MEG’s world exploration trends in 2011

The following is an excerpt from the World Exploration Trends 2011 report released by the Metals Economics Group. For the full report visit www.metalseconomics.com.

Responding to rising metals prices and more stable markets, most mining companies increased their exploration budgets in 2010. The result was a 45% increase in estimated worldwide nonferrous metals exploration spending compared with 2009.

 Metals Economics Group’s (MEG) 21st edition of Corporate Exploration Strategies (CES) reports a 2010 exploration budget total of US$11.2 billion. The industry restored almost two-thirds of the US$5.5 billion that was cut from exploration in 2009 in response to the global financial crisis. The speed and the strength of the 2010 rebound were a welcome surprise to many, given the severity of the downturn and widespread forecasts of a deep and protracted recession. 

Regionally, Latin America (led by Mexico, Peru, Chile, Brazil and Argentina) was the top exploration destination in 2010 – a position it has held for the better part of two decades – while Canada was the top country overall. Gold was the leading target, attracting more than half the global exploration budget total, with copper a distant second. 

When uranium allocations are added to the US$11.2 billion nonferrous total, 2010 planned exploration spending rises to more than US$12.1 billion, a 44% increase from the 2009 total including uranium.

Summary of overall trends

Riding the wave of rising metals prices, worldwide nonferrous exploration allocations increased for six consecutive years to an all-time high of US$13.2 billion in 2008 (excluding uranium). The mining industry’s boom years came to an abrupt halt in September 2008, however, as the world fell into the worst economic and financial downturn in decades. Widespread forecasts of a deep and protracted global recession painted a grim outlook for near-term global commodities demand, pushing most metals prices into steep decline and forcing companies to slash their 2009 exploration plans – some by choice and others to survive. The resulting 42% drop (about US$5.5 billion) in worldwide nonferrous exploration budgets from the 2008 high was the largest year-on-year decline (in both dollar and percentage terms) since MEG began the CES series in 1989. 

After bottoming in early 2009, the industry recovered much more quickly than most would have dared predict. Although the recovery remained fragile, the global economy improved markedly over the course of 2009 and into 2010. Metals prices improved steadily since bottoming in early 2009, and were again well above their long-term trends through most of 2010. Responding to rising prices and more stable market conditions, most companies increased their exploration budgets in 2010, resulting in a 45% increase (US$3.5 billion) in our estimated exploration budget total for 2010, restoring almost two-thirds of 2009’s estimated US$5.5 billion cut.

Increased US, Mexico emphasis

As one would expect in a year in which exploration spending jumped 45%, most countries saw year-on-year increases in allocations (the 2010 CES study documents exploration allocations in 123 individual countries; 125 when uranium is included). The top ten individual countries in 2010 accounted for 69% of the overall budget. Although their relative positions shifted, the top nine countries were the same as in 2009. Canada and Australia continued to head the list in 2010, with Canada’s lead over Australia increasing from about US$260 million in 2009 to US$755 million. The United States and Mexico moved ahead of Peru to take third and fourth spots, putting the U.S. back among the traditional big three. Peru dropped from third to fifth place, while Chile rose from seventh to sixth. China rose from eighth to seventh place, Russia dropped from fifth to eighth, Brazil remained in ninth place, and Argentina replaced South Africa in tenth place. 

Despite increases in most countries, the industry’s overall appetite for risk did not return to levels seen prior to the economic downturn. Companies continue to face the threat of resource nationalism, as more countries openly consider or enact windfall and resource rent taxes, increase royalties, or impose other controls on foreign companies such as revoking or freezing licenses for review. As a result, exploration in a number of countries considered to be high risk continued to fall in 2010, while other countries with elevated risk profiles showed only modest increases far below the global average. Early-stage exploration, which is the most mobile and tends to be cut first when risk levels rise (or tolerance for risk declines), has all but dried up in many high-risk countries; the explorers that remain are focused on advanced projects and mines that are difficult to abandon.

Record gold exploration

After steep declines in exploration allocations in 2009, budgets for all targets covered by the CES study resumed their upward trend in 2010, with the exception of diamonds, which dropped 9% year on year. 

In 2010, global economic fundamentals kept the spotlight on gold, and historically high prices prompted gold explorers to increase their aggregate budget by US$1.9 billion. This increase lifted planned spending on the yellow metal to US$5.4 billion and its share of total budgets to 51% – the first time since 1999 that gold accounted for more than half of total planned spending and the highest dollar total in the history of the CES. Ten countries – Canada, Australia, United States, Mexico, Russia, China, Peru, Colombia, Brazil, and Chile – accounted for two-thirds of the 2010 gold exploration budget total. 

Overall, base metals exploration budgets (aggregating copper, nickel, and zinc) also bounced back in 2010, but did not exceed their 2008 peak of more than US$5 billion. As a percentage of global exploration activity, base metals accounted for 33% – the second consecutive decline since a high of almost 41% of global exploration in 2008. Latin America consistently accounts for the largest share of worldwide base metals budgets, topping 33% in 2010 – the region’s largest share since 2003. 

The 9% decline in diamond allocations in 2010 represented just 3% of worldwide exploration – a far cry from almost 15% in 2003 and the lowest share recorded in the 21-year history of the CES. Canada, Russia, and southern African countries continued to be the primary destinations for diamond exploration. 

Compared with 2009, PGM exploration increased a relatively minor 13% in 2010. As a result, PGM’s share of worldwide spending slipped below 2%, continuing the steady erosion of its share of global spending since reaching 6% in 2002 and 2003. Almost half of PGM allocations were destined for Africa, with Canada receiving about a third. 

Budgets for the “other targets” group of commodities almost doubled from 2009, but fell just shy of their 2008 peak of US$1.3 billion. Silver accounted for more than a third of the “other targets” total; however, most silver exploration occurs in conjunction with the search for gold or base metals polymetallic deposits. Potash and phosphates – by far the most popular targets among the remaining “other targets” – attracted more than 20% of the group’s total. As market interest in lithium and rare earth elements continued to increase in 2010, exploration budgets for these commodities jumped to almost four times the amount spent in 2009. Nevertheless, they remain a relatively small part of the industry’s overall exploration effort, accounting for about 13% of the 2010 “other targets” total.

Uranium’s muted rebound

The CES study began covering uranium budgets in 2007. Although specifically excluded from the figures used in this report, the 2010 CES includes 272 companies reporting uranium allocations, with aggregate uranium budgets up 24% from 2009 – well below the worldwide average increase for all commodities. Uran
ium spending represents more than 7% of the US$11.5 billion in worldwide exploration budgets covered when including uranium – a higher percentage than the allocation for diamonds for the third consecutive year.