(679 Companies' Budgets Totaling $2 Billion)
(656 Companies' Budgets Totaling $2.34 Billion)
Metals Economics Group
P.O. Box 2206
Halifax, Nova Scotia B3J 3C4
CANADA
Phone: (902) 429-2880
Fax: (902) 429-6593
meg@meginformation.com
www.metalseconomics.com
(all dollar figures are US$)
According to Metals Economics Group's recent edition of Corporate Exploration Strategies, worldwide allocations for commercial precious and nonferrous metals exploration peaked at about $5.2 billion in 1997. Since that time, the total amount allocated to this sector has declined for four years in a row to an estimated $2.2 billion in 2001, a drop of almost 15% since 2000 and almost 58% since 1997. MEG estimates this year's analysis of 679 companies' exploration budgets (using a $100,000 cutoff) totaling $2 billion covers an estimated 90% of worldwide expenditures; therefore total 2001 expenditures are estimated at about $2.2 billion.
In 2000, five major mining companies disappeared through takeovers and mergers. The 2001 budgets of the merged companies are considerably lower than the combined 2000 budget allocations of the pre-merged companies, contributing to the overall worldwide budget decrease of about 15% from 2000. So far in 2001, there have been an additional six significant mining company mergers and proposed mergers. With the continuing consolidation of the mining industry, we expect exploration budgets to continue to decline next year, primarily because the merged companies tend to reduce their aggregated exploration spending.
According to MEG's Junior Gold and Junior Base Metals Services, the combined market capitalization for junior mining companies (those capitalized at less than $200 million) has slipped about 28% since June 30, 1998, showing only a modest increase in early 2000 before resuming a downward trend. Although the plunge in value of the junior capital pool may have slowed recently, dropping less than 1% from the end of 2000 through June 30, 2001, investor sentiment towards these companies, and the mining sector in general, remains flat. The lack of available capital in the current market is making it difficult at best for the juniors to secure the financing necessary to continue to explore and advance their projects. Although the number of significant discoveries made by junior base metals companies remained relatively stable from 1998 through 2000 (buoyed by an increased interest in platinum group metals from late 1998 through 2000), the number of junior base metals discoveries declined substantially in early 2001. The record of gold discoveries by juniors has declined steadily since 1997. The shortfall in junior discoveries is exacerbated by the fact that in recent years many majors have been leaning away from early-stage exploration and have been relying instead on the juniors to come up with new discoveries. Although the junior-led decline in exploration spending since 1997 does not appear to have had much effect on existing production, the decline in new discoveries, coupled with sustained low metals prices, could cut significantly into new mine development in the future.
The accompanying graphs illustrate the regional distribution of the $2 billion in exploration allocations by the 679 companies included in this year's study, compared with $2.34 billion allotted by 656 companies in 2000.
| 2001 and 2000 Worldwide Exploration Spending by Region | |
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2001 (679 Companies' Budgets Totaling $2 Billion) |
2000 (656 Companies' Budgets Totaling $2.34 Billion) |
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All regions of the world experienced a decrease in 2001 budgeted expenditures. Latin America again maintains its top position as a destination for exploration spending, with the surveyed companies budgeting $575.8 million (28.8% of worldwide allocations) in 2001. Australia is next at $349.4 million (17.5%), followed by Canada at $332.9 million (16.6%), Africa at $276.9 million (13.8%), the United States at $158.2 million (7.9%), and the Pacific/Southeast Asia region at $133 million (6.7%). Spending in the rest of the world is a combined $175 million (8.7% of the total), including $78.2 million for Europe, $27.2 million for the CIS, $27.1 million for Asia, $8.4 million for the Middle East, and $34.1 million for unspecified rest-of-world areas.
The United States and the Pacific/Southeast Asia region show the largest percentage decreases in 2001, with both areas registering reductions of about 33% this year. The reduction in exploration spending in the United States to $158.2 million from $234.5 million last year is due in part to several changes in the U.S. mining law mainly aimed at increased environmental protection. The Bureau of Land Management admits that the new rules might decrease mineral production by up to $877 million annually and result in the loss of up to 6,050 jobs. The sharp decline in spending in the Pacific/Southeast Asia region to $133 million from $199.2 million is largely due to widespread civil unrest in the area, some of which is directly related to anti-mining sentiment.
The decreases of exploration budgets in Australia, Latin America, and our rest-of-world category are more closely in line with the total worldwide reduction, while exploration in Africa and Canada is declining less than the worldwide average. The relative strength in exploration activity in Canada and Africa is due mainly to the continued heightened interest in the pursuit of diamonds and platinum group metals in these regions.
These are some of the conclusions drawn from Metals Economics Group's twelfth edition of Corporate Exploration Strategies, published in September 2001. This 585-page two-volume study is now available (on the internet or in print) for US$11,000 from Metals Economics Group, P.O. Box 2206, Halifax, Nova Scotia, B3J 3C4, Canada. Phone: (902) 429-2880; fax: (902) 429-6593; email: meg@meginformation.com; web site: www.metalseconomics.com.
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