(Originally published in Mining Engineering, v. 56, no. 5, May 2004, p. 25-37.)
The worldwide budget for nonfuel mineral exploration was expected to increase by 27 percent in 2003 from the 2002 budget, according to the Metals Economics Group (MEG1) of Halifax, Nova Scotia. The increase comes after 5 years of declining spending for mineral exploration. For the first time in several years, all regional exploration budget estimates for 2003 as defined by MEG would increase from similar 2002 estimates. However, MEG included 193 more companies in their 2003 survey than they did in 2002. As with previous MEG survey reports, estimates reflect anticipated expenditures rather than actual dollars spent. Caution, therefore, must be taken when comparing 2002 and 2003 estimates or evaluating the magnitude of regional changes from year to year. Although sample variations and currency exchange rates may influence year-to-year variations of MEG data, it is likely that the general climate of improved metal prices in 2003 encouraged companies that had previously left the mineral exploration sector or reduced their exploration activity to once again focus on minerals exploration or increase exploration activity and budgets.
For the fourth consecutive year, the worldwide budget for gold exploration in 2003 remained below 50 percent of the budget total, but was 34.5 percent higher than the reported 2002 budget reported by MEG. The 2003 worldwide exploration budget estimates for diamond increased by 36 percent to US$320 million from the 2002 budget of about US$234 million. The 2003 exploration budget for nickel increased 29 percent and the budget for platinum-group metal exploration increased 26 percent from 2002 levels.
Based on the MEG reported exploration budget summaries and Engineering & Mining Journal’s annual project investment survey, the top three geographic areas for exploration in 2003, in decreasing budget order, were in Latin America, Canada, and Africa. MEG “regions” reflect a mixture of individual countries, continents, and other groupings, but they are reported consistently on an annual basis and provide a means of indicating the flow of budgeted exploration expenditures from year to year2. Regional allocations based on data from companies canvassed by MEG for 2003 were: Latin America, US$518 million; Canada, US$471 million; Africa, US$374 million; Australia, US$339 million; the United States, US$153 million; the Pacific region, US$93 million; and the rest of the world, US$244 million. Figure 1 shows the worldwide exploration budgets planned for 2003 by region, based on MEG data.
This summary of international nonfuel mineral exploration activities for 2003 draws upon available data from literature and industry and U.S. Geological Survey (USGS) specialists. This report provides data on exploration budgets by region and commodity, identifies significant mineral discoveries and exploration target areas, discusses government programs affecting the mineral exploration industry, and presents inferences and analysis of the mineral industry’s direction based upon these data.
Two types of information are reported and analyzed in this annual review of international exploration for 2003: 1) budgetary statistics provided by MEG and 2) information on regional and site-specific exploration activities in 2003 compiled by the USGS. The MEG information summarizes planned company budgets for exploration activities in 2003 worldwide, primarily for precious and base metals. MEG includes information on additional mineral commodities where it is available. MEG estimates that their post-1999 surveys cover 90 percent of world nonfuel mineral exploration budgets. The MEG survey statistics were changed in 1999 to include companies with exploration budgets between US$100,000 and US$2.9 million, as well as those companies included in prior studies whose anticipated budgets were above US$2.9 million. The 2003 survey did not include budget estimates for those companies who chose not to participate in the MEG study, for private companies that do not publish figures, and not for government-funded exploration activities.
USGS site compilations described here include nonfuel minerals, with an emphasis on precious metals (gold, platinum-group metals, and silver) and base metals (copper, lead, nickel, and zinc) and diamond. Mineral exploration generally focuses on commodities that are more sensitive to supply disruption (platinum-group metals, tin) or have a high value per unit weight (gold). Analyses are based on information provided by USGS mineral commodity and country specialists, and by other USGS scientists, as well as industry contacts and trade journals.
Care should be taken when performing temporal interpretations of the MEG exploration data, such as trend analyses, because the sample of mining companies surveyed by MEG varies with time, companies included in the survey change on a year-to-year basis, and fluctuation of currency exchange rates affect the relative value of budget estimates from year to year. Post-1999 data reported in this summary differ from prior-year data in that a larger number of companies were included in the more recent survey results. The significant amount of corporate restructuring that occurred during the period 1997–2002 also affected statistical compilations.
