By Staff, Minerals Information,
U.S. Geological Survey
(Originally published in Mining Engineering, v. 48, no. 5, May 1996, p. 35-41.)
Exploration activity in 1995 repeated the prior two-year trend of expanding worldwide while shrinking in the United States, at least for the mostly non-ferrous metal minerals on which data are available. The changing geographic orientation of exploration appears to be the result of increasingly more favorable political and economic factors, as well as attractive geologic opportunities, in many developing countries. The increase in exploration effort was stimulated by the continuation of a promising price outlook despite an apparent leveling off of the economic growth in major industrialized countries. The economic growth had fueled a strong demand for mineral commodities in 1994.
As compared to 1994, annual worldwide exploration expenditures for non-ferrous metal targets were estimated by Metals Economics Group1 (MEG) to be 21% higher in 1995 for a total of $3.5 billion. For 154 companies canvassed by MEG in their annual study for 1995, the total was $2.69 billion (58.5% for gold, 31.8% for base metals, 6.3 % for diamond, and 3.4% other). Regional allocations were (M=millions): Latin America $785M, Australia $529M, Canada $329M, Africa $320M, United States $294M, the Pacific $257M, and rest of the world $181M. Increases over 1994 were substantial for Africa at 60%, the Pacific at 53%, and Latin America at 44%. The increase for Australia was 23% and for Canada, 18%; but in the United States spending decreased 9%. For the first time, U.S. and Canadian companies spent more in Latin America than in their own countries.
The trend of exploration investment continued to shift away from the United States in favor of overseas projects. Many countries have revised their mining laws, and some offered incentives for foreign investment. In other cases, countries opened up areas previously not available for exploration. In contrast, requirements for mineral development in the United States are becoming more restrictive and time-consuming and costly to accommodate; there is uncertainty over U.S. mining law reform, and costs are higher to discover and develop mineral deposits.
Preliminary estimates of industrial production and gross domestic product show that economic growth in the major industrialized countries leveled off during 1995. Industrial production in the United States, Canada, Japan, and France was essentially flat throughout the year. In Germany, industrial production declined slightly toward the end of the year. So far, preliminary estimates show that growth in gross domestic product in these countries will be well below growth in 1994. The economy of Mexico, a major U.S. trading partner, was in deep recession owing to peso devaluation.
Base metal prices were higher in 1995 than in 1994, but price growth tapered off in response to weakening economic growth worldwide. Precious metal prices remained near 1994 levels. Metal prices were high enough to encourage mining companies to launch new base and precious metal projects and to continue directing exploration dollars to such targets.
Exploration Efforts by International Mining Companies
The MEG analysis shows a substantial increase in overall exploration spending for the third year in a row. MEG survey results for 154 companies in 1995, representing $2.69 billion in corporate nonferrous exploration expenditures, show an increase from the $2.13 billion from the 1994 survey results of 151 companies, and an increase from the $1.7 billion from the 1993 survey of 137 companies. MEG reports that junior companies have played a significant role in spending increases this year, so much so that MEG changed its cutoff for budgets included in the study to $3 million instead of the $2 million cutoff used in 1994. Exploration estimates include expenditures for precious, base, and other non-ferrous minerals, as well as any industrial minerals sought by the companies surveyed.
Trends in exploration spending reported to MEG for the last three years in selected locations are shown in figure 1. As shown by the figure, Latin America continued to be the leading exploration target and received the greatest amount of exploration dollars, followed by Australia. The United States continued its downward trend and dropped to fifth place. Exploration dollars spent in Canada increased from the 1994 level, raising Canada to third place. Both countries, however, have been experiencing declines in the share of total world exploration dollars being invested in their countries. Africa and the Pacific Region also gained in popularity as targets of exploration activity as measured by exploration investments, which dramatically increased from 1994. Figure 2 shows 1995 worldwide exploration spending, by location, as reported by MEG.
