WORLDWIDE EXPLORATION TRENDS. Special Report from SNL Metals Economics Group for the PDAC International Convention

Transcription

1 WORLDWIDE EXPLORATION TRENDS 2013 A Special Report from SNL Metals Economics Group for the PDAC International Convention

2 WORLDWIDE EXPLORATION TRENDS SNL Metals Economics Group s (SNL MEG) 23rd edition of Corporate Exploration Strategies (CES) calculated that the industry s estimated total budget for nonferrous metals exploration increased to $21.5 billion in Despite ongoing uncertainty in Europe and the United States, and concerns about waning demand in China, most metals prices remained well above their long-term averages in 2012, giving varying levels of support to the industry. Led by higher budgets among the major producers, exploration budgets documented in the study increased by $3.3 billion (19%) to $20.53 billion to set a new all-time high. The PDAC is pleased to partner with SNL Metals Economics Group in making this special report on global exploration and industry trends available to members and Convention 2013 delegates. SNL Metals Economics Group s services are key to understanding global exploration trends, which helps us to support our members through the development of programs and policy recommendations. SNL Metals Economics Group is acknowledged as the leader in providing comprehensive information, expertise, and analysis to the mining industry, and is the premier source for exploration statistics worldwide. Ross Gallinger, Executive Director, PDAC 1 SNL Metals Economics Group obtains the data used in our CES series of studies through the generous cooperation of the companies we survey. The individual nonferrous exploration budgets covered by the study include spending for gold, base metals, platinum group metals, diamonds, uranium, silver, rare earths, potash/phosphate, and many other hard-rock metals, but specifically exclude exploration budgets for iron ore, coal, aluminum, oil and gas, and many industrial minerals. (All figures are reported in U.S. dollars; all historical exploration figures throughout this report represent dollars of the day and have not been adjusted for inflation.) Copyright SNL Metals Economics Group, All rights reserved. Reproduction in whole or in part without prior written permission is prohibited. SNL Metals Economics Group represents that the information contained in this report has been collected and compiled in good faith from a variety of sources but makes no warranty as to the accuracy of the information from those sources.

3 Basis for estimated nonferrous exploration total SNL MEG s 2012 exploration estimate is based on information collected from almost 3,500 mining and exploration companies worldwide, of which more than 2,500 had exploration budgets reported in the Corporate Exploration Strategies (CES) study. These companies (each budgeting at least $100,000) together allocated $20.53 billion for nonferrous exploration, which we estimate covers about 95% of worldwide commercially oriented nonferrous exploration spending. Adding our estimates of budgets that we could not obtain, the 2012 worldwide total exploration budget reached $21.5 billion. Although iron ore exploration remains outside the scope of the CES and is not included in the analysis throughout the remainder of this report, we began coverage of iron ore explorers in 2011 when we initially surveyed companies for their total ferrous budgets above and beyond the core targets detailed in the CES. Including the allocations by a number of pure iron ore producers and explorers that were not otherwise part of the study, we were able to aggregate a total budget of about $2.89 billion for iron ore in 2012, up from $1.84 billion in Although our coverage of iron ore explorers is not as comprehensive as it is for other commodities, we believe the budgets of these companies represent a significant share of the 2012 worldwide iron ore exploration total. Aggregating the iron ore budgets with the budgets for the other commodities covered by the CES, the total 2012 exploration budget rises to $23.42 billion, of which 12% is attributable to iron ore. Summary of overall trends Figure 1 shows SNL MEG s estimate of annual nonferrous exploration allocations since the early 1990s relative to a weighted annual metals price index. The graph indicates the cyclical nature of exploration investment and the correlation between metals price trends and exploration spending. Rising metals prices fueled an initial increase in worldwide exploration from 2002 s low, while the emergence of China s appetite for resources led to a multiyear bull run culminating in the worldwide exploration budget total hitting a new high of $13.75 billion in 2008 a 677% increase from the bottom of the cycle in The mining industry s boom years came to an abrupt halt in September 2008 as the world fell into the worst economic downturn in decades. The resulting $5.77 billion (42%) drop in exploration spending in 2009 from 2008 s high was the largest year-on-year decline (in both dollar and percentage terms) since SNL MEG began the CES in Most metals prices bottomed in early 2009; however, the industry recovered much more quickly than predicted. Through 2010 and 2011, most mining companies increased their exploration budgets, lifting the industry s total budget to almost $17.25 billion in In 2012, despite a slowdown in China s economy, the threat of economic collapse Figure 1: Estimated Global Nonferrous Exploration Budget Totals, Nonferrous Exploration (US$ bil) Nonferrous Exploration Total SNL MEG Annual Indexed Metals Price in Europe, and political and economic uncertainty in the United States, worldwide exploration allocations rose a further 19% to $20.53 billion, setting a new all-time high. Exploration expenditures rise in all regions Exploration allocations for all regions increased to record highs in 2012, led by the largest dollar increases in Latin America and. Latin America remained the most popular exploration destination, attracting 25% of global spending in 2012; six countries Mexico, Chile, Peru, Brazil, Argentina, and Colombia accounted for the lion s share of the region s total. Gold remained the top Latin American exploration target for the third consecutive year, while base metals remained at its smallest share since the late 1990s. experienced the second-largest increase in both percentage and dollar terms. With its share of worldwide exploration budgets rising to 17%, it jumped from third to second place regionally in For the second time in the past three years, the Democratic Republic of Congo held top place for exploration spending in. An increased focus on West translated into gold receiving the largest dollar increase in 2012, although gold s share of overall n budgets fell to 51% from 53% in Planned expenditures for other targets more than doubled, raising their share of overall budgets to 11% from 6%. Conversely, the percentage of total allocations devoted to diamonds fell for the sixth consecutive year to a record low of 6% in After sitting in second place for exploration spending for more than a decade, Canada dropped to third place in 2012 after being overtaken by. Allocations were up just 4% from 2011 the smallest percentage and dollar increase of any region and accounted for 16% of the worldwide total budget. However, more SNL MEG Annual Indexed Metals Price (1993=1) 1

