Exploration budgets rose in 2012

Despite concerns about the global economy and slowing demand from China metals exploration remained strong, according to SNL Metals Economics Group (SNL MEG).

In its 23rd edition of Corporate Exploration Strategies (CES), SNL MEG estimated worldwide total 2012 budget for nonferrous metals exploration rose to $21.5 billion. The report found most metals prices remained well-above their long-term averages in 2012, giving modest support to the industry; as a result, exploration budgets increased by $3.3 billion, up 19 percent from 2011 to set a new all-time high.

Historically, major and intermediate producers have adjusted their exploration spending in response to commodity price fluctuations, but in the current cycle many are taking a longer view despite near-term uncertainty, committing to investing in their project pipelines throughout market cycles, the report found. As a group, the majors increased their exploration allocations the most in 2012, increasing their share of the worldwide total to its highest point in almost a decade. Conversely, junior companies — largely reliant on access to equity markets to fund exploration — increased their budgets only marginally in 2012, as investor interest waned through most of the year.

Exploration companies continued to expand their global footprint, with exploration planned for 129 countries in 2012, up from 121 in 2011. The industry also showed no sign of backing away from high- or medium-risk jurisdictions as exploration allocations for these destinations accounted for more than half of this year’s total, despite ongoing concerns and uncertainty about security, policy, and resource nationalism. In contrast, the share allocated to mature mining regions such as Canada and Australia fell in 2012, exacerbated by restrained spending by these countries’ large junior sectors. Nevertheless, Canada and Australia remained the top countries overall, with the United States, Mexico, and Chile rounding out the top five.

The proportion of overall exploration spending dedicated to early-stage and generative work reached a new historical low in 2012, largely due to stagnant junior budgets. The decline in grassroots’s share of spending over the past decade correlates with the upward trend in late-stage and minesite budgets, as junior, intermediate, and major companies continued to spend more on late-stage projects to move them towards production or to make them attractive for acquisition, and producers spent more on minesite work as a less expensive and less risky means of replacing and adding reserves. This reduced focus on early-stage and generative work has led to concern that many companies, and perhaps the industry in general, may be sacrificing long-term project pipelines in favor of short- and near-term growth.

SNL MEG’s 2012 study is based on information collected from almost 3,500 mining and exploration companies worldwide, of which more than 2,550 had exploration budgets in 2012. The companies (each budgeting at least $100,000) together budgeted $20.5 billion for nonferrous exploration in 2012. Including our estimates for the budgets that we could not obtain, the 2012 worldwide exploration budget totals more than $21.5 billion.

For more information on SNL MEG’s services or the Corporate Exploration Strategies study please visit SNL Metals Economics Group’s web site at www.snlmetalseconomics.com, email sales@snl.com, or call +1 902-429-2880.