EDITORIAL PAGE — Sustaining the growth

Canadian exploration spending is on the rise, but before our politicians get too excited and start taking credit for the turnaround, it should be pointed out that this surge in spending probably has more to do with area plays surrounding new discoveries than with government policy.

Metals Economic Group’s (MEG’s) 1995 edition of Corporate Exploration Strategies: A Worldwide Analysis shows that allocations for Canadian exploration by surveyed companies increased by $49 million (or 17.5%) from the $280 million apportioned in 1994. This increase has helped pushed Canada back up to third place from fifth, which it occupied last year.

This year’s study by the Halifax-based firm estimates total 1995 worldwide nonferrous exploration expenditures at $3.5 billion, up 21% from the $2.9 billion estimated for 1994.

These figures are based on the budgets and exploration programs of 154 companies, and include estimates for budgets the firm was not able to obtain, as well as estimates of spending levels by private companies that do not publish their figures. Also included are the budgets of juniors that are spending less than $3 million in 1995.

While it is good news that Canada is attracting more exploration dollars, this achievement should be viewed with some caution. Considerable exploration work has been spurred by the Voisey Bay nickel-copper-cobalt deposit in Labrador, and Cominco’s Kudz Ze Kayah polymetallic deposit in the Yukon. Juniors, along with a few majors, have swarmed to these regions in the hope of making similar discoveries. After all, the best place to look for a mine is where the potential to find them has been established.

But unless other discoveries are found soon, the current pace of exploration activity in these regions is bound to taper off. For proof of this trend, one need look only at the handful of companies still exploring for diamonds in the Northwest Territories, compared with the hundreds that were involved only a few years ago. Those still active are the lucky few that have made discoveries of sufficient economic interest to keep exploration funds flowing. It is likely that a similar story will be repeated in Labrador. Speculators will move on to greener pastures, while those that remain will have found exploration targets of economic interest, or will be sufficiently funded and serious-minded to stay the course.

Canada’s current level of exploration, therefore, reflects a few exceptional discoveries — Voisey Bay and Kudz Ze Kayah, in particular — and may not be sustainable over the long term. After all, the MEG study shows another trend that may affect the level of domestic exploration in the years ahead: for the first time, both Canadian and U.S. companies have allocated more for exploration in Latin America than at home.

The study also shows that exploration activity in Africa has increased by more than 60% (to $320 million in 1995 from $199 million in 1994), while exploration spending in the Pacific Rim was up 52.9%.

All this drives home the point that North America faces stiff competition for exploration dollars. On the one hand, recent finds in Labrador, the Yukon and Nevada demonstrate that North America still offers considerable potential for discoveries. But on the other, the road to production in North America remains rocky, and much work has yet to be done to make the process less complex and costly.