4 companies had budgets for Canada in 2012 than for any other region, and 91% of the companies covered are headquartered in Canada. Ontario accounted for more than a quarter of allocations to Canada, while British Columbia replaced Quebec in second place. Gold allocations dropped for the first time since 2009, lowering its share of Canada s total to 49% from 55% in 2011, while the percentage devoted to other targets, with an emphasis on potash, rose to 19% from 12%. Eurasian countries made up the region with the fourth-largest budget, led by allocations for China and Russia, and by four other countries Mongolia, Kazakhstan, Finland, and Turkey that each attracted more than $100 million in exploration budgets in Base metals replaced gold as the region s top target, led by major allocations for copper and nickel in China, Mongolia, Russia, and Kazakhstan. Allocations to rose just 11% in 2012 less than the 19% worldwide average increase and lowered the country s share of overall budgets to 12% from 13% in Mining reforms at the national and state levels dominated the n minerals industry over the past several years, most of which industry watchers say will reduce investment and make the country s resource sector less competitive. Allocations to Western accounted for more than half the country s 2012 nonferrous exploration total, while South edged Queensland for second place. Gold and base metals accounted for the bulk of s 2012 exploration budget total, with allocations for all other commodities trailing by wide margins. Gold and copper exploration in the United States kept it in sixth place regionally, ahead of the Pacific Islands. Nevada had the largest share (43%) of the country s 2012 exploration total, and three states Nevada, Arizona, and Alaska together accounted for about 70% of the total. Gold continued to attract more than half (54%) of all spending in the United States, followed by base metals with 31%. Among the Pacific Islands, exploration allocations for Indonesia, Papua New Guinea, and the Philippines accounted for the bulk of the region s 7% of the world total, with budgets split mainly between gold (56%) and base metals (41%). The Pacific/Southeast Asia region experienced the largest percentage increase (35%) and the fourth-largest dollar increase ($353 million) of all regions in 2012, closing the gap between it and the United States. Despite high prospectivity, investors continued to be wary of the region; as a result, there have been few new entrants into these countries in recent years. Juniors cope with challenging financing conditions Since most junior companies do not generate revenue from producing mines and typically rely on equity financings to fund exploration, their spending capacity largely depends on market conditions and investor interest. Market conditions have Map 1: Top Destinations for Nonferrous Exploration, 2012 Russia 3% Canada 16% United States 8% Europe 4% FSU/ Mongolia 3% China 4% Mexico 2% 6% Colombia 2% Brazil 3% Peru 5% Chile 5% Argentina 3% West 7% 9% Sub-Saharan 6% Pacific Islands 12% locations account for about 4%. 2

