The Long Term Outlook for the Global Exploration Industry – Gloom or Boom?

Keynote address to the Geological Society of South Africa (GSSA) GeoForum 2013 Conference, Johannesburg, July 2013

The presentation covers global trends in exploration spend, exploration methods, discovery rates, discovery costs and discovery performance.

In detail:

  • It outlines World mineral exploration expenditures by commodity and region from 1975 to present. Global expenditures reach an all-time high of US$29.4 billion in 2012, which includes $7.2 billion spent on bulk minerals. The leading country was China, closely followed by Canada and Australia. Gold continues to be the main commodity of interest – making up 34% of the total in 2012.
  • A multiple regression model was developed by MinEx to forecast of the likely level of exploration spend out 2020. The key driver is commodity prices. Based on the latest (and pessimistic) metal price projections from Consensus Economics, MinEx forecasts that World exploration expenditures are set to fall by 20% in 2013 followed by a further 15% (in real terms) over the next decade. In relative terms, gold’s share will decline, and uranium increase.
  • It includes a detailed analysis of the exploration techniques used on to discover 1750 gold and base metal deposits around the world from 1900 to present. The results were broken down to identify the range of methods used the at the “project-scale” (i.e. what were the factors used by companies to select ground for pegging leases) and the “prospect-scale” (i.e. what were the techniques used by companies to determine exactly where to drill their first hole). Prior to 1950, most discoveries were made by prospecting, but in recent decades geochemistry and geochemistry have progressively become more important – especially geophysics for prospect-scale exploration of base metal deposits under cover. However, at the project-scale, most companies continue to base their area selection on “extrapolation from known mineralisation” – i.e. brownfield and mine extension exploration.
  • It identifies that the world is finding around 50-70 significant non-ferrous mineral deposits per year. Over the last 40 years the absolute number varied directly with the overall level of exploration spend. However, this relationship appears to have broken down in recent years. Even after adjusting for the inherent delay in reporting recent discoveries, the industry has become very inefficient in the last 5-10 years. MinEx believes that one key driver is a major increase in input costs (for labour, drilling and admin costs) – which means that less work gets done in the field. If you don’t drill you won’t discover. Other key factors would be the increased challenges in exploring in remote areas and under deeper cover.
  • Unit discovery costs (in terms of $/oz or c/lb) have risen for all commodities surveyed. Looking forward, MinEx projects a discovery cost of $32/oz of Resource for gold, 3.0 cents/lb for copper, and $2.50/lb of U3O8.
  • In terms of “bang-per-buck”, Africa is a stand-out destination. Over the last decade it accounted for 22% of all non-ferrous mineral discoveries (including 22% of all Tier 1 & 2 deposits) for just 14% of the global exploration spend.
  • Finally the presentation looks at the issue of whether the mining industry is sustainable – and whether we are discovering enough to replace what we mine. Given that not all discoveries get developed and not all metal gets recovered, MinEx estimates that industry needs to find at least twice what it mines. Based on forward projections of exploration expenditures, unit discovery costs and mine production rates, it is estimated that the rate of discovery for copper and uranium is sufficient for industry needs, whereas gold is “tight” and zinc and lead are facing a “significant shortfall”. This has major implications for long run commodity prices and creates opportunities for further exploration.

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