November 10, 2005

Metals Economics Group
P.O. Box 2206
Halifax, Nova Scotia B3J 3C4
CANADA
Phone: (902) 429-2880
Fax: (902) 429-6593
meg@metalseconomics.com
www.metalseconomics.com

Worldwide Exploration Budgets Reach $5.1 Billion in 2005-Just Shy of 1997 Peak

(currency is in U.S. dollars)

According to Metals Economics Group's recent edition of Corporate Exploration Strategies, this year's analysis of 1,431 companies' exploration budgets (using a $100,000 cutoff) totals $4.89 billion, which we estimate covers more than 95% of worldwide commercially oriented nonferrous expenditures. When we also include estimates for budgets that we could not obtain, our estimate of total 2005 expenditures for commercial nonferrous metals exploration is $5.1 billion.

Our estimate of worldwide nonferrous exploration spending steadily increased through the early 1990s to a crest of $5.2 billion in 1997, before falling to a 12-year low of $1.9 billion in 2002—an overall decline of more than 63%.  Since 2002, our estimated total has risen for three years, rebounding to a level just shy of the high-water mark set during the last exploration boom.  This year’s $5.1 billion estimated total is up 34% ($1.3 billion) from last year—a rise of 168% ($3.2 billion) since 2002.  (All historic exploration figures represent dollars of the day and have not been inflation-adjusted in any way.)

Summary of exploration spending trends by surveyed companies

The initial rise in worldwide exploration in 2003 can be attributed to a combination of increased spending by the majors as they recognized the dearth of new projects moving up the pipeline, significantly reduced industry consolidation from peak levels in 2000 and 2001, and increased spending by the junior sector on the back of higher gold prices and rising investor interest. 

As the gold price continued to rise and prices for other commodities began to reach their current long-term highs, yearly budget increases by the majors (struggling to replace mined reserves) and meteoric increases by the juniors in 2004 and 2005 pushed the worldwide exploration total by surveyed companies to $4.89 billion, an increase of 38% over last year and 182% since 2002.

Junior explorers now account for almost half of worldwide exploration

Junior-company exploration budgets included in our study are up almost 57% to $2.33 billion this year, accounting for 63% of the overall $1.34 billion increase in exploration allocations by all surveyed companies—the second consecutive year that the juniors have accounted for more than half of the overall increase.  Since 2002, junior exploration spending has increased a remarkable 347%, accounting for 57% of the overall $3.2 billion increase in exploration allocations by all surveyed companies from 2002 to 2005.  This year’s rise in junior budgets continues to outstrip increases by other industry groups—the juniors account for nearly half (48%) of this year’s worldwide exploration total by all surveyed companies, the highest proportion allocated by the group since we began this series of studies in 1989.

Latin America is still the leading location for spending

Figure 1 below shows the regional distribution of the $4.89 billion in exploration allocations by the 1,431 companies included in this year’s study.  Latin America continues to be the most popular destination for exploration, increasing its lead for the second consecutive year over second-place Canada to $205 million, after Canada’s exploration tax incentives helped close the gap to less than $50 million in 2003.  Africa remains in third place by region, closely followed by our rest-of-world category, which includes Europe, the Former Soviet Union, Asia, and the Middle East.  Despite a gradual slide from first place by region in 2001 to fifth place this year, Australia remains solidly in second place by country.  The United States and the Pacific/Southeast Asia region are in sixth and seventh place, respectively, positions they have held since 2001.

In dollar terms, exploration allocations by surveyed companies have increased in each of our regions of the world for the third consecutive year.  Budgets increased the most in Latin America, led by Mexico and Peru; our rest-of-world category, led by continuing interest in Russia, China, and Mongolia; and Africa, with Angola, the Democratic Republic of Congo, and Gabon showing the largest gains. 

Late-stage allocations exceed grassroots exploration

Figure 2 above illustrates the distribution of the $4.89 billion in exploration allocations by stage of development for this year’s surveyed companies.  Late-stage exploration has become increasingly important in the current exploration cycle, and the above-average increases in late-stage budgets over the past two years have far outstripped the increases in grassroots budgets, which have traditionally attracted the largest percentage of worldwide exploration spending.  As a result, total late-stage budgets have exceeded total grassroots budgets (although by only $3.2 million) for the first time since our series of studies began in 1989.

Exploration is expected to rise again in 2006

The continuation of the current junior-led recovery in exploration relies entirely on the junior companies’ ability to raise capital.  The juniors have raised substantial amounts of money over the past two years—many already have the coffers to at least partially fund exploration programs that will run into next year—and high metals prices will help the juniors continue to attract investors for the short term.  In addition, while we believe that many of the major producers are unlikely to increase their budgets substantially over the next few years, a few major and intermediate companies do have room to expand their exploration programs.  Looking forward, we expect that a continued increase in exploration spending by the junior sector, coupled with modest gains by a handful of intermediate and major producers, will likely result in an increase in worldwide exploration spending in the range of 10%-15% in 2006.

These are some of the conclusions drawn from Metals Economics Group's sixteenth edition of Corporate Exploration Strategies, published in October 2005.  Metals Economics Group is recognized as a world leader in mining industry intelligence.  Founded in 1981, Metals Economics Group is the primary source of information and analysis on global nonferrous metals exploration, development, and production; strategic planning issues; and acquisition activity.  Metals Economics Group’s clients include most major global mining companies, smaller mining companies focused on growth, financial firms, governments, and service and equipment providers. 

Corporate Exploration Strategies examines the nonferrous exploration activities of mining companies worldwide.  Volume I provides a ten-year summary of trends in exploration spending and an industry-wide analysis of allocations by location, target, stage of development, and more.  Volume II reports each company’s exploration budget by country, target, and stage of development.  Major companies and other top explorers are given special attention—each company’s current exploration program, strategy, and most advanced exploration projects are profiled in detail.

This 820-page two-volume study is now available (on the internet and in print) for C$17,000 from Metals Economics Group, P.O. Box 2206, Halifax, Nova Scotia, B3J 3C4, Canada. 
phone: (902) 429-2880; fax: (902) 429-6593; email: meg@metalseconomics.com;
web site: www.metalseconomics.com

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Copyright by Metals Economics Group 2005. All rights reserved. Reproduction in whole or in part without written permission is prohibited. MineSearch and Corporate Exploration Strategies are registered Canadian trademarks.