This presentation gives an overview of recent trends in global exploration as well as the outlook to year 2025. For the first time I have included bulk mineral discoveries in my analysis.
Key observations are:
- Over 1100 mineral discoveries have been made in the last decade …
but only 15 of these were Tier-1. 4 each were found in Canada and China,
2 each in USA and DRC and zero in Australia.
Exploration expenditures are driven by changes in commodity prices and are highly cyclical. After peaking at US$31.0 billion in 2012 global expenditures fell to $10.5 billion in 2016. Since then it has rebounded to $11.8 billion in 2018. Based on fairly conservative commodity prices MinEx forecasts that expenditures will rise by 32% in real terms to $15.6 billion by 2025. The strongest growth will be in Base Metals and “Other” (ie battery and advanced minerals). And the strongest growing regions will be Latin America and Africa.
- At present around 40% of all expenditures is directed towards gold exploration. Not surprisingly, gold currently accounts for around half of all mineral discoveries made in the World.
- There appears to be a drop in the average size and quality of recent discoveries. It’s getting progressively harder to find a Tier-1 deposit.
- With regard to the exploration methods used, at the project-scale level (i.e. where to take up leases) the main success factor for discovery was the presence of prior known mineralisation. At the prospect-scale level (i.e. where to site the drill rig) the two most successful techniques were geophysics and geochemistry.
- With regard to who made the discoveries, prior to 1990 the scene was dominated by the Major Companies. However, in the last decade Junior Companies have become much more important and now account for 65% of all deposits found.
- After several years of cut-backs and hibernation, in 216 the Junior Companies started rebuilding their cash reserves. They are now much more active in the field.
- Based on analysis of gold sector spanning several business cycles over the last 40 years, MinEx found that the discovery performance (as measured in ounces found) peaked before the peak in exploration spend. Maximum performance was in the first couple of years after the market bottomed and turned
To expand on the last point … exploration performance is adversely affected at the top of the business cycle by the high salary and drilling costs and an over-investment in mediocre projects. While it is true that salaries and drilling costs fall during the down-part of the cycle, this doesn’t translate into better exploration performance. This is because companies have less money to spend, and what little they have is spent on “keeping the lights on” rather than funding field work to find new deposits. Simply put, if you don’t drill, you won’t discover. Notwithstanding this, many companies used this time to sow the seeds for future success by high-grading their project portfolio (i.e. drop the bad projects and hang onto the best) and get the remaining (best) geologists to spend their time reviewing the available data to come up with drill-ready targets. What this means is that when the business cycle turns and starts rising again, companies raise fresh capital and can go back into the field and quickly (and cheaply) drill their very best targets. In so doing, they are well-primed to make great discoveries. Given that the market bottomed out in 2016 now is the time for the exploration industry to perform at its best.
In short, I am very bullish about the short-to-medium outlook for the industry.