Mining exploration spending to drop 29% this year

The rally in the gold price will not be enough to prevent 2020 turning into the worst year in 15 for global exploration spending.

According to a new report by S&P Global Market Intelligence, outlays for exploration across the industry are set to drop from US$9.3 billion in 2019 to US$6.6 billion this year.

Despite a gold price approaching seven-year highs above US$1,700 per oz., money spent on drilling for the precious metal this year is likely to shrink by more than US$800 million, compared to 2019.

Chris Galbraith, mining and metals analyst at S&P Global, says the vast majority of gold exploration is carried out by juniors and that sector remains under pressure.

According to S&P Global data, junior mining companies managed to raise US$781 million during the first quarter, much of it in debt form, an almost 50% drop from the US$1.54 billion in financings racked up in the final quarter of 2019.

Global gold production declined last year for the first time in a decade, but before the outbreak S&P Global was expecting around 2m in additional ounces to be poured this year for a total just shy of 108m ounces.

S&P Global Market Intelligence. State of the Market: Mining Q1-2020

Due to the impact of COVID-19 the researcher now expects another down year for gold production with mine shutdowns resulting in almost 2.7 million fewer ounces expected for the year.

Latin America and South Africa would be responsible for the bulk of the losses, although Russia appears to be in the early phase of the virus spread and its operational impact.

Gold production is likely to return to positive growth next year.

Gold for delivery in June was last trading at US$1,725 per oz. in New York, up more than US$200 per oz. since the start of the year.

Copper budgets are also being slashed and are forecast to fall by US$935 million.

Galbraith points out that the copper price is still too subdued to incentivize exploration programs by juniors while large companies are in capital preservation mode.

Mined copper production this year is expected to fall by 135,000 tonnes to 19.6 million tonnes, and refined output by 75,000 tonnes due to falling concentrate supply, lower treatment charges and COVID-19 related cutbacks.

The market is nevertheless expected to hit 182,000 surplus for 2020 according to S&P Global, up from previous estimates of a 72,000 tonne oversupply.

Despite the impact of COVID-19, the company maintained its average copper price forecast of US$5,700 a tonne (US$2.59 per lb.) for 2020, rising to US$6,233 next year and US$6,425 in 2022.

Copper was last trading at US$2.43 per lb. (US$5,355 per tonne) on the Comex market in New York, down for the day but still up more than 20% from lows hit in mid-March.

— This article first appeared in our sister publication, MINING.com