5 traditionally been determined by metals prices and forecasts; however, they have recently been heavily influenced by global macroeconomics. Despite historically strong prices for gold, silver, and copper, junior explorers found it more difficult to raise money in Figure 2 shows the amount raised for precious and base metals exploration by junior companies covered by the CES. The 2012 total was down from 2011 and 2010, but overall most juniors still raised enough to keep exploring during the year. February, March, and October together accounted for almost 50% of the 2012 total reflecting the ongoing volatility facing the sector. Most of the companies that have managed to secure funding for their 2013 programs hold more advanced projects, as well as properties in highly prospective areas. Exploration financing conditions remain uncertain in the near term. Even if we see a gradual improvement in 2013, the junior sector will likely spend with caution. Companies with active projects will focus their spending and avoid wasteful cash burn, while some will be forced to cut budgets more drastically until they are able to secure funding. Given that much of the financing chill is being caused by broader economic circumstances, financing conditions could conceivably improve rapidly when markets eventually adjust to ongoing uncertainty. Significant drilling slows only at year-end Fueled by the abundant risk capital available in late 2010 and 2011, junior and intermediate companies exploration programs continued strongly into 2012, with their monthly number of significant drill result announcements well above the five-year average into the December quarter. Our recent research suggests that many companies that raised money for exploration were able to report a significant exploration result within two quarters, representing the lag needed for juniors to deploy capital, complete part of a drill program, and receive assay results. This lag is illustrated in Figure 3; following a difficult period for financings through the middle of 2012, the number of significant results declined late in the year as companies began curtailing budgets to conserve cash. Despite this year-end dip in results, partly due to the holiday season, the number of significant results reported in December 2012 was the second-highest December total over the past five years, while 2012 s total number of significant exploration results was on par with 2011 s total. Changing investor interest has also spurred changes in the nature of exploration drill programs over the past five years. During the sharp downturn in late 2008 and early 2009, exploration programs shifted to more advanced assets and focused on expanding known resources. By late 2010, we saw a return to earlier-stage exploration, causing a higher share of significant exploration results to come from initial finds, new zones, and satellite deposits. As markets cooled and investor interest waned through 2012, the most active programs again focused on more advanced projects a trend expected to continue into 2013, given the uncertain support for junior companies in the current market environment. Figure 2: Significant Exploration-Related Financings 2 by Junior Companies, Base Metals Financings Gold Financings SNL MEG Annual Indexed Metals Price (2008=1) Figure 3: Significant Gold and Base Metals Drill Results Announced 3, Significant Gold Results Significant Base Metals Results Total Financings for Exploration Amount Raised (US$ mil) SNL MEG Monthly Indexed Metals Price (2008=1) Number of Announcements Amount Raised (US$ mil) 2 Exploration-related financings include financings by junior companies of $2 million or more where the company indicated that all or most of the proceeds were for exploration. Proceeds used primarily for acquisitions, development, or debt servicing/repayment are excluded. The financing data only covers precious and base metals, which account for most of the exploration spending covered by the CES. 3 SNL MEG s Industry Monitor uses the Exploration Activity Services to track significant precious and base metals drill results monthly from 2008 onward. Significant drilling includes initial finds, new zones, or satellite deposits, and extensions to existing mineralization essentially any drilling that adds to the resource potential of a particular project or deposit. For this section, and in the Industry Monitor service, silver and PGM results are included with the base metals (copper, nickel, zinc-lead, molybdenum, and cobalt) to allow a clear picture of the unique trends in gold exploration. 3

6 Map 2: Location of Significant Gold and Base Metals Drill Results Announced 3, 2012 Gold Base Metals Alaska Yukon British Columbia Nevada Ontario Quebec Europe Asia Mexico 2% Colombia Central America/ Caribbean West Middle East/ North Pacific Islands Canada USA South America Peru Chile Brazil Argentina Sub-Saharan Western Queensland Initial Resources return to early 2008 levels Despite ongoing uncertainties and financing difficulties for the junior sector that persisted for much of the year, active drilling in late 2010 and 2011 made 2012 a relative success in terms of adding new resources to the pipeline. After averaging only eight per month in , the number of initial resources for new zones and deposits increased to 14 per month in Juniors with the most promising initial resources had moderate success attracting funding for their programs, but many others with new deposits did not get the hoped-for investor response. Announcements of initial resources have become more frequent since mid-2010, but 2012 s peak comes almost two years after the financing spike in late 2010, and one year after the number of reported initial finds and new zones reached a recent high in 2011 (see Figure 4). While the global economic crisis was relatively short-lived in terms of metals prices and mining profitability, the junior sector took almost three years to resume adding resources at new deposits to the pipeline at pre-crisis levels. Figure 4: Significant Gold and Base Metals Initial Resources Announced 4, Number of Initial Resources Initial Base Metals Resource Announcements Initial Gold Resource Announcements Initial Finds and New Zones 4 SNL MEG s Industry Monitor uses the Exploration Activity Services to track significant precious and base metals initial resources monthly from 2008 onward. It includes initial estimates for both new deposits and new zones. For this section, and in the Industry Monitor service, silver and PGM results are included with the base metals (copper, nickel, zinc-lead, molybdenum, and cobalt) to allow a clear picture of the unique trends in gold exploration. Number of Initial Finds and New Zones 4