Latin America Exploration spending in Latin America accounted for 29.1 percent of the total expenditure for all companies surveyed by MEG. The trend for increased investment in Latin America continued as a result of mining law and tax reform. As reported by the Mining Journal2 exploration regulations were revised, corporate tax rates were reduced, trade barriers were relaxed, permitting processes were streamlined, mine development regulations were made more favorable to developers, and allowable equity ownership by foreign investors was increased. All of these changes as well as favorable geology increased Latin America’s attractiveness as an exploration target. Exploration activities concentrated in Argentina, Chile, Mexico, Peru, and Venezuela.
Brazil’s mining industry reportedly appears to be on the verge of an investment boom, particularly in gold, as a result of the Government’s aggressive economic policies, a diverse and large mineral resource endowment, and a skilled labor pool. Peru is in the process of privatization and modernization of its minerals sector. Mexico relaxed restrictions on foreign investment and acquisition of mining leases. Development focus in Mexico shifted to primary gold deposits from byproduct gold from silver or base metal deposits. International exploration in Venezuela continued because of its gold potential, despite of the 1995 Government announcement that it would review all gold concessions.
Australia As shown in figure 2, exploration expenditures in Australia accounted for 19.6 percent of world expenditures, maintaining Australia’s second place for the third consecutive year. Spending in Australia continued its upward trend as companies explored to replace declining ore reserves; however, the country’s share of world expenditures declined slightly.
Canada Exploration expenditures in 1995 increased slightly from that of 1994; however, as a percentage of world expenditures, they decreased. Exploration projects in the country were to increase the reserves at existing mines, investigate the re-opening of past producers, continue on-going programs, or delineate new discoveries.
Africa Increased spending was a result of increased emphasis on the search for extensions of gold belts, interest in the undeveloped copper deposits in Zaire, and interest in diamonds and nickel. As reported by MEG, political tensions are easing, mining laws are being reformed, and tax regimes are being liberalized. These factors have coincided with escalating costs of mining in some other parts of the world, brought on by tougher regulations and environment-related delays.
United States Exploration expenditures in the United States by companies surveyed by MEG declined from 1994, owing to a perceived increase in risk, most notably uncertainties of mining law reform and the perception of a stringent time-consuming environmental permitting process. As shown in figure 1, based upon the regional breakout of MEG data, the United States was the only area in which exploration expenditures showed a continued decline in 1994 and 1995.
Pacific Region The Pacific Region experienced a dramatic increase in exploration expenditures in 1995 as reported by MEG. The increase in exploration spending was brought about by more favorable mining and investment laws, increased privatization, and discovery of favorable geologic environments. The Pacific Region is also a rapidly expanding consumer market, creating a high demand for metals in the region.
Rest of the World Exploration expenditures in the rest of the world (includes Europe, Asia, and the former Soviet Union) are continuing to increase. Exploration activity is increasing in areas previously inaccessible to exploration and development, such as the former Soviet Union. If the investment climate in the countries of the former Soviet Union improves as issues of political and economic stability are resolved, then foreign investors could become more aggressive in exploring for and developing a wide range of mineral resources.
Exploration Efforts by U.S. Gold Producers
The Gold Institute’s annual exploration survey3 of 21 U.S. gold mining companies, which accounted for more than 80 percent of total U.S. gold production, showed that their worldwide exploration efforts in 1995 increased by 14 percent (to $400 million). This follows an 18 percent increase in 1994 from the 1993 expenditure. Exploration spending in the United States by the 21 U.S. gold producers declined 4 percent in 1994 from 1993 levels to $129 million and was projected to decline a further 9 percent in 1995 to $118 million (see figure 3).
The Gold Institute reported that while investment in exploration in Canada barely returned to 1992 levels, other areas benefited greatly from this increase in overseas spending. Expenditures by the U.S. gold producers included in their survey increased in Australia and the South Pacific by 18 percent in 1994 and a projected 44 percent in 1995 over 1994 levels to $75 million. Expenditures in Latin America grew 71 percent to $96 million in 1994. The 1995 projected figures show a further 17 percent growth to $112 million, nearly three times the amount spent in 1992. The Gold Institute reported that exploration activity also increased in other regions of the world. U.S. gold producers projected spending $5 million in 1995 in the former Eastern Bloc countries, a 67 percent increase from 1994. In all other countries, projected expenditures also grew 67 percent in 1995, in addition to a 125 percent increase from 1993 to 1994.
