* Record $21.5 bln spent last year to search for new
* Total expected to drop in 2013, as juniors struggle
* Lackluster metal prices and financing woes hurt sector
By Euan Rocha
TORONTO, March 3 A three-year surge in
exploration spending in the mining industry is likely to come to
a grinding halt this year after running up against lackluster
metal prices and a sharp fall-off in financing for miners with
early stage exploration projects.
That is the conclusion of a new report which warns that
persistent uncertainty over global economic growth will crimp
the spending flow, especially for early-stage, entrepreneurial
explorers that are the industry's lifeblood.
Spending to find and outline new mineral deposits powered to
a record $21.5 billion in 2012, according to an annual study by
SNL Metals Economics Group, released on Sunday at the opening of
the Prospectors and Developers Association of Canada convention
- the industry's largest annual gathering.
"We expect the pullback in junior budgets to be the main
driver of an overall decline in industry spending in 2013," said
Jason Goulden, head of metals and mining research for SNL MEG.
Goulden declined to speculate on the size of the anticipated
pullback. Still, he noted that juniors typically account for
roughly 40 percent of global exploration spending annually.
Metal and mineral explorers, which depend heavily on equity
financing to raise capital to fund their drill programs, flock
to PDAC's Toronto event each year in search of willing investors
to fund their programs.
This year stagnant metal prices coupled with many
multi-billion dollar asset writedowns by some of the world's
largest precious and base metal miners have panicked investors.
And many are now shunning the sector entirely.
"A lot of investors are just shying completely away from the
resource sector and the appetite for risk is almost non-existent
at this point," said Daryl Hodges, chief executive of Jennings
Capital, an independent Canadian investment dealer.
TOUGH YEAR AHEAD
The study, issued in partnership with PDAC, notes that
juniors that own really exceptional projects will be able to
finance sizable exploration programs, while those with smaller
or earlier-stage assets will struggle to attract investment.
The SNL MEG World Exploration Trends report does not bode
very well for companies such as Boart Longyear Ltd and
Major Drilling Group International Inc - the world's
largest metal and mineral exploration drilling companies.
Shares of both companies have fallen roughly 10 percent so
far this year. Moncton, New Brunswick-based Major Drilling,
which owns a fleet of over 750 drills, earlier this year warned
it is increasingly seeing delays in drill programs and pricing
Goulden said he expected the coming decline in exploration
spending to result in lower drilling activity for all metals.
"That said, we do expect gold and copper to continue to a
account for the largest share of overall exploration spending,
so drilling targeting these commodities should hold-up better
than some others," he said.
Exploration spending rose steadily between 2002 and 2008, on
the back of rising demand from emerging economies and a surge in
metal prices. The extended boom came to an abrupt end in late
2008 and early 2009, as the impact of the U.S. housing market
collapse and financial crisis rippled across the globe.
Since bottoming in 2009, spending has bounced back strongly,
as despite pullbacks in recent months metal prices over the last
two years have remained well above historical levels.
The SNL MEG study, which focuses on non-ferrous exploration,
found that spending reached an all-time high of $20.5 billion in
2012. Including estimates for budgets it could not obtain, the
group estimates that spending jumped to $21.5 billion in the
year, up from about $18.2 billion a year ago.
The study pegs iron ore exploration spending in 2012 at $2.9
billion, up from about $1.8 billion, a year earlier. The SNL MEG
report is based on information collected from about 3,500 mining
and exploration companies worldwide.
Exploration allocations for all regions increased to record
highs in 2012, according to the report, led in dollar terms, by
the largest increases in Latin America and Africa. Latin America
remained the most popular exploration destination, attracting 25
percent of global spending in 2012.