NEW YORK, Nov. 23, 2015 /PRNewswire/ -- According to SNL Metals & Mining's 26th edition of Corporate Exploration Strategies (CES), the estimated worldwide total budget for nonferrous metals exploration dropped to $9.2 billion in 2015 from $11.4 billion in 2014 — a 19% decrease and the lowest total since 2009.
SNL Metals & Mining's 2015 exploration data and analysis are based on information collected from nearly 3,500 mining and exploration companies worldwide, of which almost 1,800 had exploration budgets for 2015. The companies (each budgeting at least $100,000) budgeted a total of $8.77 billion for nonferrous exploration in 2015. Including SNL's estimates for budgets that could not be obtained, the 2015 worldwide exploration budget totals $9.2 billion. (Note: Nonferrous exploration refers to spending in the search for precious and base metals, diamonds, uranium, and some industrial minerals; it specifically excludes exploration for iron ore, aluminum, coal, and oil and gas.)
Although the recent fall in metals prices has captured public attention, prices have actually been declining since 2011, and along with them exploration budgets, which began falling in 2012. Major companies have been tackling higher operating and capital costs, lower ore grades, uncertain demand for commodities and investor discontent for several years, but deteriorating metals prices and weak economic forecasts have forced further cuts to growth-oriented spending. To that end, the majors have been cutting back on capital project and exploration spending, which has led to a third consecutive annual drop (18%) in the majors' exploration budget total in 2015. The juniors continue to fight for what little investor interest remains, forcing the group to rein in spending again in 2015; many have elected to leave the industry altogether. As a result, the juniors' total exploration budget fell 26% year on year in 2015 after falling 29% in 2014, dropping their share of the overall budget total to 29% from a high of 55% in 2007.
Given the lack of funding for the junior sector, and a focus on less risky assets, the budget share devoted to exploration at and near mines continues to rise, accounting for 34% of the total, to the detriment of both grassroots (29%) and late-stage (37%) exploration. This reduced focus on early-stage and generative work is fueling concern that many companies — and perhaps the industry in general — are sacrificing long-term project pipelines in favor of consolidation and maximizing returns.
Not surprisingly, all of the covered commodities received lower allocations in 2015, ranging from a 14% decline in gold allocations to 34% and 33% declines in uranium and PGM budgets respectively. As a result, gold's share of the total budget increased to almost 45%, while base metals' share fell slightly to one-third.
Despite lower allocations for most countries, companies continue to explore across the globe; exploration is planned for 119 countries in 2015, down from 124 in 2014. Although all regions received lower allocations in 2015, Latin America's share of the global total increased to more than 28% — largely due to a focus on near-mine exploration. It was the region's highest share since the bottom of the previous downturn in 2001. Conversely, Africa and Pacific/Southeast Asia recorded the sharpest declines in planned exploration spending, with their budgets falling 30% and 28% respectively.
By the end of the September quarter, the market value of the mining industry's listed companies had fallen below US$1 trillion for the first time since 2009. And although exploration budgets are also at a new low, recent data from SNL Metals & Mining's Monthly Industry Monitor is somewhat encouraging. SNL's Pipeline Activity Index, which measures exploration and development activity, increased for a second consecutive month to its second-highest point to date in 2015. By the end of October, the SNL indexed metals price appeared to have stabilized, and SNL's estimate of the market value of the industry's listed companies rose after five months of steady decline. Several of SNL Metals & Mining's metrics in October suggest that the mining industry may perhaps be seeing the light at the end of the tunnel.
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