Exploration spending Down Under

A telling picture of the state of play in the Australian resources sector was spelt out in Exploration Quarterly Review, published by Aegis Equities Research in its Blue Book series.

According to the Australian Bureau of Statistics, total exploration expenditures in the country were A$336 million in the fourth quarter of 2003, which is 20% less than in the corresponding quarter of 2002.

“The fall in spending was driven by petroleum exploration, which was down A$120 million, or 41%, on the previous period, to A$168 million,” states Aegis Equities Research in its Quarterly Review. “Minerals exploration was also down on the previous period, by A$33 million, or 16%, to A$167 million. The amount of drilling fell by 17% to 1.1 million metres.”

Other highlights from the Quarterly Review include the following:

— Western Australia continued to dominate exploration spending in Australia, accounting for 60% of the nation’s total in the March quarter, at A$203 million (A$107 million petroleum and A$96 minerals).

— Queensland is a distant second for exploration spending, at A$52 million (A$20 million petroleum and A$32 million minerals).

— Both Victoria (A$17 million) and the Northern Territory (A$13 million) were higher than New South Wales (A$12 million) in mineral exploration for the quarter.

— South Australia and Victoria were the next most significant in petroleum exploration after Western Australia and Queensland at around A$15 million each for the quarter.

— Exploration for gold continues to dominate the minerals sector, with 54% of the total at A$91 million. Other significant commodity targets are nickel/cobalt (A$16 million), coal (A$14 million) and iron ore (A$14 million).

— The recovery in the U.S. dollar has seen the gold price weaken, though it is still testing the US$400-per-oz. mark. For Australian producers, the price has recovered 12% in Australian-dollar terms since March.

— Limited new-mine capacity and high industry demand is putting pressure on inventory levels and the copper price.

— Since the nickel spike to US$7.60 per lb. in January 2004, inventories have fallen 60% to below 10,000 tonnes. There is virtually no spare capacity on the producer side.

— Zinc and aluminum prices have been pulled up by speculation as demand boosted other base metal prices. Inventory levels remain healthy.

— This article originally appeared in Australia’s Paydirt magazine.