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EXPLORATION
TRENDS
2016
A Special Report from SNL Metals & Mining
for the PDAC International Convention
WORLD
EXPLORATION
TRENDS
Throughout 2015, deepening concern over
the global economy hammered the resources
sector. January 2016 started just as badly
when more than US$2,300 billion was wiped
off global stocks in the first full week. Despite
a robust jobs report in the U.S., investors
were spooked by Chinas slowing economy,
depreciation of the renminbi and the collapsing
oil price, lowering the mining industrys
aggregate market capitalization to levels not
seen since early 2009.
Results from SNL Metals & Minings 26th
edition of the Corporate Exploration Strategies
reports clearly show that the global exploration
sector has fared no better, with the mining
industrys total budget for nonferrous
exploration falling 19% to $9.2 billion in
20151. With depressed metals prices and
weakening Chinese demand, combined with
strong metal production and high levels of
political turmoil, investors are shunning the
mining industry, leaving most explorers with
little option but to further curtail spending.
SNL Metals & Mining obtains the data used in the Corporate Exploration Strategies (CES) studies through the generous cooperation of the surveyed companies. The
individual nonferrous exploration budgets covered by the study include spending for gold, base metals, platinum group metals, diamonds, uranium, silver, rare earths,
potash/phosphate and many other hard-rock metals. They specifically exclude exploration budgets for iron ore, coal, aluminum, oil and gas, and many industrial minerals.
1
(All figures are reported in U.S. dollars; all historical exploration figures throughout this report represent dollars of the day and have not been adjusted for inflation.)
Bear Markets
Socit Gnrale analyst Albert Edwards, a notorious bear,
warned in January of global deflation and recession. He
predicts that U.S. stocks could lose almost three-quarters of
their value as an indirect result of the failure of the Feds
quantitative easing. He argues that investors will reap
Five-Year Prices
Left scale:
Left scale:
Nickel (US$/t)
Aluminum (US$/t)
Right scale:
Gold (US$/oz)
3,200
Copper (US$/t)
Right scale:
Zinc (US$/t)
36,500
220
11,000
180
9,200
140
7,400
100
5,600
60
3,800
2,200
26,000
1,200
15,500
5,000
Coal* (US$/t)
2011
2012
2013
2014
2015
200
20
2011
2012
2013
2014
2015
2,000
4
the whirlwind of central bankers attempts to support their
economies with looser monetary policy.
Another Socit Gnrale analyst, Robin Bhar, noted in
mid-January that the negative developments in the financial
markets were exacerbated by geopolitical tension. Bhar
expects worries over China and the emerging markets to
place severe pressure on base metals prices in the current
quarter. Further price weakness, he said, should provoke a
stronger supply response, eventually leading to a modest
recovery. Bhar expects prices to recover gradually over
the next two years, based on positive demand trends and
reserves depletion that would eventually return the markets
to deficit.
Given the existing project pipeline, base metals mine
production (with the exception of bauxite) is likely to
peak around 2018. Bhar predicts that output would
then decline at an accelerating pace, unless higher prices
stimulate investments and incentivize output from highercost projects.
2015 Reviewed
Last year was tough on the seven major mined commodities.
Iron ore and nickel prices were around 40% lower over the
year; zinc, copper and coal fell more than 20%; aluminum
was down over 17% and even gold (traditionally a safe
haven) was down almost 10%, albeit as measured in the
strong U.S. dollar.
The end of the year was positive, however, for most mined
commodities especially iron ore, which gained almost
11% over the last ten trading days. Iron ore closed the year
at almost US$43.6/t, compared with the December 11
low of US$38.3/t. The exceptions in the last week were
gold, down 0.7% at US$1,060/oz (for a 2015 average of
US$1,161/oz), and aluminum, down 1.8% at US$1,513/t.
The coal miners suffered more than most in 2015; the
Dow Jones Coal Index (of 235 companies) ended the year
79% lower than it started, with an aggregate market cap of
US$190.4 billion.
An article by Satyajit Das in the Financial Times argued that
2015s price declines were exacerbated by the increasing
conversion of commodities into tradeable equivalents. Das
wrote A Banquet of Consequences (published in the U.S.
as The Age of Stagnation), wherein he notes that cash flow
from future metals sales has been monetized to raise debt
to finance expansion. The need to service this debt has kept
production levels artificially high.
Trade on the London Metal Exchange fell 4.3% in 2015 to
169.6 million lots, equivalent to 3,800 Mt, with a value of
US$11,900 billion. The LMEs owner, Hong Kong Exchanges
and Clearing Ltd., reported that 2015 trade in aluminum
contracts in fell 9.1% to 62.5 million lots, with contracts for
A-grade copper nearly flat year on year at 41.0 million lots.
Trade in tin slumped 30.7%, zinc fell 5.7% and lead slipped
0.9%, compared with 2014. In contrast, nickel trade jumped
6.9% to a record 20.7 million lots.
Mining saw one of its worst years in 2015, but it was a
record year for mergers and acquisitions. Deals for the year
exceeded US$4,600 billion, surpassing the previous M&A
peak of US$4,300 billion in 2007. Analysts explained the
surge as being driven by the hunger for growth, coupled with
cheap funding.
Reviewing 2015 in the Financial Times, Gavyn Davies
commented that although some major trends last year
were obvious in retrospect (weak oil prices, falling euro,
rising dollar, tumbling emerging currencies), many macro
investors failed to navigate the sharp reverses in time.
