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SNL Official: Exploration Spending Declines With Price Of Metals

(Kitco News) - The amount of exploration spending for gold and other metals has declined in the last few years along with prices, said David Cox, senior sales executive for SNL Metals & Mining, during a presentation to the Denver Gold Forum Monday.

Exploration by junior-mining companies has fallen especially sharply, with a weaker equity market cutting into the amount of money these firms can raise for drilling and other work to discover new mines, he said.

The reduced exploration and capital spending have implications for the future supply of metals.

“Discovery is the only way to add new resources and reserves to supply,” Cox said.

He said over the last decade, “there has been a declining rate of discoveries in the gold sector, and now that’s being exacerbated by the capital cutbacks, in particular by the majors but also junior companies are unable to raise money to do their work.”

Gold production kept climbing into 2014, even though this was a few years after the metal hit its all-time high price in 2011, he said. Projects already under construction kept moving forward, Cox said

“But now, for 2015, we’re looking at about a 2% decrease, followed by similar-level decreases through 2020,” Cox said.

Exploration spending for all nonferrous metals rose 10-fold from a low of $2 billion in 2002 to more than $20 billion by 2012, Cox said.

“Since then, we’ve dropped about 39% in 2013 and another 26% in 2014,” Cox said. This spending has tracked the prices of metals, with less than a year of lag time, he continued.

Gold is still the primary target of exploration efforts, Cox reported. Gold accounts for roughly 42% of all exploration.

The peak for money spent on gold exploration was $9.7 billion in 2014, Cox reported. This declined to about $6.7 billion in 2013 and $4.6 billion in 2014.

S&L Metals & Mining looks for exploration spending by gold-mining companies to fall another 10% to 15% this year, which is less than the roughly 20% expected for all metals.

The major mining companies are main drivers of exploration in a down market, Cox said. Still, the percentage of their revenue that went to exploration budgets fell to 2.3% in 2014 from 3.5% in 2012.

Exploration by junior-mining companies was hit harder as gold prices fell back, he explained.

“When equity markets dry up, they are basically so squeezed that they have to cut budgets very significantly,” Cox said. Juniors now account for only 32% of exploration for gold, he said.

The environment for juniors to raise equity has been “bleak,” with only $410 million raised for the year to date. This is down roughly 60% from the same period in 2014, Cox said.

The portion of the world’s gold production that comes from the major companies has increased, rising from 40% in 2005 to an expected 47% this year, he said.

Another shift in exploration spending, Cox reported, is that for the first time, more money is being spent looking for new ore bodies in areas of existing operations, as opposed to efforts to find completely new “grassroots” discoveries. When companies do spend on so-called grassroots exploration, they are mostly likely to do this in politically “safe” jurisdictions such North America, he added.

As of 2013, the amount of gold reserves in feasibility studies was 22.4 million ounces, Cox said. However, the tally would drop by 17% if it were to exclude metal in so-called “high-risk jurisdictions,” leaving 18.7 million. Additionally, if the gold in low-grade projects were also excluded, the amount with a higher probability of being successfully mined falls further to some 9 million ounces, he said.

Cox also pointed out the time delay from discovery to mining has continued to increase as companies deal with various social and other issues.

SNL Metals & Mining has been providing comprehensive mining industry information and analysis for more than 30 years.

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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