Exploration Economics in a Fat-Tailed World: Evidence from Global VMS Deposits

Bell, Peter (2026): Exploration Economics in a Fat-Tailed World: Evidence from Global VMS Deposits.

Abstract

Mineral exploration is an inherently speculative activity in which economic outcomes are dominated by a small number of exceptional discoveries. This paper develops a stylized economic model of mineral exploration grounded in the empirical distribution of known volcanogenic massive sulphide (VMS) deposits. Using global grade and tonnage data compiled by the United States Geological Survey, the analysis estimates gross metal value under simplifying assumptions and examines the resulting distribution of economic outcomes. Copper grade, ore tonnage, and gross metal value all exhibit pronounced fat-tailed behavior, implying that most deposits are economically marginal while a few generate extremely large values. A simple exploration business simulation is constructed to compare alternative project-selection strategies based on minimum grade and minimum tonnage thresholds. The results show that strategies focused on large-tonnage deposits substantially improve expected returns and reduce downside risk relative to grade-focused strategies. The paper illustrates how empirical geological data can be used to clarify the economic structure of mineral exploration and to explain why exploration markets persist despite frequent failure.

• Item Type: MPRA Paper
• Language: English
• Keywords: mineral exploration, fat tails, grade–tonnage models, exploration economics, mining finance
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; G - Financial Economics > G0 - General; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction; L - Industrial Organization > L7 - Industry Studies: Primary Products and Construction > L72 - Mining, Extraction, and Refining: Other Nonrenewable Resources

References

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