Modern Mining March 2018

COMMENT

Exploration turns a corner

T he good news from a special report entitled ‘World Exploration Trends’ prepared by S&P Global Market Intelligence for the PDAC Interna- tional Convention – held earlier this month (March) in Toronto, Canada – is that global exploration spending (for non-ferrous metals) is on the rise after falling for four con- secutive years. The bad news is that Africa is not getting its fair share of the exploration dollars on offer, attracting only a miserly 14 % of the global budget. This is very low given the continent’s rich minerals endowment and the fact that it is – by common consent – one of the most under- explored parts of the world. According to the S&P report (which is based on an underlying survey of more than 3 000 companies), spending on the search for non- ferrous metals rose to an estimated US$8,4 billion in 2017, compared with US$7,3 billion in 2016, although it points out that the 2017 figure is less than half the record US$21,5 bil- lion recorded in 2012. The report notes that the overall health of the junior exploration sector in particular is on the mend. “Improved equity market support for explorers – including many that were dormant during the downturn – allowed companies to launch or resume drill programmes on their most promising projects,” it says. An interesting trend identified by S&P is that riskier generative-type exploration is being increasingly avoided by the mining indus- try. “Over the past few years, our research has shown industry exploration efforts to be increasingly focused at or near operating mines,” the report states. “A long-term swing away from grassroots exploration has been exacerbated since 2013 by a combination of scarce funding for junior explorers and spend- ing cuts by the majors.” S&P also points out that the majors are con- tinuing to allocate only a small proportion of their revenues to exploration. Ratios of explo- ration spend to revenue for these producers fell from 3,2 % in 2012 to a 12-year low of 1,8 % in 2016. Canada was once again – for the sixteenth consecutive year – the biggest country destina- tion for exploration dollars, attracting 13,8 % of the global budget, with Australia following close behind with 13,6 %. The US maintained its third-place ranking with a 7,7 % share, with a single state, Nevada, accounting for almost half this. By region, Latin America remained the most popular, with over 90 % of spend going to just six countries – Chile, Peru, Mexico, Brazil, Argentina and Colombia.

In Africa, most exploration was focused on the DRC, Burkina Faso, Tanzania and South Africa. “Continued interest in West Africa, made gold the top target, with the metal’s share of regional spending jumping to 61 % from 51 % in 2016,” says the report. Globally, gold was the major recipient of exploration spending in 2017, accounting for just over half the global budget (and for 73 % of the year-over-year increase) with the base met- als – copper, nickel and zinc-lead – coming in second with 30 %. Interestingly, and somewhat surprisingly, platinum group metals attracted less than 1 % of global spending, behind both uranium and diamonds which each accounted for approximately 3 %. Everyone involved in the resources indus- try knows that the so-called battery metals are all the rage at the moment, one of them being cobalt which is now selling for an astonishing and stratospheric US$87 000/tonne. Says the S&P report: “Spurred by the growing demand for rechargeable batteries and a surge in battery metal prices, a number of junior companies shifted their exploration focus in 2017, dramat- ically increasing the spending on the search for cobalt and lithium. Our research identi- fied 136 companies budgeting almost US$157 million for lithium exploration in 2017, more than double the 2016 total. Cobalt-focused exploration also increased strongly, with 52 companies allocating US$36 million in 2017, more than four times the 2016 budget.” The report notes that the DRC received one quarter of the global cobalt exploration budget in 2017. This sounds impressive but the per- centage figure should arguably be much higher. After all, the DRC produces over 60 % of the world’s cobalt. Perhaps explaining the anom- aly is the fact that some explorers are starting to avoid the DRC, deterred by the country’s new mining code which – among other things – raises the royalty on ‘strategic minerals’ to 10 %. As I write this, these strategic minerals have not yet been formally identified but cobalt is almost certain to be one of them. Looking ahead, S&P says that it expects the upward trend in exploration spending to continue and predicts the global exploration budget for 2018 will increase by a further 15 to 20 % year over year. This is very encouraging. Certainly, we’ve a long way to go to reach the heights of 2012 but at least the figures are going in the right direction and – given the high cor- relation between exploration activity and the overall health of the resources sector – sug- gest that better times lie ahead for the mining industry globally. Arthur Tassell

“A long-term swing away

from grassroots exploration has been exacerbated since 2013 by a combination of scarce funding for junior explorers and spending cuts by the majors.”

March 2018  MODERN MINING  3