Davies noted the relative strength of global equities in 2015,
with local currencies returning about 2%. However, with
gains just under zero in U.S. dollar terms, the peaks of May
2015 were not re-attained.
Commodity prices plummeted almost one-third overall,
and eventually took credit markets down with them. The
falling prices also hit emerging markets (with the perplexing
exception of Chinese equities, the best-performing of the
major markets), which generally underperformed developedmarket assets.
$24
$20
$16
3
$12
2
$8
$4
$0
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
6
most companies aggressively increased their exploration
budgets, lifting the industrys budget total by 44% in 2010
to US$11.51 billion, and by a further 50% in 2011 to
US$17.25 billion.
Regional Exploration
Exploration allocations for all regions declined in 2015,
with the greatest dollar reductions in Africa and Latin
America. Nevertheless, the latter remained the most popular
exploration destination, attracting 28% of global spending in
2015. Six countries Chile, Peru, Mexico, Brazil, Colombia
and Argentina accounted for the lions share of the
regions total.
Gold reclaimed its position as the top Latin American
exploration target, with its share of overall budgets rising to
42% from 41% in 2014. The percentage allocated to base
metals decreased to 40% from 42%.
SNLs Rest of World regional grouping (Europe and most
of Asia) had the second-largest aggregate budget, led by
allocations for China and Russia, and by two other countries
Turkey and Kazakhstan that each attracted more than
7
Map 1: Top Destinations for Nonferrous Exploration, 2015
5% Russia
Canada 14%
Europe 5%
United States 8%
Mexico 6%
China 6%
West Africa 5%
FSU 1%
Atlantic
Ocean
7%
1%
3%
Peru 6%
DRC 2%
Brazil
Pacific/SE Asia 5%
East Africa
Indian
Ocean
Southern Africa 4%
Australia
Chile 7%
12%
$1,000
150
$750
125
$500
100
$250
75
$0
50
2008
2009
2010
2011
2012
2013
2014
2015
200
$1,250
160
$1,000
120
$750
80
$500
40
$250
175
$1,250
Number of Announcements
Gold Financings
$0
0
2008
2009
2010
2011
2012
2013
2014
2015
Note: SNL Metals & Minings Monthly Industry Monitor tracks significant
precious and base/other metals drill results monthly from 2008 onward, as
reported in SNLs online database. 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.
Drilling Steadies
Despite the troubles facing the junior sector, the number of
active projects with drilling activity has remained surprisingly
stable over the past two years, suggesting that some
$125
50
$100
40
$75
30
$50
20
$25
10
$0
M J
S D M J
2008
S D M J
2009
S D M J
2010
S D M J
2011
S D M J
2012
S D M J
2013
S D M J
2014
S D
Number of Announcements
2015
9
Map 2: Location of Significant Gold and Base/Other Metals Drill Results, 2015
Atlantic
Ocean
Pacific
Ocean
Indian
Ocean
Primary commodity
Copper
Gold
Nickel
Platinum
Silver
Other
10
Figure 6: Project Milestone Announcements, 2008-15
Prd Decreases
New Prd Mines
SNL Indexed Metals Price
$2,750
$2,500
160
$2,000
130
$1,500
100
Pre on Hold
New Pre Projects
Fea on Hold
New Fea Projects
175
$500
$0
40
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
2008
2009
2010
2011
2012
2013
2014
10
2015
Pipeline Trends
SNLs Pipeline Activity Index (PAI) is a valuable measure
of exploration and development activity in the international
mining industry. It incorporates data on the number of
projects where significant drill results have been announced,
initial resource statements, exploration financings and
positive project milestones. The PAI slumped in mid-2015 to
reach the years low of 41 in April slightly better than the
all-time low of 40 in April 2014. The index rebounded to 69
in November 2015, but then fell off sharply in December to
end the year at 49 (see Figure 5).
70
150
$1,750
$1,250
125
$750
$250
100
-$250
-$750
75
$1,000
$2,250
-$1,250
-$1,750
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
2008
2009
2010
2011
2012
2013
2014
50
2015
Looking Forward
A third consecutive year of industry doldrums has come
to a close, and early indications suggest that 2016 is
unlikely to reveal the light at the end of the tunnel. With
depressed metals prices, production exceeding demand
for most metals, high levels of international political
turmoil and a slowing Chinese economy, investors are
understandably wary of the mining industry, and indeed
of markets in general. As a result, SNL maintains a
moderately negative outlook for investment in exploration,
and does not expect exploration budgets to begin
rebounding before 2017.
Over the past three years, companies have significantly
restructured their operations and refined their strategies
to better align with poor economic forecasts and to
reassure their investors. Initially pushed to lower
spending and increase profit margins, many majors have
recently been forced to shrink their operations (including
their exploration departments) to address balance sheet
issues. The inevitable result is a slowdown in organic
11
Map 3: Location of Significant Gold and Base/Other Metals Initial Resources, 2015
Yukon Territory
Sweden
British Columbia
Russia
Ontario
Kyrgyzstan
Turkey
Nevada
Mexico
Pacific
Ocean
Mongolia
Atlantic
Ocean
West Africa
Philippines
Tanzania
Brazil
Peru
Indian
Ocean
Solomon Is.
Western Australia
Chile
Argentina
New Zealand
% Base/other metals
% Gold
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