Exploration For Gold: Costs And Results

Are the results of an exploration program worth the cost? This is a question I suspect many of you are familiar with and, theoretically at least, it is an easy question to answer. The answer, of course, lies in comparing the future earnings stream the program is expected to generate, to the present value of the cost of carrying it out. While historical costs can be determined without much difficulty, estimating the value of a future earnings stream involves all sorts of assumptions regarding future costs, metal prices, inflation rates and an appropriate discount factor; and in the context in which the question arises, requires additional assumptions about mineral deposits which have yet to be discovered. As a practical matter, this kind of approach isn't likely to produce a very convincing answer; certainly not one convincing enough to satisfy a skeptical audience; nor one likely to temper the illusions of recent converts to mineral exploration, who are convinced that if enough money is spent, profitable discoveries will inevitably follow. Within broad limits, however, I believe it is possible to analyze the costs and results of gold exploration in the U.S.A. over the past 20 odd years in a useful manner. And while such an analysis is imperfect, it will provide some insight into this fascinating subject.