1. Governmental Alchemy in a Knowledge Economy: Transforming
Information into Bars of Gold
Robert Smillie and Erin Ahern
Crown Minerals, Ministry of Economic Development, NZ www.crownminerals.govt.nz
Abstract
In exchange for issuing minerals rights from the Crown Mineral Estate to explorers and miners, the Crown
expects a "fair return" on this investment, ultimately for the benefit of all New Zealanders. In the case of mining
permits, this return is in the form of a tangible asset - royalties from mining activities. But for exploration
activity, the return sought by the Crown is an intangible asset - information. The information obtained serves
three purposes - in helping Crown Minerals to set work programme conditions during permit allocation, for
monitoring the performance of permit holders in accordance with permit conditions, and for archiving and
making available for future interested explorers and other parties. Difficulties can arise during the allocation and
monitoring process when either party has more information than the other that is not shared. To date not enough
emphasis has been placed on the intrinsic value and content of the information generated by explorers and the
importance this information can have in the exploration process leading to new mineral discoveries. For
attracting exploration investment, the quality and availability of such information, combined with other
geoscientific data, is a fundamental determinant for potential explorers when choosing to explore in a global
market, and strongly defines the mineral prospectivity for a country. This is something the Australian States and
other jurisdictions seeking mineral investment learnt long ago, and who now provide substantial amounts of
cheaply or freely available packaged geoscientific datasets, increasingly over the Internet. To have a vibrant
mineral exploration industry so that the benefits from the mineral estate can be realised for all New Zealanders, a
shift in emphasis to the value of its mineral information base itself is required. Such an approach is befitting of a
true Knowledge Economy, and would enable the Crown to make better-informed decisions regarding utilisation
of its natural resources.
Introduction
The Crown has historically held a strong interest in
reports from the field regarding the exploits of
individuals and companies willing to take on the
risks of exploring for minerals for profit. In the
early pioneering days, the more pragmatic
provinces seeking economic stimulation commonly
offered rewards for the first substantiated reports of
payable goldfields (Salmon 1963). This strong
interest by the Crown in what its mineral estate had
to offer continued through the reports of early
Government Geologists and Mines Inspectors -
reports that contributed in promoting New Zealand
as a place to invest. This tradition of the Crown
investing resources into geological information
continued with the 1:250,000 regional mapping
programmes that formed the basis for many
regional exploration programmes by companies
through the 60s to the 80’s. The national coal
survey of the 1970s and 1980s is perhaps the most
recent example of a government-sponsored mineral
exploration initiative.
The Crown has always placed great importance on
the value of geological information, as generated by
explorers, and by itself. This trend continues in the
form of the collection and storing of technical
reports submitted to Crown Minerals by exploration
companies over many years. These reports are
obtained as part of the mineral regime according to
regulations and legislation set out in the Crown
Minerals Act 1991. Information contained within
the reports is used to help monitor permit
performance in accordance with the current work-
programme-based allocation system for prospecting
and exploration permits. Although this information
is stored and curated for future reference, less
emphasis has been placed on making this
information generated more readily available. This
may be partly in response to the decline in mineral
exploration activity over the last decade or so, and
the subsequent decrease in demand by explorers for
geological information. At the same time, the focus
may have also shifted towards more immediate
gains from mining activity, particularly from the
petroleum sector. These gains from the Crown
Mineral Estate are the result of exploration carried
out long ago.
A vibrant exploration industry is the life-blood of a
healthy mining industry, and needs to be sustained.
Geological information generated by those working
the estate and collected by the Crown is an
important factor for driving this vibrancy. This
paper examines the role information plays in the
exploration process, and how it can be used by the
Crown to promote mineral investment in the 21st
Century.

2. The Role of Information in the
Exploration Process
The exploration and mining industries are
information industries. Modern mineral exploration
takes place within a data-rich context, underpinned
by a wide range of data acquisition, processing and
interpretation technologies. Exploration is a risky
business, and there is an increasing requirement to
effectively manage the risks of cumulative
exploration investments (Henley 1997). It is a
serious business, and significant discoveries are
demonstrably few.
Exploration is fundamental for replacing ore
reserves. For the precious metal industry, this
exploration is extremely difficult because the
concentrations of the metal sought are in parts per
million. Furthermore, as the outcropping deposits
are increasingly worked, the impetus is to locate the
more elusive ore bodies. For effective exploration
today in a competitive market, large amounts of
geoscientific data are required in order to increase
the odds of locating new deposits. Empirical studies
into precious metal exploration have estimated the
odds of deposit discovery to be in the order of 1 in
1000 (Lanken 1997). Furthermore, the length of
time taken to "prove up" a prospect can be in the
order of 10 years or more, with many explorers
working up the ground before a mine is proven. A
long-term view is essential.