1995 Results of Exploration Activities
Results of exploration activities reported in 1995 were compiled from data gathered through industry contacts, trade journals, and government contacts. Approximately 600 sites of exploration activity in 1995 were identified from which 100 significant precious and base metals exploration sites were selected for table 1. The 100 exploration sites were selected on the following criteria and the authors’ best judgment:
level of exploration activity taking place at the site, which was determined either by the level of drilling activity or exploration investments;
magnitude of resources delineated;
potential for an economically viable deposit based upon reported tonnage-grade estimates.
In some cases, the importance of the site or its designation as an extension or new discovery was difficult to discern based upon available data.
As shown by table 1, gold continues to be the most sought-after commodity by explorationists in 1995. Approximately 66 of the 100 properties identified in Table 1 are primary gold deposits, 17 are copper; 9, lead-zinc; 6, nickel; and 2, silver. Latin America represents the area with the greatest amount of exploration activity, 36 percent of the total on Table 1. In addition, Table 1 shows that a large percentage of the exploration activity taking place around the world is by junior companies. Typically, junior companies are the first explorationists into an area, stake the area or develop a lease agreement, and perform initial exploration. Additional partners are then invited to share in the capital necessary for development in exchange for an interest in the property, or the junior company may opt to sell the property.
Africa Reported exploration activities in Africa took place in two primary areas. The first was western Africa, above the Gulf of Guinea, where work concentrated on exploration for gold in Ghana and Burkina Faso. The other area was southeastern Africa, where Tanzania led in reported activity followed by Zimbabwe. Gold accounted for three-quarters of African exploration and diamonds about one-sixth. Other commodities included nickel, copper, cobalt, and platinum.
Australia Australia ranks among the world’s leading mineral producers and continued to be a major player in international mineral markets. Mid-year 1995 exploration expenditures in Australia exceeded expectations and Australia significantly increased its identified mineral resources, particularly of gold, nickel, and copper.
Canada Exploration activity for base and precious metals in Canada has primarily been concentrated in British Columbia, Newfoundland, the Northwest Territories, Ontario, and Quebec. Most of the projects were targeting gold as the primary commodity. Of the approximately 165 projects reviewed for this article, about 25 were to extend reserves or prove up new ore zones at existing mines. The remaining projects were either investigating past producers for potential reopening, ongoing programs, or delineating new discoveries. Voisey’s Bay in Newfoundland is the scene of a major exploration and staking rush following the discovery by Diamond Fields Resources of a world-class nickel-copper-cobalt deposit. Exploration activity for diamonds has remained at a high level in 1995, primarily in the Northwest Territories.
Latin America Latin America profited from high levels of exploration activity and an improved investment climate. Exploration activity appears to be focused toward developing new resources and bringing deposits into active production, with emphasis on gold and copper. MEG reports that there are 23 non-producing gold properties in Latin America each containing more than one million ounces of gold. In 1995, exploration occurred in many countries in Latin America, but the investments, ranked by size, were largest in Chile, Brazil, Mexico, and Peru, followed by Venezuela, Argentina, and Ecuador. Reports indicate that over 120 companies are active in minerals exploration in Argentina. Exploration in Bolivia increased to $25 million in 1995. Chilean exploration increased in 1995, mostly for gold and copper.
Pacific Region Exploration activity in the Pacific region increased in 1995 as a result of favorable mining legislation, privatization efforts, and attractive geologic environments. Interest centered around copper, gold, nickel, and zinc. Significant amounts of exploration work are presently taking place in Indonesia, the Philippines, and Papua New Guinea.
