PDAC report finds exploration spending remains strong

March 5, 2012

The Metals Economics Group (MEG), released its annual exploration report, Corporate Exploration Strategies (CES) in partnership with the Prospector’s and Developers Association of Canada Conference (PDAC) in Toronto, Canada March 4-7. The report found that the rebound in exploration spending by the global mining industry is still going strong with the largest gains in gold exploration.

Despite some periods of weakness and volatility in metal prices, the report found almost all companies have increased their exploration budgets over the past two years, as a result the industry’s aggregate exploration total increased 44 percent in 2010 and 50 percent in 2011 to a new all-time high of $18.2 billion. This is more than double the low of 2009, $8.4 billion.

MEG’s 2011 exploration estimate is based on information collected from almost 3,500 mining and exploration companies worldwide, of which
more than 2,400 had exploration budgets reported in the Corporate Exploration Strategies study. These companies (each budgeting at least $100,000) together allocated $17.25 billion for nonferrous exploration, which covers an estimated 95 percent of worldwide commercially oriented nonferrous exploration spending.

A steep rise in metals prices beginning in 2002 led to successive budget increases by the majors and meteoric budget increases by the juniors, pushing the industry’s exploration total to a new high of $14.4 billion in 2008 — an increase of 620 percent from 2002.

The boom years came to an abrupt halt in September 2008 as the world fell into the worst economic downturn in decades. The resulting $6 billion (42 percent) drop in exploration spending from 2008’s high was the largest year-on-year decline (in both dollar and percentage terms) since MEG began the CES in 1989.

After bottoming in early 2009, the industry recovered much more quickly than predicted, and the global economy improved markedly over the course of 2009 and 2010, before a mixed 2011. Metals prices also improved significantly since bottoming in early 2009, and despite periods of weakness and volatility, remained well above their long-term trends through 2010-2011.

Even as most geographies benefited from the sharp increase, miners appeared to have a much bigger risk appetite in 2011, as spending in countries commonly viewed as risky jurisdictions rose to 23 percent of aggregate spending from 15 percent in 2010.

Over the last two years as metal prices have strengthened, a number of emerging economies, as well as some established mining jurisdictions such as Australia and Chile, have looked to raise taxes and royalties. That has increased mining costs and put the viability of some projects into question.

Colombia and Burkina Faso are two countries that have enjoyed robust exploration in recent years, and both are well positioned to expand their share of the world exploration total.

Gold, copper and silver projects accounted for the largest chunk of exploration spending, according to the report. Latin America as a whole attracted 25 percent of the total spending, with Canada accounting for 18 percent.


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