March/April 2011

Metals Monitor

Metals Economics Group world exploration trends: Nonferrous exploration rebounds 45 per cent to second-highest total on record

By Jason Goulden

Responding to rising metals prices and more stable markets, most mining companies increased their exploration budgets in 2010. The result was a 45 per cent increase in estimated worldwide nonferrous metals exploration spending compared with 2009.

Metals Economics Group’s (MEG) 21st edition of Corporate Exploration Strategies (CES) reports a 2010 exploration budget total of $11.2 billion. The industry restored almost two-thirds of the $5.5 billion that was cut from exploration in 2009 in response to the global financial crisis. The speed and strength of the 2010 rebound were a welcome surprise to many, given the severity of the downturn and widespread forecasts of a deep and protracted recession.

MEG’s 2010 exploration estimate is based on information collected from more than 3,200 mining and exploration companies worldwide, of which almost 2,100 had exploration budgets reported in the CES study. These companies (each budgeting at least $100,000) together budgeted $10.68 billion for nonferrous exploration, which we estimate covers about 95 per cent of worldwide commercially oriented nonferrous exploration budgets. Adding our estimates of budgets that we could not obtain, the 2010 worldwide exploration budget total reached more than $11.2 billion.

Recent editions of the CES study also include uranium exploration budgets. The 2010 edition covers uranium budgets totalling almost $830 million. Including uranium, the number of companies covered by the study increased to more than 2,200, and the aggregate exploration budget (including the $10.68 billion nonferrous total above) increased to $11.5 billion. Including estimates for budgets MEG could not obtain, worldwide nonferrous planned exploration expenditures, including uranium allocations, totalled more than $12.1 billion in 2010.

The overall trend

Riding the wave of rising metals prices, worldwide nonferrous exploration allocations increased for six consecutive years to an all-time high of $13.2 billion in 2008 (excluding uranium). The mining industry’s boom years came to an abrupt halt in September 2008, however, as the world fell into the worst economic and financial downturn in decades. Widespread forecasts of a deep and protracted global recession painted a grim outlook for near-term global commodities demand, pushing most metals prices into steep decline and forcing companies to slash their 2009 exploration plans – some by choice and others to survive. The resulting 42 per cent drop (about $5.5 billion) in worldwide nonferrous exploration budgets from the 2008 high was the largest year-on-year decline (in both dollar and percentage terms) since MEG began the CES series in 1989.

After bottoming out in early 2009, the industry recovered much more quickly than most would have dared predict. Although the recovery remained fragile, the global economy improved markedly over the course of 2009 and into 2010. Metals prices improved steadily and were again well above their long-term trends through most of 2010. Responding to rising prices and more stable market conditions, most companies increased their exploration budgets in 2010, resulting in a 45 per cent increase ($3.5 billion) in our estimated exploration budget total for 2010, restoring almost two-thirds of 2009’s estimated $5.5 billion cut.

Increased global exploration spending

Planned exploration spending increased in all regions of the world in 2010, and one – the Pacific/Southeast Asia region – exceeded its previous high, set in 2008. (The annual budget totals for Canada, Australia and the United States are typically much larger than for most other countries; as a result, MEG also treats these countries as regions in its CES studies.)

Latin America drew the largest share of allocations, attracting 27 per cent of global spending in 2010, and has been the most popular exploration destination since 1994. Five countries – Mexico, Peru, Chile, Brazil and Argentina – traditionally attract the vast majority of exploration spending in Latin America, and 2010 was no exception. Just 17 per cent of planned 2010 exploration in Latin America was targeted outside the borders of these five countries. Base metals exploration outpaced gold in Peru, Chile and Brazil, while gold led the way in Mexico and Argentina.

Canada was also a big draw in 2010, with planned spending rebounding 73 per cent. This allowed Canada to regain the second spot, which was claimed by MEG’s “rest of world” region in 2009. The provinces of Ontario, Quebec, Saskatchewan and British Columbia attracted about two-thirds of total Canadian allocations. Planned expenditures for gold exploration in Canada increased dramatically to capture 54 per cent of total spending.

After a year in second position, MEG’s “rest of world” region (covering countries in Europe, mainland Asia and the Middle East) fell back to third. China outpaced Russia for the first time as the top exploration destination in this region, and together the two countries accounted for half the region’s 2010 total. Gold was the leading target in the region, attracting 49 per cent of recorded budgets.

Africa continued to attract more exploration spending than Australia, accounting for 13 per cent of 2010’s global budgets compared with Australia’s 12 per cent. Planned spending in Africa was heavily weighted towards the Democratic Republic of Congo, South Africa, Zambia and Burkina Faso, which together accounted for almost half the region’s total. In Australia, three states – Western Australia, Queensland and New South Wales – together accounted for three-quarters of the region’s total allocations. Gold was the top exploration target in both Africa and Australia.

The United States remains firmly entrenched in sixth place. Nevertheless, it boasts the largest year-on-year increase in planned exploration spending in 2010, rising 75 per cent from 2009 and increasing its share of worldwide spending to eight per cent from 6.5 per cent. Gold allocations in Nevada and Alaska account for a large portion of the total; however, base metals exploration in Arizona and Minnesota also contributed to the increased activity.

Planned exploration in the Pacific/Southeast Asia region also increased substantially in 2010. While its share of worldwide exploration increased in recent years to almost seven per cent in 2010, it remains well below the 10 to 12 per cent range reached in the mid-to-late-1990s. The traditional big three destinations – Indonesia, Papua New Guinea and the Philippines – attracted 75 per cent of the region’s total allocations in 2010.

In most years, the bulk of global exploration spending is carried out by Canada- and Australia-based companies; however, resource-hungry China is also becoming an increasingly important investor in mineral exploration worldwide. In 2010, Chinese companies accounted for about 11 per cent of the global exploration total, with about 31 per cent of their budgets allocated outside China’s borders – primarily targeting Canada, Africa and Pacific/ Southeast Asia regions.

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