| TORONTO, March 4
TORONTO, March 4 Last year's rebound in
exploration spending by the global mining industry is still
going strong, even though the volatility that buffeted commodity
and equity markets last year has yet to fade, according an
influential report published on Sunday.
The study from Metals Economics Group, issued in partnership
with the Prospectors and Developers Association of Canada, sees
the largest gains coming in gold exploration activity, extending
on 2011 gains. Overall exploration spending rose about 50
percent last year.
MEG's World Exploration Trends report is issued every year
at the opening to PDAC's convention in Toronto, the global
industry's largest annual gathering.
"Early indications from companies we've been talking with so
far this year show that many gold producers are increasing their
exploration budgets by more than most of the other commodity
producers we've talked with," said Jason Goulden, head of
research for MEG, a Halifax, Nova Scotia-based consultancy.
Exploration spending on non-ferrous metals touched a new
all-time high of $18.2 billion in 2011, more than double a low
of about $8.4 billion in 2009, when the industry was stung by
the global economic meltdown.
Exploration spending rose steadily between 2002 and 2008, on
the back of surging demand from emerging economies and strong
metal prices. The boom came to an abrupt end in late 2008 and
early 2009, as the impact of the U.S. housing market collapse
rippled across the globe.
Since bottoming in 2009, spending has bounced back strongly,
as despite recent volatility, metal prices over the last two
years have remained well above historical levels.
RISK APPETITE INCREASES
Even as most geographies benefited from the sharp increase,
miners appeared to have a much bigger risk appetite in 2011, as
spending in countries commonly viewed as risky jurisdictions
rose to 23 percent of aggregate spending from 15 percent in
Over the last two years as metal prices have strengthened, a
number of emerging economies, as well as some established mining
jurisdictions such as Australia and Chile, have looked to raise
taxes and royalties. That has increased mining costs and put the
viability of some projects into question.
"The potential reward of working in higher-risk areas often
increases the industry's appetite for risk during periods of
increased exploration spending, but exploration in high-risk
countries, particularly early-stage work, is usually the first
to be cut when risk levels or uncertainty increase," said MEG in
Colombia and Burkina Faso are two countries that have
enjoyed robust exploration in recent years, and both are well
positioned to expand their share of the world exploration total,
Gold, copper and silver projects accounted for the largest
chunk of exploration spending, according to the report. Latin
America as a whole attracted 25 percent of the total spending,
with Canada accounting for 18 percent.
Turmoil in equity markets late last year as the European
debt crisis heated up led to a rough patch for junior mining
companies, which often sell equity ahead of the new year to
raise capital for funding their exploration projects.
The dry spell could hurt the pace of growth in exploration
spending in 2012 and result in some bargain basement deals for
larger miners scouting for promising new projects.
"Juniors with promising projects at current and long-term
metals prices, but with insufficient access to equity funding to
advance them in the short term, are more open to financing,
joint venture, or acquisition discussions," said Goulden.
He said cash-strapped explorers are likely to agree to less
favorable terms for themselves than they would have in early
That said, funding for the juniors appears to be picking up
a bit in early 2012. Moreover, many juniors took advantage of
much stronger market conditions in late 2010 and early 2011 to
raise enough to fund multi-year programs.
"Although conditions for the juniors aren't as good as they
were a year ago, overall we expect planned exploration spending
by the juniors to remain relatively flat in 2012 or possibly
show just a marginal decline from 2011," said Goulden, who sees
overall exploration spending rising at a more tempered pace this