find an economic gold deposit and die, or are consumed by another company. Exploration companies can maximise its chances of discovery by choosing the best land, using the best exploration techniques with the most skilled professionals. However, even in doing all this, the company is only giving itself better odds, not guaranteeing them. Indeed, there are many cases of poorly resourced companies finding world class gold deposits serendipitously.
This paints a depressing outlook for exploration companies and investors. The only thing that keeps people in the game is the potential for huge value creation if a large deposit is found. Without out this, the odds simply can’t justify playing. This is where resource nationalism and overly aggressive taxation start to impact the industry, because if a gold explorer cannot see the potential gains that match the known risks, they cannot afford to keep exploring.
