Company Strategies and Competitive Advantage

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Technology Strategy and Risk Analysis

PD’s plan is to systematically identify regions, prospects and targets which have a higher than average probability of success, and test them very efficiently. This will result in development and maintenance of a portfolio of high quality targets. To achieve this, it will employ a range of techniques covering all scales, from prospect to province, as described below.

The Company’s key point of differentiation is its access to the pmd*CRC-developed software and the skilled personnel who can undertake the necessary preparatory field work, run the software and interpret the results. An explanation of value creation using the PD Technology is as follows:

Studies of exploration statistics by Mike Etheridge and his co-workers at Macquarie University (source: M. Etheridge, personal communication) demonstrate that value creation in mineral exploration will be assured only if the probability of success at the prospect scale is well above the industry average. These studies show that, at the first drilling phase when an average of $300,000-$500,000 is being spent to drill test a new prospect, the average probability that the prospect will become a mine is very low - about 1%. Such low success probabilities have driven explorers away from greenfields exploration and towards near-mine drilling where success probabilities are higher but wealth creation potential is less. PD’s proposition is that, when the PD Technology is applied to deposit types for which it is appropriate, the probability of success at the first drilling phase can be lifted above 5%. With these increased success probabilities, PD should be able to create wealth from greenfields exploration in carefully selected areas where the technology is most likely to deliver results and the overall prospectivity is high.

At present, mineral explorers use mainly empirical methods to select and rank their prospects. These methods rely on looking for features in the geology or data that are known from target ore deposit type. Unfortunately, the empirical approach usually generates large numbers of targets, the vast majority of which do not contain orebodies. This is because no two mineral deposits are exactly alike. Therefore, a successful empirical exploration program needs to cover a wide range of targets each displaying some of the indications of a known orebody on the understanding that the next discovery will probably look a little different (e.g. in terms of host rock composition, alteration, geochemistry, shape, weathering etc). Even with this broad-ranging approach, deposits with signatures significantly different from known ore deposits in the same region are difficult to prioritise highly.

To improve on the empirical method, the explorer needs to do two things:

• recognise and use evidence about how the target orebody has formed (e.g. rock strength and permeability, temperature and pressure at the time of mineralisation etc). This information is available in the rocks but is rarely used effectively in empirical exploration.
• Use an experimental tool to enable the explorer to determine if ore formation is more or less likely to form at each prospect location.

The pmd*CRC’s mineral system analysis approach enables PD to identify the evidence it needs to understand how ore formation occurred and the PD Technology provides the experimental tool to test for relative prospectivity at each location. The great benefit of this method is that it enables PD geologists to generate greater value out of the cheapest data sets available to geologists, namely outcrop geology and pre-existing regional geophysical data sets (i.e. gravity and magnetics).

The company’s area selection methodology will draw heavily on the mineral system analysis approach developed in the pmd*CRC and other advanced techniques such as prospectivity analysis and wavelet analysis of gravity and magnetics data.

In addition, the Company will use a province-scale risk analysis system developed by the CEO prior to his work with the pmd*CRC designed to prioritise target provinces and mineral districts. The CEO holds intellectual property rights over this system which enables an objective ranking of all factors involved in exploration decision-making (i.e. ore deposit abundance and location, discovery technique effectiveness, competitor analysis and country risk).

Acquisition Strategy

The Company’s value proposition is based on gaining access to and testing the best prospects. Given the highly competitive situation in the most geologically prospective areas globally, the short term strategy entails ground acquisition through option or joint venture agreements. However, given the changed market environment, it is expected that PD will also be acquiring significant strategic ground positions in its own right.

Therefore, PD’s initial strategy has been to enter joint ventures on large tenement packages with numerous prospects to test. In these areas, The Company will assess the data using the PD Technology and its in-house expertise and drill test the best prospects as efficiently as possible with the objective of discovering significant high-grade deposits. Should the exploration results fail to meet the Company’s targets, it will continue to advance the remainder of its exploration portfolio.

Where possible, PD will structure its joint venture arrangements to both minimise early costs while it assesses prospectivity in detail and gain the largest equity possible after determining whether the properties have the potential for a mineable deposit. Deals structured in this way are unlikely to yield minority interests in properties to be farmed out to third parties. This will ensure that the PD’s focus is on testing new targets rather than managing relationships on residual interests where the likelihood of delineating a high value discovery is low.

In the first instance, the Company has chosen to focus most of its efforts on gold exploration in the Birimian Terrane of West Africa (which covers parts of Ghana, Burkina Faso, Cote D’Ivoire, Niger, Mali, Senegal, Guinea, Liberia). The key reasons for this approach are as follows:

• The PD Technology is particularly suited to the type of gold deposit found in West Africa (known as orogenic gold deposits) and there are case histories which demonstrate this contention.
• The gold mining industry in the Birimian Terrane is expanding rapidly based on widespread exploration success. At the same time, effective exploration under even thin cover (which has generated so much success in Australia) has barely begun there. The prospectivity is enormous but it is largely being tested with exploration methods employed in Australia in the 1980’s. Consequently, the opportunity to employ advanced techniques and gain short term success is considered to be substantial.
• A number of West African countries are building or have built a strong record of political stability with support for the gold mining industry. Of these, Burkina Faso is one of the most stable and predictable mining law jurisdictions.

Apart from West Africa, PD is seeking high potential opportunities within Australia where its advanced techniques can generate discoveries in areas where conventional approaches are not cost effective. The current focus is on gold targets in Western Australia, New South Wales, Victoria and Queensland. PD will have ongoing project generation and project acquisition activities in order to ensure that it has a continuous stream of high quality prospects to test in future years.

Finally, the Company is seeking areas where past data acquisition either by Government or previous companies has created untested opportunities. While PD will acquire pre-drilling data where necessary, its main strategy will be to extract value and drill targets out of other explorers’ data.

Management approach