Risky business: sequential contracting and relationship building in Australian mining joint ventures

Mineral exploration and mine development are risky undertakings afflicted with manifold sources of uncertainty. At the outset of prospecting work, knowledge of the geology in the area under scrutiny is partial, the size of any ore body is unclear, and the full extent of exploration expenses is uncertain. If a discovery is made, the cost of extraction must be assessed in light of prevailing and likely price/demand trends and a determination must be made concerning the suitability of existing refining technology. Contracts with customers must be arranged to mortise costs, and the international selling that is usually required presents another set of challenges. Subsequent development involves the hazards of sinking shafts, constructing underground works to follow ore bodies that may unexpectedly fault or decline in quality, and often establishing a supporting infrastructure. Reducing uncertainty arising from these sources requires different types of information, knowledge, and expertise. During initial exploration, knowledge of geological formations is needed, expertise in designing drilling programs is vital, and sampling and analytical skills are required. If a promising find is made, knowledge of mining techniques, refining processes, and world markets become all-important. At the same time, exploration and development are costly, and expenditure may produce no revenue whatever if a discovery fails to materialise. When a viable mineral body is found, development costs can be estimated with some accuracy, but unexpected geological or market conditions can throw projections into disarray. In short, mining is expensive, risky, and knowledge intensive. As a result, mining companies often band together to share risks, costs, and complimentary sets of knowledge in order to mitigate uncertainty