Geology is about more than the science of rocks – especially for a mining geologist who works at a private equity investment firm.
As an integral part of a team that makes multi-million dollar judgments about mining site viability, an ability to assess rocks – and other geological structures – is obviously essential. But just as important, an RCF geologist has to be able to assess people – and their ability to make good mining decisions.
We recently sat down with RCF Director and mining geologist Rafael Gradim to learn more about what his job entails. Before he came to Resource Capital Funds, Rafael earned a master’s degree in structural geology and worked at the Gold Fields and Eldorado Gold mining companies. He is now a part of the RCF Technical Team, and shares his thoughts on geology, its relationship to mining, and the importance of working with the right people.
Rafael, what got you interested in rocks as a young person? How did you end up becoming a mining geologist?
Growing up, my best friend’s mother was a mining geologist. In fact, she was a very gifted mineralogist and one of the pioneers in the field of geometallurgy in Brazil, where I’m from, and was the first woman to work as a geological engineer in that country. As a child, I didn’t fully understand what she did, but I thought she was a very cool person. She had traveled to many places and had a lot of fascinating stories about the world. I thought it would be fun to do what she did, so that’s what got me interested in geology.
I studied geology as an undergrad then started working on a master’s degree in structural geology, which is the study of the deformation, structure, and arrangement of rocks. Initially, I intended to get a Ph.D. and go into academia, but my girlfriend at the time, now my wife, was working for a mining company as an exploration geologist and was transferred to Venezuela. Her company, probably realizing that they’d keep her on longer if she wasn’t all by herself in a foreign country, offered to hire me as well and send me with her. So I went from academia to working in the field, and later I moved into business and corporate development with another mining company. Eventually, it all led me to working for RCF.
How would you define geology?
It’s a broad field, dedicated to better understanding the planet Earth and the processes that shape its composition and structure over time. Obviously, it goes well beyond mining. There are geologists who study earthquakes or landslides or volcanoes or coastal erosion or water tables—you name it. If you’re a mining geologist, though, you’re studying and characterizing the geometry and the chemical composition of what you’re mining. That makes geology fundamental to metallurgy, mining engineering, geotech engineering, and other aspects of the mining process.
You’re a director within a sophisticated technical team at a private equity firm. It’s a unique operating model – what’s it like?
The RCF Technical Team is incredibly strong. In previous due diligence roles with other companies, I was the only technical person, so once we got to an area that was beyond me, I’d have to beg people in other teams for help, essentially taking them away from their day jobs. Sometimes, I had to hire consultants. At RCF, though, we have a complete team, including mine geologists, project specialists, mining engineers, metallurgists and ESG specialists. They’re all extraordinarily high-caliber, experienced people. I’ve been in the mining industry for 20 years, and I’m still the most junior person on the team. It’s a real luxury to work with a multidisciplinary in-house team with such breadth and depth of knowledge.
It can be challenging, sometimes, to hire for a team like this because we’re looking for a rare combination of analytical skills and hands-on experience. The people on the team are doing the actual nuts and bolts of the evaluations, like running the software, doing the block models or the mine plans, or running metallurgical simulations. RCF invests in many different commodities, in many jurisdictions, and at many project stages, so we need to be able to give thoughtful opinions on a wide array of different situations, far more than we would if we were working for a mining company. We need people who are just as comfortable in the field as in the office.
In any event, it’s a real luxury to work with such a talented, in-house, multi-disciplinary team like ours.
Geologists play a significant role throughout all phases of mining, but are especially important early on. Can you tell us what happens during the exploration phase?
During the exploration phases, a mining geologist is trying to make a discovery, by which I mean find an economic concentration of metals and minerals. One of the most important steps is selecting the area where you’re going to work. You can start by studying large-scale structures and host rock distribution. You can use geological surveys published by the government. You can use public physical data research, like large-scale models of mineral endowment.
You can also approach exploration in a more empirical way, maybe by selecting an area where there is already an established mining camp or advanced exploration projects. In that case, it’s more about your ability to negotiate an entry into an environment that’s a little more competitive, and it may be less about geology and more about corporate development.
Once you’ve secured the rights to explore, then you use geophysical surveys to cover relatively large areas at a relatively low cost. After you’ve done that, you take sample surface occurrences, like rock samples or soil samples, and you use all this geological data to decide where to drill. Drilling is really the principal test at this stage. You then develop initial geological models based on that information that tell you where else to drill, an iterative process.
Either way, though, you have to make those decisions with the geological concept in mind. You have to know what you’re looking for.
What are the biggest mistakes people make at this stage?
From a technical perspective, one of the biggest mistakes is trying to save time and money by taking shortcuts in data collection; for example, by not surveying drill holes properly, not choosing the appropriate quality control methods, or not investing in a proper database setup. These steps can be seen as secondary to the main task of drilling, and most exploration projects fail, so you can understand the temptation. The problem is that if the project advances, you’ll need this information, and then those shortcuts become very problematic.
In a more general sense, though, the hardest thing about exploration is knowing when to move on versus when to persevere. And there’s no easy answer. Every situation is different, which is what makes this so challenging. But I think a lot of companies err on the side of persisting for too long after their initial results didn’t support their exploration thesis. They may not find what they were looking for but they talk themselves into raising more money and keeping at it because they don’t have any other projects to explore or because this is where they were able to secure rights. Again, it’s easy to understand the temptation, but you need to remove emotion from the objective decision-making that’s required.
