Gold Miners “Magic” Triggers $24-B Exploration Race
$GLD, $EXCFF, $RIO, $BHP $SLW
The sector is coming off of the bottom of the Bear Market cycle
A rebound in exploration by global miners could see spending hit C$24-B by Y 2025 with China the front runner in the search for a new generation of giant discoveries.
Exploration budgets are rising after they plunged to an 11-year low of about C$13.3-B last year as mining companies slashed costs in the wake of a collapse in prices, that according to managing director of Melbourne-based MinEx Consulting Pty, an industry adviser.
“We are coming out of the bottom of the cycle. I actually see the opportunity for the exploration sector to regain its mojo and quickly deliver a pipeline of good discoveries,” he said in an e-Mailed response to Questions. “It’s catch-up time for the industry.”
China, the top spender on exploration, is likely to continue to dominate in the hunt for new deposits, while Canada and Ecuador are currently among hot targets for more investment by miners.
The US could be poised for a rise in exploration with President Donald Trump regarded as likely to be more favorable toward resource development, S&P Global Market Intelligence said in a report published early this year.
Discoveries of Tier 1 projects, deposits with a net present value of more than C$1.34-B, have stalled.
Only 12 were uncovered in the past decade compared to an average of just 2-3 a year since Y 1950, according to MinEx. The average cost of finding a significant mineral deposit has 3X’d in the last 10 years to about C$318-M, the consultancy said in a 6 March presentation.
China, the target of more than 25% of global exploration spending in Y 2016, is yet to reap major rewards. An estimated C$56-B spent on the nation’s hunt for new mines since Y 2007 has seen only 2 large discoveries announced and found a total slate of projects worth about C$17-B, according to MinEx. Global exploration budgets peaked in Y 2012 at $33-B, the data show.
Rio Tinto Group (NYSE:RIO), the world’s 2nd-largest miner, terminated a joint project to hunt for copper in China, its partner and largest shareholder Aluminum Corp. of China said in January.
Rio increased spending on drilling in Y 2016 even as its overall exploration and evaluation budget declined, and as it cut the number of countries on its target list, according to the executive in charge of exploration.
Spending on exploration in the mineral and energy sectors in Australia, the biggest exporter of iron ore and coking coal, slumped 40% to A$3.2-B (C$3.34-B) in the year to 30 June, the largest ever decline, according to the nation’s government.
Volatility in commodities prices has led companies globally to focus on adding value to existing operations and to undertake greenfield programs in less risky locations, S&P said in January.
Budgets among the largest miners will rise slightly this year, the ratings’ company said in a separate report this month.
BHP Billiton Ltd.(NYSE:BHP), the world’s biggest miner, is raising spending on exploration, focusing on Copper and conventional petroleum.
Newcrest Mining Ltd., Australia’s largest Gold producer, lifted its budget by 15% in the 6 months to 31 December, and expanded a portfolio of projects, it said last month.
Melbourne-based BHP advanced 0.4% to 1,260.5 pence by 8:43 a.m. in London trading Friday, as Rio rose 0.8%.
Returns on exploration spending were eroded by profligacy during a commodities price boom through to 2012 as miners funded work on marginal prospects and drove up costs of drill rigs to geologists, according to Minex.
New efforts to raise expenditure are likely to prove more successful, with costs now lower and funding set to be directed first to higher quality projects, he said.
Explorers are being lured to move into Ecuador by discoveries made by Brisbane-based SolGold Plc as well as into the Canadian Arctic by Goldcorp Inc.’s Coffee Gold project and into Saskatchewan following NexGen Energy Ltd.’s Arrow Uranium discovery, he said.
Goldcorp, which won the Coffee asset with the acquisition last year of explorer Kaminak Gold Corp., said in November the Gold sector faces a decade-long output slump without the development of new mines.
What would really propel the market forward would be a giant discovery, as the sizzle would encourage other companies.
The more Gold they mine, the closer they are to running out. The major beneficiaries of this demand/supply/price action are the precious metals royalty and streaming companies like Silver Wheaton (NYSE:SLW) and Metalla (C.MTA, OTCMKT:EXCFF).
Have a terrific week.