Why most projects fail: odds and the Lassonde curve
Only about 1 in 1,000 prospects becomes a mine. Where projects drop out, why, and how a project's value tends to rise, slump and rise again on the way to production.
4 min read
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Most mining projects fail, and the odds improve sharply at each published milestone. A project's value follows the odds, but not smoothly.
The odds at each milestone
The figures below are the illustrative odds used across this site, for a mid-size project. They come from the same curve as the stage guide.
| Milestone reached | Chance of becoming a mine | Roughly | Money spent so far |
|---|---|---|---|
| Grassroots target | 0.1% | 1 in 1,000 | about $0.3M |
| Discovery hole | 3% | 1 in 30 | about $3M |
| Maiden resource | 15% | 1 in 7 | about $10M |
| PEA published | 30% | 1 in 3 | about $20M |
| PFS published | 45% | about 1 in 2 | about $40M |
| FS published | 65% | about 2 in 3 | about $70M |
| Build decision | 85% | about $120M | |
| Producing mine | 100% | about $1B |
The odds are conceptual, and real rates vary with commodity, deposit type and jurisdiction. The pattern is the point: the biggest jumps in odds come early and cheaply, and the biggest costs come late.
Why projects drop out
| Reason | Where it usually bites |
|---|---|
| Geology: the hits do not join up, or the deposit is too small | Discovery drilling and maiden resource |
| Economics: grade too low, metallurgy poor, costs too high | PEA and PFS |
| Money: the company cannot fund the next step | Maiden resource and resource upgrade: the funding gap |
| Permits and community: approval refused, delayed or contested | PFS to build decision: see jurisdictions |
| Price cycle: the metal price falls before the project is financed | Any stage, worst just before the build |
| Execution: overruns, delays, ramp-up problems | Construction and early production |
A project that stops is not always worthless. Many are shelved and revived later by a new owner or a higher metal price.
Risked value: a worked example
Suppose a project would have an after-tax NPV of $500M once it reaches a funded build decision. A simple way to value it earlier is to multiply that by the chance of getting there:
| Milestone | Chance of a mine | Risked value |
|---|---|---|
| Maiden resource | 15% | about $75M |
| PEA | 30% | about $150M |
| PFS | 45% | about $225M |
| FS | 65% | about $325M |
| Build decision | 85% | about $425M |
This leaves out time, the cost of the remaining work and dilution, so real valuations are lower, but it shows why each milestone can re-rate a project. The deal calculator on the Karoo-12 page applies the same idea.
The Lassonde curve
Pierre Lassonde, a co-founder of a major royalty company, described a pattern in how a mining company's value tends to move over a project's life:
- Speculation and discovery: value climbs as drilling hits, sometimes steeply.
- The orphan period: after the discovery excitement, during studies and permitting, value often slumps. There is little news, more spending, and the economic risk is now in view.
- Development and production: value rises again as financing is secured, construction finishes and cash flow begins.
Stage 3: Maiden resource
The discovery of the resource: the peak of the exploration phase. A first resource puts a number on the story, and engineering work begins.
- Relative value (conceptual)
- 88 of 100
- Risk
- High
- Phase
- Top of exploration, where engineering begins
- Typically led by
- Junior miners
- Typical funders
- Few natural funders (the gap)
The curve is a conceptual pattern, not data. It helps explain why early investors often sell after a discovery, why the middle stages are hard to fund, and why patient capital in the orphan period can be well rewarded when projects succeed.
What to take away
Price each stage by its odds, not by the headline. Early on, the question is whether the geology works; in the middle, whether the economics and funding work; near the end, whether permits, financing and construction work. See each stage in detail in the stage guide.
All figures are illustrative and conceptual. This is educational material, not investment advice.
Key terms
Next in this track
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Educational material only. Nothing here is investment advice or an offer to buy or sell any security or mineral interest.