SNL Metals Economics Group senior sales executive David Cox told investors at the 20th Investing in African Mining Indaba in Cape Town, South Africa that his group is projecting a 15 to 20 percent decline in mineral exploration activity in Africa this year.

Cox said funding sources have dried up because of tough economic challenges and market uncertainty, IOL reported.

The annual Indaba Conference is the largest mining conference in Africa and this year it has attracted more than 7,000 people while mining industry there struggles with unclear legislation and a new round of labor strikes.

Cox said market uncertainty continued to weigh heavily on the industry this year. Without renewed investor interest, the majority of junior companies would be forced to further limit their exploration activities.

“It is clear there is an inverse relationship between juniors and majors; the juniors are driven by access to equity and when those markets are favourable, their profits double, and when they don’t they decline,” said Cox, adding that more sovereign funds were going into exploration.

Mining majors have reduced their exploration budgets by 40 percent, and intermediate companies made cuts of 50 percent to their exploration budgets last year, Cox noted. In addition, juniors were now focusing on projects they could advance as funding dried up.

Despite economic challenges, Cox said countries had a responsibility for promoting exploration opportunities.

“Every $1 of exploration will eventually lead to $10 of capital spend, and $88 of revenue, or $6 to $12 in wages. With those numbers it is clear that increasing the exploration within a country is important for driving wealth.”

In order to do that, investors had to have confidence in regulatory regimes as well as security of tenure, Cox said.

Exploration in Africa had dropped between 2004 and 2010, but in the past two years it had picked up again due to gold exploration in west Africa and activity on the Copper Belt, IOL reported.

The Democratic Republic of Congo (DRC), followed by Burkina Faso and South Africa, are the top three exploration destinations on the continent, with the DRC attracting 15 percent of Africa’s exploration funding.

According to Cox, exploration budgets steadily fell to a low of $2 billion in 2002, but with demand from China, and metal price increases in 2008, it scaled a new peak of $13 billion.

Due to a fresh metal price spike, there was a 50 percent increase in 2011, and a 19 percent increase in 2012, Cox said. Later, the uncertainty in Europe and the United States, together with the fear of a slowdown in China, created challenges of raising equity for junior mining companies.

Last year, global exploration spending fell 30 percent to $14.4 billion, Cox said. But South Africa was likely to be on the lower end of the expected 15 percent to 10 percent cut in exploration as some of the juniors had listed on the JSE.