Statistical Interpretation of International Mineral Exploration for 2003
MEG estimated the total 2003 commercial international exploration budget for nonfuel mineral commodities (excluding iron ore and aluminum) to be US$2.4 billion. For the 917 companies canvassed by MEG in their 2003 study, the total amount reported as budgeted for international exploration in 2003 was US$2.19 billion (48 percent for gold, 27 percent for base metals, 14 percent for diamond, 6 percent for platinum-group metals, and 5 percent for other mineral commodities).
MEG data indicate that planned exploration budgets (in current dollars) for 2003 increased from 2002 levels in all regions of the world. The general increasing trend may be attributed to changing exchange rates, rising commodity prices, low metal inventories in an improving global economy, and greater company budgets. The largest percentage increases in exploration budgets over the previous year took place in Canada (49 percent) and Africa (46 percent). Canadian exploration activity was aided by increased investment in junior companies, who generally were able to raise exploration funds in the search for diamond, gold, and platinum-group-metal targets. To some extent in 2003, it appears that the risk associated with social or political conflicts present in some regions of Africa and the high levels of malaria and AIDS that have discouraged or delayed exploration in the past was outweighed by the potential for the discovery of significant mineral deposits in Africa. Growth in budgeted exploration (9 percent) was slowest in the Pacific region. The Australian exploration budget was forecast to increase by a modest 11 percent and Latin American budgeted exploration was forecast to increase 16 percent, as reported by MEG. Figure 2 shows trends in reported exploration budgets for nonfuel mineral commodities in selected regions for the period 1995–2003, in terms of regional dollar allocations and in regional percentage of the total exploration budget.
In terms of dollars budgeted for exploration, the largest regional budget increase between 2002 and 2003 took place in Canada (with an increase of US$154 million), followed by a US$117 million increase in budgeted exploration in Africa. In terms of percentage of worldwide exploration budget, Canada increased its share of the total worldwide exploration budget from about 18 percent in 2002 to over 21 percent in 2003, and the Latin American budget percentage dropped slightly from about 26 percent in 2002 to about 24 percent in 2003. The Australian budget share decreased from about 18 percent of the worldwide budget in 2002 to about 15 percent in 2003. In spite of a market share decrease, Latin America remained the region with the highest exploration budget.
The data shift seen in figure 2 for 1999 reflects in part the change in MEG data reporting methodology previously mentioned. The 538 companies included for the first time in the 1999 MEG study, while individually budgeting between US$100,000 and US$2.9 million in annual exploration, together accounted for about US$91 million in budgeted exploration, or 18 percent of the total exploration budget. Post-1999 MEG studies are estimated to account for approximately 90 percent of the worldwide mineral exploration budget.
Metals prices in 2003 generally were higher than in 2002. The average nickel price was significantly higher in 2003 than in 2002, whereas average copper, gold, and platinum prices were somewhat higher. Lead and zinc prices held at 2002 levels, and the average palladium price dropped dramatically in 2003. The rapid growth in Chinese mineral consumption has, in part, contributed to the rise in some mineral prices. Table 1 shows the change in price of selected metals for the years 1995–2003.
Table 1. Prices for selected metals, 1995–2003
Average price for specified year, in U.S. currency
1USGS Metal Prices in the United States Through 1998, published in August 1999; Platt’s Metal Week quotations.
2Price reported in USGS Mineral Commodity Summaries 2004; Handy and Harmon quotations.
3Price based on oral and written communication, USGS mineral commodity specialists.
4U.S. producer cathode (99.99%-pure copper), in Platts Metals Week, dollars per pound.
5Englehard Corp., published in Platts Metals Week, dollars per troy ounce.
6North American producer price, delivered (minimum 99.97% pure), in Platts Metals Week, dollars per pound.
7London Metal Exchange cash price for primary nickel (minimum 99.80% pure), in Platts Metals Week, dollars per pound.
9New York price (99.9% pure in 50-ounce lots), dollars per troy ounce, Handy and Harmon quotations.
10New York price (99.9% pure silver), dollars per troy ounce, Handy and Harmon quotations.