7 Map 3: Location of Significant Gold and Base Metals Initial Resources Announced 4, 2012 Gold Base Metals Alaska Yukon British Columbia Quebec Nfld/ Labrador Europe Asia Nevada Mexico 2% Colombia Central America/ Caribbean West Middle East/ North Pacific Islands Canada USA South America Peru Chile Brazil Sub-Saharan Western Queensland Looking forward Uncertainty continues to overhang global markets, as each sign of improvement is seemingly contradicted by new concerns. However, as the new normal still holds the potential for growth and slow improvement, most analysts forecast a modest improvement in metals consumption and prices in Historically, major and intermediate producers adjusted their exploration spending in response to commodity price fluctuations. In the current cycle, while some majors are cutting exploration and capital spending, many are taking a longer view, committing to investing in their project pipelines throughout market cycles. Although we do not expect producers to increase exploration spending in 2013 as they have over the past few years, we believe their continued commitment to replacing and upgrading reserves organically will support this group s combined 2013 exploration budget at about the 2012 level. Due to limits imposed by ongoing market volatility, the size and scope of many junior budgets remain dependent on investor interest over the first few months of We expect that junior companies with exceptional projects will be able to finance sizable exploration programs, while many companies with smaller or earlier-stage assets will struggle to attract investment. We forecast that the junior sector as a whole will spend less than in 2012, leading to a modest decline in the worldwide nonferrous exploration total for 2013 a slightly less optimistic outlook than we held in late

8 Global insight. Smart decisions. Ask our clients and they will tell you: what makes SNL Metals Economics Group different is an unsurpassed level of experience and consistent high quality of our products and services. Our impressive roster of clients reflects a reputation for delivering the mining industry s most trusted information and analysis, and includes Major international mining companies Intermediate and junior mining companies focused on growth Banks Investment and fund managers Governments Service and equipment providers Consulting firms From worldwide exploration, development, and production to strategic planning and acquisitions activity we draw knowledge directly from extensive industry contacts, constantly and carefully reviewing global news and information sources to deliver superior databases and meaningful analysis. SNL Metals Economics Group Suite 300, 1718 Argyle Street Halifax, Nova Scotia B3J 3N6, Canada Phone: (Americas) (Europe) (Asia-Pacific) SNLInfo@snl.com Our innovative approaches to information deliver exceptional products and services offering global insight to support smart decisions. SNL Metals Economics Group Products and Services For industry professionals around the world, SNL MEG s services are indispensable independent, insightful, and instantly applicable to your business needs. MineSearch Search continuously updated profiles on thousands of global mining projects and companies using the highest quality and historically rich source of worldwide project and company information available in the mining industry. Discover emerging opportunities Track competitors Drill down for details to support analysis Establish benchmarks Acquisitions Service Evaluate and compare the competitive edge in project and company valuation. Support your deal-making discussions and decisions with complete, authoritative, and relevant transaction information collected for two decades. Perform quick comparisons and evaluations of transactions on a cost per pound or ounce basis. Exploration Activity Service A comprehensive view of junior and intermediate company growth and financing activities the critical information and analysis you need to support and justify exploration, financing, and deal-making activities, as well as to monitor the environment for marketing and sales opportunities. Corporate Exploration Strategies The industry s only source of global mining exploration spending and strategies. Corporate Exploration Strategies is the industry s benchmark for exploration trends and strategic analysis. Benefit from both a global and a granular view backed by information you can trust. Reserves Replacement Strategies Detailed examinations of how and at what cost the majors are replacing reserves for gold, copper, and nickel. A thorough analysis of reserves and production profiles for major producers, discoveries of large deposits, exploration budgets, acquisitions and divestitures, and project pipelines. Strategic Advisory Services Industry Monitor A series of graphs with commentary track developments and analyze data and information only available from SNL MEG an up-to-date overview of emerging trends in exploration, project development, financings, and acquisitions in the precious and base metals pipeline. Strategic Report Insight and deep analysis on critical supply-side issues facing the global mining industry SNL MEG s Strategic Report includes information and analysis on acquisitions, capital and production costs, exploration, company activity, metals outlooks, supply pipelines, project status changes, and smelting and refining charges.