As miners from around the world gather in Toronto, Canada for the annual Prospectors and Developers Convention (PDAC) the focus turns to exploration and this year there is a reason to celebrate.
According to S&P Global Market Intelligence, mining companies are spending on exploration again as interest in base metals rebounds and clean technologies boost demand for niche battery ingredients. This spending comes on the heels of a four-year slump in the industry.
Miners spent $8.4 billion searching for new metal deposits last year, about 15 percent more than in 2016, according to a report published by S&P Global Market Intelligence. That exploration spending, which doesn’t include money used searching for iron ore, could increase again by as much as 20 percent this year, S&P said.
The volume of mining exploration projects has jumped to the highest since at least 2012.
“Improved equity market support for explorers allowed many companies to launch or resume drill programs,” said Mark Ferguson, associate director of research for metals and mining at S&P. “Our year-end measure of exploration-sector activity reached levels not seen since early 2013.”
Gold led the way, accounting for more than 70 percent of the year-on-year increase in spending, followed by base metals copper, nickel, and zinc, all trading at multiyear highs.
Exploration for battery ingredients lithium and cobalt surged at smaller mining companies. Spending on lithium projects across 136 junior miners doubled, while expenditure on cobalt exploration quadrupled.
Canada, Australia and the United States continue to lead exploration spending, with allocations totaling $5.55-billion. The top 10 countries accounted for 70percent of the $7.95-billion global surveyed total.
Overall, the S&P Global Market Intelligence report confirmed that exploration sector health is on the mend, with its Pipeline Activity Index jumping to 87 in the fourth quarter, from 77 in the prior period. This reflected the index's highest level since the first quarter of 2013, when the recent downturn was just starting. The Pipeline Activity Index incorporates data on the number of projects announcing significant drill results, exploration financings, initial resources and positive project milestones.
Still, the world’s biggest mining companies kept exploration spending at low levels, preferring to return cash to shareholders. Miners with revenues of more than $1 billion last year likely spent roughly the same percentage of revenue as 2016, when the figure reached 1.8 percent, down from 3.2 percent in 2012.