Mineral Prospectivity and Geoscientific
Information
The key output from exploration activity is
information. This information and knowledge
provides the vital link in a chain that is capitalised
on by successive explorers over time (see Figure 1).
The high importance placed on information by
mineral explorers is reflected in a recent global
survey of mineral explorers and miners by the
World Bank:
“The number one corporate determinant for mineral
investment in any given country is geological
potential for target metals and minerals” (Naito &
Remy 2001)
This mineral potential knowledge is obtained via
geological information. Hence the availability and
accessibility of this information is vital in attracting
exploration investment. Accordingly, for
governments world-wide wishing to promote
mineral exploration and reduce barriers to entry, the
most substantial response to this industry need is to:
• increase the amount and quality of pre-
competitive data (PCD), as generated by
explorers
• improve the presentation and promotion of this
data
• market prospective regions to potential
explorers.
Explorer 1
Information
Information
Explorer 2
Explorer 3
Information Explorer 4
DISCOVERY
COUNTRY
PROSPECTIVITY
TIME (YEARS)
Figure 1: The underpinning role of information in the exploration process. New information generated by
explorers can be subsequently applied (if available) by successive explorers over time, increasing country
mineral prospectivity and ultimately contributing to new mineral discoveries.

3. The importance given to PCD by governments in
Australia and elsewhere is reflected in the
considerable resources invested over many years
into collating information obtained from explorers
(eg South Australian Resources Task Force Report
2000). Comprehensive, quality CD data sets are
commonly available - data that was once sold for
thousands of dollars is now largely provided free, in
many cases, over the Internet. Good examples of
this include New South Wales DIGS System
(www. minerals.nsw.gov.au), South Australia's
SARIG System (www.pir.sa.gov.au) and Ontario's
"The Map Place." (www. em.gov.bc.ca).
The recent Prominent Hill Cu-Au discovery in
South Australia has been partly attributed to the
PCD made available by the South Australian
Government. Clearly, the incentive for many
countries to provide such information remains high.
The New Zealand Situation
Current Exploration Activity
As of January 2002, New Zealand had on issue 19
prospecting permits and 98 exploration permits
covering 656,536 hectares. Prospecting and
exploration activity in New Zealand is heavily
biased towards gold, and reflects the country’s
significant endowment in this element. Over 60%
of all prospecting permits and 40% of all
exploration permits are for hard-rock gold and
associated metallic minerals. 26% of prospecting
permits and 41% of exploration permits are for
alluvial gold (see Figure 2). However, the number
of commercial companies exploring for large
deposits has diminished considerably over the last
decade. The level of exploration activity has been
in slow decline from a high of $36 million in 1987,
and is at an 8-year low of some $9.9 million. This
decline follows the current global mineral
exploration expenditure trend - presently at an
estimated level of US$2.2 billion, down 15% since
2000 and 58% since 1997. With the continued
consolidation of the industry, exploration budgets
are expected to decline, as merged companies tend
to reduce their aggregated exploration spending
(2001 Metals Economic Group Report).
Mineral Prospectivity and Exploration
Activity
At the current low level of exploration activity in
New Zealand, the odds that a significant world-
class discovery similar to Martha Hill or Macraes
Flat being located in the very near future are not
overly high. New Zealand can be considered a
greenfields play, unattractive to most major
companies seeking large-scale advanced projects.
Gold and
Metallic
Hardrock
- 12
Gold Alluvial
- 5
Industrial
- 2
Current Prospecting Permits
Gold and
Metallic
Hardrock
- 36
Gold Alluvial
- 41
Industrial
- 14
Coal - 7
Current Exploration Permits
Figure 2:
The dominance of gold in New
Zealand exploration - numbers
of current prospecting and
exploration permits, grouped by
mineral type, as of January
2002.
Gold permits comprise 80% of
all permits.

4. Importantly, the decline in exploration activity
impacts on the prospectivity perception of New
Zealand. For the Crown, if it were to take a short-
term view, the present lack of demand for
exploration and geological information would mean
there is less incentive to make quality data easily
available. This in turn would set up a downward
spiral of decreasing exploration activity, with
potential interested offshore explorers going to
where the information is readily available. This
lack of information generation and provision over
time means that the prospectivity perception of the
country in the eyes of international explorers,
remains low despite the country's high mineral
endowment, particularly gold (see Figure 3).