Perseverance is the right answer in some cases, but you need to remember that failure is very common in exploration — and if you’re going to fail, it’s better to fail fast and move on to the next possibility.
What is the key thing for investors to be thinking about at this stage?
At the exploration stage, we’re generating a lot of data, but we still don’t have that much to go on relative to a mature mine. The important thing here is to make sure we’re backing the right management team because they’re the ones who will be making decisions about how to spend what are often very limited funds.
After RCF has decided to invest in an asset, does your team still have a role to play?
The RCF Technical team works closely with each of our investment teams, typically by helping filter for opportunities. The investment team will select a potential investment based primarily on commercial and valuation criteria, and then the RCF Technical team will prepare a fatal flaw analysis for them to decide whether we should spend more time evaluating that opportunity.
When we get to more advanced due diligence, then we work together to establish the technical-commercial investment case by providing direct input into the financial model to get a sense of returns. The geology team provides distributions on grade and sometimes tonnage, distributions being the numerical way of representing risk. I basically say, “Look, the company’s saying that they can achieve X grade. I think they might achieve X plus 15% on the better and X minus 10% on the low end.” It’s a very tangible input into what they’re doing.
Generally, once we’ve made an investment and a company is part of our portfolio, we work with the investment team and the company itself on optimization or expansion cases or if they have operational issues. We’re there to support them and to make sure that the strategic and tactical decisions they’re making mean that our investment case is being well-implemented.
I’d say my job is about 50% due diligence and 50% helping existing portfolio companies de-risk and make good decisions.
Is geology getting harder? Given how heavily mined many commodities are, is it getting more difficult to find economically viable deposits?
Yes. The grades and quality of mineral deposits are going down. The low-hanging fruit has pretty much been picked. For most commodities, high-grade deposits at the surface don’t exist anymore because they were easy to find and have already been mined. Now, you either have to go to deeper deposits or to much lower-grade deposits, so the strategies are different. Some people feel we need new geological models or exploration tools. Others think that we need to tap into new search spaces. Right now, mining innovation is critical to help find new mines and to help mines become more efficient and successful. The RCF Innovation team invests exclusively in this area of the mining sector.
Is exploration different for each commodity, or does it follow a similar path for each?
It’s very different for each. Every metal has a different risk profile, depending on geometry, grade continuity, metallurgy, and so forth. Take copper porphyry, for example, the biggest source of copper globally. It tends to be low grade, so when we’re exploring, we’re looking for scale — that is, relatively large projects with well-defined zoning. That means that we can explore for it with relatively widely spaced drilling. There may be a porphyry between your drilling, but if that’s the case, it means the deposit is probably too small to be economical.
On the other hand, if you’re looking for deposits that don’t have a large footprint, like high-grade gold, you might have a mine that’s only ten meters wide by a few hundred meters long. That can be easy to miss in early stage exploration drilling. It’s much more drill intensive to find a mine like that, so it calls for a different strategy.
From a metallurgical perspective, every exploration project should have a metallurgical study as soon as it’s feasible, but some of them are much more straightforward than others. High-grade gold would be very simple, but multi-commodity deposits, such as a copper VMS, rare earths, platinum group elements, and so on, are much more complex. That calls for earlier tests, or even a pilot test, especially for rare earths, and you need to get a lot of material for that.
And when it comes to economic concentrations, every mine is different. There are patterns, of course, for each commodity, but fundamentally, every deposit is unique. We like to say that mining isn’t monolithic. There are just too many variables for each mine.
In some ways, geology is similar to economic theory. You have some general rules and historical precedent, but by and large, you cannot reproduce these conditions in a lab. It’s what makes hands-on experience so important.
What is the hardest part of your job?
I think the hardest part is that you go into geology thinking you’re going to be studying rocks. But fundamentally, you’re assessing people and their ability to make good decisions. As an investor, we don’t operate the exploration or mining projects directly, so we really need to be aligned with management teams that are going to bring them to fruition. So, I’d say that’s really the most difficult thing, getting the people part right.
And what about your job do you like best?
For me, the most fun part is the variety. At Resource Capital Funds, we do a lot of everything. We invest in a wide range of commodities, jurisdictions, and project stages, and we have to turn this very complex analysis into tangible investment decisions, which I think is pretty exciting. That, and I really get along well with the tech team. They’re a great bunch. Geographically, we’re scattered across the globe in key mining jurisdictions, but we all work really well together.
And one last question: What is your favorite metal and why?
My favorite metal is probably everyone’s favorite—copper. Everyone loves copper because of its central role in the entire green energy transition. From a geological perspective, it comes in a wide variety of environments with different metal associations. So you can have porphyry deposits which are copper and gold, or you can have VMS deposits, which are mainly copper and zinc, which are very different. It’s mostly mined in open pits, but you can have underground mines as well. You can have copper in oxides near the surface or in sulfides deep underground. For a mining geologist, that kind of variety is just fascinating.
There is also some very interesting research being done on the leaching of copper sulfides. Given the supply-demand gap for copper, this has the potential to be a major breakthrough. There is a lot of chalcopyrite, a mineral with abundant copper, that is too low-grade to be economically viable. If someone can figure out how to leach primary copper sulfides, though, that would lower the cost of extraction and be a huge step for copper.
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