Editorial: Global hunt for minerals kicks into overdrive (November 14, 2006)

Endless cycles of expansion and contraction — so much of what we experience in the world fits into these neat, pulsing patterns.

Mineral exploration’s boom-and-bust nature is no exception, and thankfully we’re in the middle of an expansive phase right now, as evidenced by the 17th edition of Metals Economics Group‘s Corporate Exploration Strategies, a comprehensive look at the 2006 mineral exploration budgets of the world’s mining companies.

The Halifax, N.S.-based consultants sorted through the exploration budgets of 1,624 companies representing about 95% of worldwide, commercially oriented nonferrous expenditures, using a US$100,000 lower cutoff.

Adding in guesstimates for the remaining 5%, MEG reckons that a whopping US$7.5 billion has been budgeted for commercial, nonferrous minerals exploration this year — an astonishing 47% increase from last year’s very healthy figure of US$5.1 billion.

This year’s US$7.5-billion tab also blows away the previous all-time high of US$5.2 billion reached in 1997 (not adjusted for inflation), and represents nearly a 300%, or US$5.6 billion, rise from the most-recent bottom of the exploration cycle in 2002, which was reached after five straight years of declining spending.

MEG also notes that, as a result of today’s higher costs for everything from fuel to geologists’ salaries, the sharp rise in budgets doesn’t necessarily translate into a proportional increase in actual exploration activity.

Delving deeper into the numbers, MEG finds that it’s the junior explorers who have led the way in ratcheting up exploration spending since 2002, achieving a 600% increase in spending in that time.

The exploration budgets of juniors first exceeded those of the seniors in 2004, and the gap has only widened since then.

This year, the juniors account for more than half of all exploration spending — the highest proportion since MEG started compiling this data in 1989.

In terms of allocations by commodity, there is good news across the board: MEG tallied record-high exploration budgets this year for gold, base metals, diamonds, platinum group metals and other targets such as molybdenum, cobalt, mineral sands and industrial metals.

Gold, of course, continues to reign as the most sought-after target, but base metals have been increasingly attractive in recent years as spot prices strengthened.

By country, budget allocations show the Great White North coming out on top once again, with Canada attracting 19 of every exploration dollar spent in the world. Australia is second at 11%, while the U.S. attracted 8%.

(Canada displaced Australia as the number-one country destination in 2001; Before that, Oz had sat in that spot since 1994.)

Ever-popular despite its rocky politics, Latin America still attracts roughly a quarter of the world’s exploration dollars, with Peru and Mexico leading the way in the region.

As the current exploration boom grinds on towards its fifth year of expansion, MEG is making note of a continuing shift away from grassroots exploration towards more late-stage work.

By stage, exploration budgets are now directed at grassroots (39%), late-stage (43%) and mine site (18%) work. By comparison, in the decade prior to 2004, grassroots work comprised over half of all exploration.

With metals prices continuing to hold up thanks to a paucity of new mines coming on stream and strong economic growth in China, India and the U.S., MEG is making the safe bet that exploration budgets will increase yet again in 2007, albeit at a more moderate rate than seen in the past few years.

But then again, a year ago they predicted a mere 10-15% rise in exploration budgets this year, and two years earlier similarly predicted only modest growth in exploration spending.