EDITORIAL — A case for domestic exploration — Home-grown gold

In 1992, gold producers in the U.S. spent more than half their exploration dollars examining prospects in their own backyard. By 1996, as mineral opportunities opened up all over the world, domestic projects accounted for only about 26% of exploration spending by U.S. companies. For a while at least, the gold looked yellower on the other side of the hill.

Industry experts now predict that this trend will reverse itself in the years ahead. A recent survey by The Gold Institute shows that, in the current year, U.S.-based gold explorers have cut back on their expenditures abroad. As a result, domestic expenditures are expected to rise to 29% of the total — a modest improvement but a telling one, notwithstanding that the Busang fiasco may have played a role in generating some negative sentiment about exploring in certain countries.

The annual survey monitored the exploration spending of 19 U.S gold producers on a country-specific basis.

While the Gold Institute expects to see a decrease in total expenditures this year, exploration in general is anticipated to remain a cornerstone of the growth plans of most companies. In the past three years, the Institute has seen exploration spending increase each year. In 1996, exploration spending by U.S. gold companies was up 15%, which followed a 14% increase in 1995 over 1994 spending levels. During those two years, exploration spending by U.S. gold producers reached close to US$1.2 billion.

In all, worldwide exploration spending climbed to US$629 million in 1996 from $301 million in 1992. This year’s total is expected to total US$551 million, with the decrease attributed to a declining gold price and resulting cost containment measures.

While domestic spending remained relatively constant, the major beneficiaries of overseas spending were Latin America, Australia and the South Pacific region. Exploration dollars in Latin America grew nearly six-fold between 1992 and 1996. The Gold Insitute notes that, in 1996, Latin America attracted 12% more exploration investment than did the U.S.

Meanwhile, exploration spending by U.S. producers in Australia and the South Pacific increased to US$95 million in 1996 — a whopping 38% increase from the previous year. Needless to say, the Busang fiasco has greatly reduced the level of interest in Indonesia, though some companies maintain that the best time to get good prospects there is when no one else is interested.

For years, American-based gold producers have made the case that they would increase their exploration expenditures at home if a more sensible regulatory environment were put into place. Companies accept that they must operate to the highest standards, but they want the rules of the game spelled out and kept consistent. All too often, state regulators change the goalposts, or else anti-mining groups call for an expensive series of studies on every bird, beast and plant in the surrounding ecosystem as a tactic to stall production.

The low levels of exploration spending in the U.S. should be of concern to all citizens if the country is to keep its standing as the second largest gold producer in the world, behind South Africa. In 1996, mines in the U.S.

turned out nearly 11 million oz. gold, some 11 times as much as was produced in 1980. More than 110,000 good-paying jobs have been created in the past decade and a half.

Not only that. Seventeen years ago, the U.S. produced less than 1 million oz. gold and relied heavily on gold imports. Today, it produces a surplus worth $1.2 billion for export, making the country one of the world’s largest exporters of bullion.

And it all started with exploration.