The Lassonde Curve, named after mining legend Pierre Lassonde, is a graphical representation of the life cycle of a mining company, from exploration to production. It is a tool used to understand the mining process and to potentially time investments properly. The curve outlines seven stages, each carrying specific risks and rewards, and as a company proves there is a mineable deposit in the ground, more value is created for shareholders along the way.
Source:Hedley Widdup - Lion Selection Group
Just to explain the above chart a little. The X-Axis is Time vs the left Y axis which is Risk and on the right is Value.
Higher up on the far left axis, this is when the highest risk exists. This makes sense because at the start when a company is drilling for a discovery it exposed to all the major risks of a mining company. Namely:
Exploration Risk
Technical Risk
Funding Risk
Commodity Risk
As time progresses, should each step of the mining process be completed successfully (explained below), the risks start to diminish until eventually if it is completely successful and Value is maximised, relative to the risk which remains which is commodity risk (and operational risk as well obviously).
But you will notice that as we move along the time scale (X-axis) and the risks diminish, the value line actually falls after the initial jump, before eventually resuming its upward trajectory once it makes its way through the mining process..
So what are the steps of the mining process? This is a very simplified explanation, but goes a long way to explaining the different stages of the Lassonde Curve.
Stage 1 – Concept: This stage carries the most risk which accounts for its low value. In the beginning, there is little knowledge of what actually lies beneath the Earth’s surface. Geologists put to the test a theory about where metal deposits are, using geochemical and sampling techniques to improve the confidence of this theory.
Stage 2 - Pre-Discovery: There is still plenty of risk, but this is where speculation hype begins. As the drill bit meets the ground, mineral exploration geologists develop their knowledge of what lies beneath the Earth’s crust to assess mineral potential.
Stage 3 - Discovery:…