11North American Dealers Special High Grade zinc (99.99% pure) delivered price, dollars per pound, Platts Metals Week quotations.
Figure 3 illustrates the distribution of reported mineral exploration budget estimates for 2003 by commodity grouping. Gold continued to draw the largest amount of the total exploration budget, representing over 48 percent of budgeted exploration funding in 2003. The amount budgeted for gold exploration (US$1,054 million) was 34.5 percent higher in nominal terms than that budgeted for gold in 2002. The gold budget for grassroots projects was projected to increase 64.8 percent from the 2002 level, a trend attributed to an increase in capital to junior explorers and the acknowledgement by several major companies that there was a shortage of gold projects suitable for quick development. The gold price continued to strengthen in 2003 as a result of global geopolitical uncertainty and a weaker U.S. dollar. Based on MEG budget estimates, in descending order, the top three geographic areas for gold exploration in 2003 were Latin America, Australia, and Canada (Metals Economics Group, 2003b).
Exploration budgets for base-metal projects increased from US$512 million in 2002 to US$585 million in 2003. For the second consecutive year, base metals decreased as a percentage of the total world exploration budget, dropping from 39 percent of the total MEG world exploration budget in 2001 to about 26 percent in 2003. While most base metal prices rose slightly during 2003, only nickel achieved a significantly higher average price, increasing from $3.07 in 2002 to $4.29 per pound in 2003. The last time nickel achieved an average annual price higher than $4 per pound occurred in 1989. Copper exploration constituted about 58 percent of the base-metals exploration budget; nickel increased to about 29 percent, and zinc decreased to less than 13 percent of the base-metal total. As with gold, Latin America remained the region with the greatest minerals exploration budget for base metals. The Canadian base metals budget increased significantly from about US$90 million in 2002 to about US$120 million in 2003. The 2003 base metals budget was about the same as 2002 in Africa, Australia, the United States, and in the rest of the world category.
Diamond exploration budgets in 2003 increased to US$320 million from about $234 million in 2002, and accounted for 14.6 percent of the total exploration budget in 2003. Much of this increase was in Canada, where diamond exploration was expected to increase 66 percent from the 2002 level, and Africa, where the diamond exploration budget was expected to increase 44 percent from the 2002 level. These two regions accounted for about 76 percent of the total diamond exploration budget.
Exploration budgets for other mineral commodities (primarily borates, heavy minerals, magnesium, platinum-group metals, and tantalum) were expected to reach their highest level of the past seven years, or almost 11 percent of the total world budget. Platinum-group metals accounted for nearly 56 percent of the US$235 million total. Silver was considered by many companies to be a significant exploration target, however, most silver exploration occurred in conjunction with gold or base metal exploration because silver is frequently found in association with other metals. Budgeted exploration for other minerals was expected to have increased in Africa, Canada, and Latin America in 2003.
Interpretation of Domestic Mineral Exploration in 2003
The U.S. mineral exploration budget for 2003 was projected to increase modestly at a level comparable to the worldwide average, based on reported MEG statistics. Budgeted exploration expenditures increased to US$153.4 million (7 percent of world total) in 2003 from the budgeted amount of US$125.2 million (7.2 percent of world total) in 2002. Much of this increase is a result of an anticipated increase in U.S. gold exploration budgets, which are expected to increase from about US$77.2 million in 2002 to US$113.6 in 2003. The U.S. exploration budget for base metals was projected to be about US$29 million, close to the 2002 level. Exploration budgets for other U.S. minerals dropped to about US$10.1 million in 2003 from the US$18.6 million reported by MEG for 2002. The U.S. 2003 exploration budget is about 42 percent of the level it was in 1997, when the worldwide budget reportedly peaked at about US$5.2 billion, based upon MEG data. USGS data suggest that Alaska and Nevada had the greatest amount of exploration activity within the U.S. during the year 2003, primarily for gold.
