In 2004, Canadian companies spent a total of about US$3.55 billion on nonferrous mineral exploration companies, according to the Metals Economics Group. The estimate is based on an analysis of the exploration budgets of 1,138 companies, using a cutoff of US$100,000.
The US$3.55-billion figure, equivalent to roughly 95% of worldwide commercial nonferrous expenditures, is included in the MEG’s 15th edition of Corporate Exploration Strategies.
Worldwide nonferrous exploration budgets steadily increased through the early 1990s to a crest of US$5.2 billion in 1997 before falling for five straight years to a 12-year low of US$1.9 billion in 2002 — an overall decline of more than 63%. Since that time, exploration budgets have risen for two straight years, rebounding to a level just slightly above MEG’s 1998 estimate. The 2004 estimate is 58% higher than that of 2003, and is double the estimated worldwide total seen at the bottom of the cycle in 2002.
The 5-year decline prior 2003 was caused by several factors: substantial cutbacks by major mining companies, the negative impact of industry consolidation, and a loss of funding for a great number of junior companies. The 2003 increase in worldwide exploration allocations by surveyed companies was largely due to the combination of increased spending by majors, a significant reduction in the negative influence of industry consolidation on exploration from the peak consolidation levels seen in 2000 and 2001, and higher spending by juniors in response to stronger gold prices. As the rise in gold prices took hold and prices for other commodities strengthened in late 2003 and early 2004, spending on exploration throughout the world increased. Exploration expenditures by junior companies surveyed were up 103% in 2004, accounting for about 60% of the overall increase in exploration allocations and almost 45% of the overall exploration total by all surveyed companies.
Although metals prices are expected to be volatile in the near term and may come down off recent highs, continued low inventories and a lack of significant new production in the pipeline, combined with China’s as-yet- undiminished appetite, should have the effect of keeping base metals at satisfactory levels. In addition, most analysts expect that the U.S. dollar will remain soft in the near term, which augurs well for gold price.
If metals prices remain relatively high in the current cycle, the increased rate of junior financings over the previous 12-18 months should continue. Although major companies are unlikely to increase exploration spending substantially in 2005, we anticipate that greater spending by junior and intermediate companies will boost overall, albeit more modestly than in 2004.
The accompanying table illustrates the regional distribution of the US$3.55 billion in exploration allocations by the 1,138 companies included in the MEG study.
In 2004, exploration allocations by surveyed companies increased in each of MEG’s regional categories and classifications for the second consecutive year. In dollar terms, budgets increased the most in the rest-of-world category, led by sharp increases in Russia, Mongolia, China, Peru, Mexico and Canada.
Latin America continues to be the most popular destination for exploration spending, increasing its lead over second-place Canada to more than US$76 million in 2004 from US$46 million in 2003. Africa remains in third place, having surpassed Australia for the first time. The substantial increase in allocations in our rest-of-world region has outstripped a more moderate recovery in Australian spending. The U.S. and Pacific/ Southeast Asia remain in sixth and seventh place, respectively — positions they have held since 2001.
The 900-page, 2-volume study is available on the Internet and in print. For more information, visit www.metalseconomics.com
— The preceding is from an information bulletin published by the Halifax-based Metals Economics Group.
Worldwide Nonferrous Exploration Spending in 2004
Latin America21.8%
Canada19.6%
Africa16.1%
Australia14.7%
Unites States8%
Pacific/SE Asia4.4%
Rest of World15.4%
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