If there is less incentive to invest in its existing
information base and the information generated by
explorers, in the long term, this information may
not be captured adequately for the benefit of future
explorers, and is lost from the system making new
discoveries even less likely. If the mineral
exploration information held is not made more
easily available to end users, perhaps in the form of
digital PCD derived from company technical
reports, then the potential gain from this stored
information is unable to be realised, further
decreasing the odds of discovery. At the present
time there are no readily available digital data sets
available for mineral explorers. To compete
internationally for mineral exploration investment,
there is a real need to assemble and market quality
digital data sets. A pilot study initiated by Crown
Minerals aimed at rectifying this situation is now
underway (see Partington et al this volume).
Mineral Exploration Information in the Context
of the Crown Minerals Act
Section 90 of the Crown Minerals Act 1991
requires all permit holders to keep and forward
detailed records and reports on all prospecting and
exploration activities by the permit holder in
accordance with regulations. Part 3 of the Crown
Minerals (Minerals and Coal) Regulations 1999
sets out the reports and records that permit holders
are required to keep. Reporting occurs in two
ways, (1) in Annual Summary of Work Reports and
Expenditure Reports as outlined on forms sent out
by Crown Minerals to explorers each year, and (2)
in submitted technical reports by explorers detailing
work done. Guidelines outline preferred format
requirements, and where records are produced in
digital form, must be submitted in this format.
Permit Contracts and Information
Asymmetries
Information on prospecting and exploration is
collected from permit holders in exchange for
mineral rights. Permit conditions are based on
individual specified work-programmes as set by
Crown Minerals, and set in accordance with "good
industry practice". The information subsequently
generated by the explorer is used for monitoring
progress and compliance with permit conditions.
Thus the work programme is the basis of a legally
binding contract between the Crown and the permit
holder. The information obtained by Crown
Minerals in return is archived in the Resource Data
library for the benefit of future explorers.
Problems can arise when information relating to the
mineral estate lies more with one party than the
other. To an Economist, such “information
asymmetry” problems form the basis of most
contractual performance problems (eg Harris &
Raviv 1979). At the permit application stage, the
Crown wishes to see quality work carried out and
the general knowledge of the mineral estate to
increase accordingly. Because permits are work
programme-based, Crown Minerals will judge an
application to explore or prospect based largely on
the merit of the work programme proposed by the
applicant. If a prospective explorer cannot readily
access existing information archived at Crown
Minerals, the proposed work programme may
involve some degree of repetition of previous work
undertaken by a previous explorer. The final agreed
Information
New
Explorers
Prospectivity
Exploration
Activity
Figure 3:
The inter-related components of the exploration
cycle, represented as a cause-and-effect
feedback loop.
Increasing amounts of each component over
time drive the cycle in a positive fashion,
leading to a vibrant mineral industry.
Conversely, decreasing amounts of each
component drive the cycle in a negative fashion,
leading to a stagnating industry.
Making geoscientific information more easily
available can stimulate the cycle.

5. work programme must be resolved through
discussion and negotiations between Crown
Minerals geologists and the applicant.
Information and Permit Monitoring
During the term of the permit, it is not uncommon
for Crown Minerals to receive vague or substandard
reports lacking “hard data,” despite guidelines
outlining reporting standards and requirements.
Most of this data remains in paper format. This lack
of quality information from many explorers makes
effective monitoring of permits problematical. The
problem can be compounded by the time allowed
under regulations for technical reports to be
submitted – 9 months after the completion of work
done. This compares with 2-4 weeks in many
Australian States. Obtaining quality information
can be further compounded when a permit holder
perceives (wrongfully) confidentiality risks through
the divulgence of sensitive commercial results.
Thus, during the term of many permits, the
information generated remains largely with the
permit holder.
Overall, under the current system, there may be less
incentives in some cases for the Crown to obtain
information from explorers if doing so is labour and
resource intensive, and little incentive for permit
holders to provide it, if it is not actively sought by
the Crown.
Despite any problems, work-programme based
contracts for exploration and prospecting permits
seem to be the preferred option by the New Zealand
mineral industry, rather than the Australian model
of using exploration expenditure as a proxy for
performance measurement. However it is possible
that disincentives that can occur for both parties
under such a performance-based system may
contribute to information loss regarding the mineral
estate over the long term. When this possibility is
combined with the loss of information value due to
the archival nature of paper technical reports not
easily accessible to explorers, the odds of new ore
bodies being discovered decreases further.
New Initiatives
The Crown has begun to re-invest in its mineral
exploration information base through a joint pilot
project with the Institute of Geological Nuclear
Sciences (GNS). The project, initiated by Crown
Minerals, has for the first time, collated a wide
variety of archival company geochemical data held
by Crown Minerals relating to mesothermal mineral
deposits in the South Island of New Zealand (see
Partington et al this volume, Partington et al 2002).