United States Most exploration activity for base and precious metals in the United States has been concentrated in Nevada, targeting gold properties. The remaining activity has been primarily in the western United States and Alaska with Alaskan gold receiving the most attention. About two-thirds of these exploration programs were associated with discovering new zones or deposits, while the remainder involved expanding existing operations.
Several governments launched incentive programs to stimulate mineral exploration and enhance the competitive position of domestic producers in 1995.
In Australia, New South Wales continued its six-year $A40 million Discovery 2000 minerals program. The Australian Geological Survey Organization embarked on a three-year exploration program in Tasmania. In addition, the South Australian Government is continuing its Exploration Incentive Program. Mining issues of importance in 1995 appeared to be related to Aboriginal land titles, under the Commonwealth Native Title Act and Racial Discrimination Act. A new bill, the Titles Validation Bill of 1995, introduced by the Western Australian Government, is supposed to address the confusion surrounding Aboriginal land titles as related to mining tenements.
In Latin America, investment in Argentina, Brazil, Chile, Cuba, and Peru was stimulated by liberalized investment codes and mining laws offering incentives. For example, Argentina doubled the area in each province that a mining company can hold. Also Chile developed an investment policy that provides privileges to foreign participation in exploration projects, signed investment protection agreements with six other countries, and is negotiating similar agreements with additional countries. In Peru, the decline in terrorist activity was still another positive factor.
In the Pacific Region, the Government of Burma (Myanmar) solicited foreign capital and western mining equipment and technology in the search for natural resources, opened up additional areas for mining exploration, and signed a number of joint-venture exploration agreements with foreign exploration companies. The Philippine Government established a revised mining law in early 1995 apparently providing sufficient incentives to cause exploration permits to increase by a factor of three. In a similar measure, the National Mineral Development Act offered fiscal incentives for mining exploration in Malaysia. Indonesia also actively encouraged foreign investment. The Japanese Government provided financial assistance to Japanese private non-ferrous mining companies in the early stages of mineral exploration.
The Metal Mining Agency of Japan signed 127 joint venture agreements in 1995 for worldwide base and precious metals exploration. In addition, new mining legislation in Vietnam is expected to attract the interest of foreign investors who would be guaranteed the right to exploit any mineral resources that they found.
In other areas, the Government of India revised its national minerals policy, while joint ventures were promoted. Allowable foreign equity capital in mining joint ventures was increased to 50 percent, and restrictions were removed on 13 minerals once reserved for the public sector. New mining legislation allowing foreign exploration and mining investments in Mongolia was enacted in 1995. Several western European governments have offered incentives, including tax relief, revised regulation, and less government involvement to encourage foreign mineral exploration.
Exploration in the republics of the former Soviet Union is continuing, but at a reduced pace owing to the continued economic uncertainty of the region. As stated by Infomine,4 a number of the former Soviet Union countries are soliciting foreign investment for the exploration and development of mineral resources, with the majority of exploration licenses being given for the combined exploration and development of deposits. Kazakhstan, for example, issued licenses to foreign companies to explore for a range of metals including cobalt, copper, gold, lead, magnesium, manganese, molybdenum, nickel, platinum-group metals, and zinc.
During 1995, the Zambian Finance Minister announced that areas not currently held by Zambia Consolidated Copper Mines would be opened to foreign exploration and development as part of its efforts to revise its mining laws.
In the United States, the Alaska Exploration Incentives Act provides up to $20M of tax credit per project for qualifying exploration costs against future taxes and royalties due the State.
Minerals information activities were transferred to the U.S. Geological Survey from the former U.S. Bureau of Mines in January 1996. The primary focus of the USGS Minerals Information function is to collect and analyze worldwide supply and demand information for more than 100 mineral commodities in 50 U.S. States, 4 U.S. Territories, and more than 190 countries. For more detailed information on the material covered in this article, contact: U.S. Geological Survey, Minerals Information (Attn: Kathy Keys), 983 National Center, Reston, VA 20192; Phone 703-648-4961; Fax 703-648-4995.