The rewards in mining can be high, but so is the risk. Starting a new mining venture is a long and arduous journey, and there are many reasons why it could fail.

“It takes an average of 12 years between the discovery of a new copper deposit and the start of mine production”

First of all, you might not even find the mineral you hope to mine, whether it’s copper, diamonds or gold. Nature has hidden it well, often deep underground in complex geological formations. Locating it requires an exhaustive exploration programme that can take several years and involve airborne surveys, geological fieldwork and repeated drilling and analysis. An exploration programme can cost around $10 million per year. And even when you do find the mineral, there may not be enough of it, or it may be too deep or difficult to extract, to make a mining venture worthwhile. Many exploration projects are aborted. Despite billions of dollars spent worldwide on exploration every year, only 50%-70% of mineral discoveries end up being exploited.

Once an economically viable mining area is found, there can be a lag of 10-15 years before mine development starts. Permits have to be acquired, environmental impacts assessed and community agreements struck, even before the project can be financed and committed to. It can then take another 3 to 5 years, and at least a billion dollars, to build the mine, sink any shafts that may be necessary, and bring the first ore to the surface for processing. And during all this time, you as the mine investor are funding the entire exercise and shouldering all the risk.

With production in full swing and mineral sales finally starting to bring in revenue, you will start paying royalty taxes on your sales, even though you’re not yet making a profit. Finally, if you’ve achieved several years of steady sales, your mine might have generated enough revenue to pay off the initial investment. Only now are you truly profitable: you can finally start paying tax on your profits to government. This is why mines don’t all pay profit-based tax at the same time: they are at different stages of their development cycle.

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But it’s not all good news from here either, because mineral prices don’t remain stable. As the most recent economic slowdown in China illustrates, mineral prices fluctuate significantly with world supply and demand, but your costs stay the same – and might even increase. This hits your profitability, and you could end up in a loss-making situation. The world’s top 40 mining companies lost $156 billion of their combined market capitalization in 2014, according to PwC’s 2015 Mine report.

And unlike other industries, mining doesn’t stand still. You have to keep investing in the latest technology, and expanding your operations, to renew the ore deposits that you progressively mine out. That means more money to be spent, with the risk that it might not produce the anticipated return. And during all that time, you run additional risks of unexpected policy changes, different governments or new taxation regimes which can increase your costs, sometimes dramatically.

All these risks do not necessarily deter investors from starting new mining ventures, so long as there is the prospect of reward at the end. It’s only when the balance between risk and reward is skewed that an investor might decide that a new mining venture is not worth the risk.