(724 Companies' budgets Totaling $1.73 Billion)
(679 Companies' Budgets Totaling $2 Billion)
Metals Economics Group
P.O. Box 2206
Halifax, Nova Scotia B3J 3C4
CANADA
Phone: (902) 429-2880
Fax: (902) 429-6593
meg@meginformation.com
www.metalseconomics.com
(all dollar figures are US$)
According to Metals Economics Group's recent edition of Corporate Exploration Strategies, worldwide allocations for commercial nonferrous metals exploration peaked at about $5.2 billion in 1997. Since that time, the total amount allocated to this sector has declined for five years in a row to an estimated $1.9 billion this year, a drop of almost 14% since 2001 and 63% since 1997. MEG estimates that this year's analysis of 724 companies' exploration budgets (using a $100,000 budget cutoff) totaling $1.73 billion covers about 90% of worldwide expenditures; therefore, including the additional 10%, total 2002 expenditures are estimated at about $1.9 billion.
If this year's higher gold prices are sustained and improved investor sentiment towards gold equities continues, exploration budgets could well stabilize in 2003 and possibly even show a modest increase. More importantly, industry consolidation, which reached a peak in 2001 and negatively affected 2002 exploration spending, has slowed considerably this year, and we expect that this reduced acquisition activity will have a much less negative effect on next year's exploration spending. In 2001, the industry lost eight significant mining and exploration companies to consolidation. The exploration budgets of these acquired companies, totaling about $166.2 million in 2001, effectively disappeared in 2002, as most of the surviving companies did not increase their exploration spending despite incorporating an expanded exploration portfolio. As acquirers digest last year's purchases, several major mining companies have reported their intention to forego acquisitions as a means of growth in favor of returning to an internal reserves replacement strategy, and some have announced plans to increase exploration spending in 2003.
Junior company exploration spending has increased an estimated 3% this year following four consecutive years of substantial declines. The crash in technology stocks and the recent rise in gold prices are re-awakening investor interest in gold equities, allowing more juniors to obtain funding for their stalled exploration programs. In dollar terms, allocations for gold by the juniors are up this year, outweighing a continuing downturn in junior base metals exploration, which is still being affected by slumping base metals prices. Provided investor sentiment towards gold equities remains positive, we may see a modest increase in junior exploration spending again next year.
The stock market environment of the past few years has made it difficult at best for the juniors to secure the financing necessary to fund exploration. The resulting shortfall in new discoveries has been exacerbated by the fact that many majors have been leaning away from early-stage exploration, relying instead on the juniors to come up with new discoveries. Although the substantial decline in exploration spending since 1997 does not appear to have had much of an effect on existing production, the decline in new discoveries moving up the pipeline could significantly cut into new mine development in the near future. While minesite exploration allocations by junior companies have remained proportionately stable over the past few years, 2002 marks a significant change in emphasis from grassroots to late-stage exploration. Many of the currently active juniors are focusing their efforts on their more-advanced projects, where they are drilling and expanding existing resources in an attempt to attract a major partner.
The graph below illustrates the regional distribution of the $1.73 billion in exploration allocations by the 724 companies included in this year's study compared with $2 billion budgeted by 679 companies in 2001.
| 2002 and 2001 Worldwide Exploration Spending by Region | |
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2002 (724 Companies' budgets Totaling $1.73 Billion) |
2001 (679 Companies' Budgets Totaling $2 Billion) |
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The downward trend in exploration spending this year is apparent in almost every region of the world. Despite a steep fall in budgeted expenditure, Latin America is still the most popular destination for exploration attracting 26% of worldwide allocations, while Canada (18.3%) moved into second place regionally and first place by country in 2002, surpassing Australia (17.6%), which had held these positions since 1994. Africa is holding its fourth-place position attracting 14.4% of worldwide expenditures, followed by our "rest of world" category (11.4%), the United States (7.2%), and the Pacific/Southeast Asia region (4.9%).
In percentage terms, the Pacific/Southeast Asia region showed the largest year-on-year decline (36%) for the second year in a row, followed by Latin America with a 22% decline. The sharp decline in spending in the Pacific/Southeast Asia region over the past two years is largely due to fears of civil unrest in the area, some of which are directly related to anti-mining sentiment. These fears became a reality this year in Indonesia with an attack on contract personnel from the Grasberg operation in late August, which left three dead and more than ten injured. Production is continuing, despite another attack in mid-September.
Exploration allocations decreased the least in Canada (5%) and Africa (7%) in 2002. In Canada, the upturn in the number of active companies reflects recently increased investment in Canadian junior companies, which have been able to raise more funds for their programs (mostly for gold, diamonds, and platinum group metals) as investors return to traditional interests. Canada's flow-through share program for minerals exploration is also a large factor in the improved investment climate. Although Africa possesses enormous geological potential, its many problems continue to impede investment in exploration and development. Of particular concern are the civil wars and other conflicts that are discouraging involvement or delaying planned activity in several highly prospective areas, corrupt and mismanaged governments, worker and property security issues, complexities surrounding population resettlement in areas under exploration or being mined, and the devastating effects of both malaria and high levels of AIDS.
These are some of the conclusions drawn from Metals Economics Group's thirteenth edition of Corporate Exploration Strategies, published in October 2002. This 535-page, two-volume study is now available (on the internet and 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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Copyright by Metals Economics Group 2002. All rights reserved. Reproduction in whole or in part without written permission is prohibited. MineSearch and Corporate Exploration Strategies are registered Canadian trademarks. |