(132 Companies' Budgets Totaling $2.17 Billion)
(182 Companies' Budgets Totaling $2.83 Billion)
Metals Economics Group
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(all dollar figures are US$)
According to Metals Economics Group's 1999 edition of Corporate Exploration Strategies, total spending allocated for worldwide nonferrous metals exploration increased steadily from 1993 through 1997, when the total peaked at an estimated $5.1 billion. The upward trend dramatically reversed in 1998 when allocations declined by approximately 31%. This year the downward trend continued, with exploration allocations dropping by a further 23%, from $3.5 billion to $2.7 billion. At a $2.9 million cutoff, MEG estimates that its 1999 analysis of 132 company exploration budgets totaling about $2.17 billion covers approximately 80% of worldwide expenditures for commercially oriented nonferrous metals exploration; total 1999 expenditures are estimated at about $2.7 billion ($3.5 billion in 1998).
The lingering effects of the Asian financial crisis, depressed metals prices, two years of difficulty in raising equity, and cutbacks by majors, all combined to reduce budgeted exploration spending in every region of the world this year. The accompanying graphs illustrate the regional distribution of the $2.17 billion in exploration allocations by the 132 companies included in this year's study, compared with $2.83 billion allotted by 182 companies in 1998.
Metals Economics Group expects exploration budgets to continue at a reduced level in the near-term, but not exhibit the same precipitous rates of decline witnessed in 1998 and 1999. Although base metals and gold prices have recently shown signs of significant upswings, budget increases tend to lag improved metals prices by a year. In addition, it will take some time to reverse the effects of lost liquidity in the equity markets for junior explorers (which had been one of the main sources of previous increases), and also to reverse the effects of departmental downsizings by most majors. This year's study shows that budget cuts by the larger players have been accompanied by a significant increase in acquisitions activity, as basement level share prices have
| 1999 and 1998 Worldwide Exploration Spending by Region | |
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1999 (132 Companies' Budgets Totaling $2.17 Billion) |
1998 (182 Companies' Budgets Totaling $2.83 Billion) |
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spawned industry consolidations and a feeding frenzy by growth-oriented majors for cash-starved companies with promising projects.
Between 1997 and 1999 the number of companies with budgets above $2.9 million dropped by 53% from 279 companies in 1997 to 132 this year, while the number of companies with budgets below $2.9 million has increased proportionally as junior companies struggled to raise funds. The study includes an appendix that outlines 518 exploration budgets (364 in 1998 and 242 in 1997) of less than $2.9 million but more than $100,000 by companies interviewed for this year's study, and an additional listing of a further 100 surveyed companies that do not have a 1999 exploration budget but have projects for which they are seeking financing or a joint venture partner to help fund exploration.
In 1999, Latin America is again maintaining its top position as a destination for exploration spending, with the surveyed companies budgeting $630 million (29.1% of the total), followed by Australia at $404.4 million (18.7%), Africa at $323.4 million (14.9%, which is down substantially from 17.5% in 1998), Canada at $234.1 million (10.8%), the United States at $216.1 million (10%), and the Pacific/Southeast Asia region at $175.4 million (8.1%). Spending in the rest of the world is a combined $181.1 million (8.4% of the total, including about $77.6 million for Europe, $45.4 million for the CIS, $31.3 million for Asia, $6.6 million for the Middle East, and $20.2 million for unspecified rest-of-world areas).
Although Latin America is the most popular destination for exploration spending, in dollar terms it incurred the largest decrease this year; 1999 budget allocations fell by $184.1 million to $630 million from about $814.1 million in 1998. This is the second year of decline for the region after six consecutive years of dramatic increases in exploration expenditures. However, Latin America's percentage of overall spending rose slightly to 29.1% this year from 28.8% in 1998. Africa shows the second largest decrease in spending, with a fall of $170.9 million to $323.4 million from $494.3 million in 1998, but the country's share of total spending shows the largest decline, dropping to 14.9% from 17.5% in 1998. In the Pacific/Southeast Asia region, budget allocations fell by $90.3 million to $175.4 million from $265.7 million in 1998, and the region shows the second largest percentage decrease, dropping to 8.1% from 9.4% of the overall total in 1998. Australia, which shows a drop of $90.2 million to $404.4 million in 1999 from $494.6 million in 1998, has the second highest percentage increase, to 18.7% from 17.5% last year.
Smaller decreases in expenditure are taking place in Canada and the United States, with budget allocations for Canada falling by $73.9 million to $234.1 million from $308 million in 1998, lowering Canada's share of overall spending very slightly to 10.8% from last year's 10.9%. In the United States, allocations fell by only $26.6 million to $216.1 million from $242.7 million in 1998, and show the largest increase in percentage to 10% from 8.6%. MEG's rest-of-world category shows the next smallest decrease in expenditure, falling by $27.7 million to $181.8 million from $209.5 million in 1998, but rising in percentage to 8.4% from 7.4%.
These are some of the conclusions drawn from Metals Economics Group's tenth edition of Corporate Exploration Strategies, published in September 1999.
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