This information has been combined with regional
structural and lithological data from the GNS
1:250,000 Qmap project into New Zealand’s first
pre-competitive data package. The results of this
study are anticipated to be released in late 2002. It
is hoped other similar projects will follow. In
addition, investigations are presently underway into
implementing an Internet-based New Zealand
Minerals Information System.
Discussion and Conclusions
The declining level of exploration activity within
New Zealand represents a lost GDP-enhancing
opportunity for the country, based on mineral
inventory analyses which indicate a net present
value for the mineral estate of some NZ$86 billion
(Christie & Braithwaite 1999).
For this economic potential to be realised,
substantial quantities of mineral exploration are
required to identify the specific locations where
mining should take place. The mineral extraction
process comprises two distinct processes: 1.
exploring; and 2. extraction. The output of the first
process is information, the output of the second
process is the return to that information investment,
ie the minerals extracted and subsequently sold.
Although a considerable amount of information
relating to the mineral prospectivity is made
available as a result of the New Zealand mineral
regime, until recently there has been little organised
attempt or systematic process by which this
information is collected and processed in a way that
enhances the value of the total body of information
available to prospective explorers. Unlike the
Australian State and other progressive mining
nations, no on-going mechanism yet exists in New
Zealand whereby the economic value of this
information can be used to generate a return to
exploration companies, and ultimately to the New
Zealand economy through the discovery of new ore
deposits. To this end, a pilot study initiated by
Crown Minerals stripping data from submitted
paper technical reports and reassembling into a
digital data set is now underway. It is hoped that
such initiatives will help attract new mineral
exploration investment.
Comparison with the mineral regime of other
jurisdictions clearly shows that a proactive
approach to marketing the information product in
the form of precompetitive datasets can yield
dividends. Auctioning information together with
the rights to explore for minerals, in a manner
similar to petroleum blocks offers, may increase the
incentive for companies to undertake greater

6. amounts and higher quality exploratory work. From
the perspective of the New Zealand economy,
returns from the extraction of minerals in excess of
the additional costs of making information more
readily available are likely to be substantial.
We consider such benefits to be achievable.
However, this will require a shift in emphasis in the
monitoring and enforcement of permitting contracts
to ensure vital information is not lost, and for
industry to realise the importance of providing
quality information beyond their own immediate
needs. This in turn will allow the synergistic
benefits of quality information collected from
individual permits to be yielded in some set
amalgamation process that is possible only because
the Crown, as custodian of the public good, had the
foresight to collect and curate this information in
the first instance.
Taking more of a partnership approach to the
information value of the Mineral Estate will benefit
both explorers and the Crown in the long term, and
will improve incentives for quality reporting and
monitoring. Such an approach will ultimately
benefit New Zealand, is more befitting of a true
Knowledge Economy.
References
Christie, AB; Braithwaite, RL (1999) The Mineral
Potential of New Zealand. Institute of
Geological and Nuclear Sciences Report
99/4
Cole, ER; Player, WP; Temel KL (1997) Enhancing
the business environment for prospecting,
exploration and mining. New Zealand
Minerals and Mining Conference
Proceedings 1997.
Harris, M; Raviv, A (1979) Optimal incentive
contracts with imperfect information.
Journal of Economic Theory 20 231-259
Henley, R (1997): Risky Business: The Essential
Blending of Financial and Scientific Skills
in the Modern Exploration Sector. 1997
New Zealand Minerals and Mining
Conference Proceedings 17-19 November
1997
Lanken, D (1997) Minerals Property Rights.
Canadian Geographic 177(6) 80-82
Metal Economics Group Press Release (2001)
Exploration spending nearing the bottom
of the cycle. www.metalseconomics.com
Naito, K; Remy F. (2001) Mining Sector Reform
and Investment. Results of a Global
Survey. The World Bank Group Mining
Department. Mining Journal Books,
London
Partington, GA; Christie, AB: Cox, SC: Smillie,
RW: Stigley, P. (2002) A mineral resource
assessment project using spatial analysis
on a GIS. Abstracts, Technical
Programme PDAC International
Convention March 10-13 2002
Salmon, JHM (1963) A History of Gold-Mining in
New Zealand. Government Printer,
Wellington
Sherwood, A (1999) New Zealand’s
competitiveness for minerals operations
compared with Australian States.
Unpublished Crown Minerals Report,
October 1999.
South Australian Government response to the
Resources Task Force Report. June 2000.
Government of South Australia.
Smillie, RW (2001) The New Zealand Mineral
Regime: Information and the Permitting
Process. Unpublished MBA Report,
Victoria University