Although U.S. minerals exploration activity has generally declined since the mid-1990s, there are indications of increasing optimism for the industry. In 2003, the greatest factor influencing increased activity was the increase in the price of gold. Because gold accounts for about 74 percent of all U.S. mineral exploration, its price greatly influences U.S. exploration activity. Higher mineral commodity prices may make it easier for companies to finance exploration activities and may allow for the development of more minerals projects. Other positive factors are identified by a recent survey of Nevada exploration activity conducted by the Nevada Division of Minerals (Driesner and Coyner, 2003). In this report, mineral exploration expenditures in Nevada are reported to have increased from $51.2 million in 2001 to $64.6 million in 2002, with a projection of $69.4 million in 2003. A similar trend is reported for the number of geologists employed in the mining sector of Nevada. In 2001, 107 geologists were employed; in 2002, 128 geologists were employed; and 140 geologists are expected to be employed in Nevada in 2003 (Driesner and Coyner, 2003). The number of mining claims held in Nevada and the rest of the United States has generally dropped since the enactment of the $100 Federal claim maintenance fee in 1992, but has increased since 2001. According to the Nevada Division of Minerals survey, respondents reported holding about 38,000 claims in Nevada in 2001, and 49,000 claims in 2002, and projected that they will hold about 51,000 claims in 2003. By mid-2003, exploration activity had been reported in 63 of the 526 mining districts in Nevada, up from 55 in 2002 and 42 in 2001 (Driesner and Coyner, 2003).
The three greatest factors influencing exploration activity in Nevada in the 2002 survey by the Nevada Division of Minerals were (1) existence of favorable geology, (2) commodity prices, and (3) announcements of new discoveries (Driesner and Coyner, 2003). Expansion of resource estimates associated with the Marigold gold mine of Glamis Gold Ltd. (increasing resources to 2.2 million troy ounces of Au) and discovery of the 4.5-million-troy-ounce Cortex Hills gold deposit by Place Dome Inc. represent two of the major projects providing incentives for gold exploration in Nevada in 2003. Other factors that affect the level of U.S. mineral exploration include: the annual $100 Federal claim maintenance fee enacted in 1992; the increased emphasis on environmental protection of national resources; the relative maturity of U.S. exploration (except for Alaska); and the depth of drilling (expense) that may be required to locate new zones of mineralization. More stringent permitting standards also have added to the cost of exploration.
About 65 percent of the respondents to the 2002 Nevada Division of Minerals survey were optimistic about domestic exploration. This percentage is higher than all previous surveys since 1994. In spite of this optimistic outlook for domestic mineral exploration, there is concern by some that changes in Federal Surface Mining Regulations (43 CFR § 3809) that went into effect in 2001 will limit access to Federally-owned lands for mineral exploration and mine development (Dobra, 2003). Although these regulations do not affect exploration activities directly, they create uncertainties over whether a mine could be developed within a reasonable time if an economic ore body were discovered. Consequently, these regulations may increase the incentive for companies to explore outside of the United States or on private property. Since only a small portion of Nevada gold mineralization is found on private property, any regulation that appears to impede mine development serves to focus exploration elsewhere.
In spite of the general trend of declining domestic exploration since the mid-1990s, a recent survey of 132 junior exploration companies and 27 senior exploration companies conducted by the Fraser Institute of Canada suggests that the United States continues to attract interest in minerals exploration. Exploration interest varies substantially based on location and State regulatory policies (Fredricksen, 2003). In the Fraser Institute 2003/2004 survey, Nevada was the top-rated region for its policy climate, and California, Washington, and Wisconsin were among the 5 lowest rated regions in this category. Nevada was included in the five top-rated regions for attractiveness based on geology, while California, Washington, and Wyoming were among the lowest rated in this category. In general, Nevada was given a positive rating for its regulation/land-use policy climate, while California, Colorado, Idaho, Minnesota, Montana, South Dakota, Washington, and Wisconsin were rated low in these areas. Anticipated exploration budgets allocated for the United States in 1999 dropped from about 15 percent of the total world exploration budget of senior mining companies to about 5 percent of the total budget in 2002. For junior mining companies, the percentage allocated for U.S. exploration dropped from about 15 percent of the world budget in 1999 to about 9 percent in 2002. The Fraser Institute survey reports that 53 percent of the respondents decreased their U.S. exploration budget between 1998 and 2002, while 26 percent of the respondents increased their exploration budget during this same period.