The impact of commodity prices and other factors on the level of exploration

Seminar Series presentation, Centre of Exploration Targeting, Perth, November 2013

This informal presentation to the Centre of Exploration Targeting looks at the main factors driving the amount of mineral exploration, with a special focus on the challenges and outlook for exploration in Australia.

Key observations are:

  • Global mineral exploration peaked in 2012 at US$30 billion.
  • Exploration expenditures are extremely cyclical. Over the last three decades there have been four major boom & bust cycles – with the average decline in spend being 45%. We are now entering our fifth down-cycle.
  • Using the latest available commodity price forecasts, regression analysis studies suggest that global exploration spend in 2020 will be ~28% below the 2012 peak. In practice, due to negative market sentiment and lack of funds, my feeling is that industry will overshoot this figure in the short term.
  • Over the last decade (2003-2012) over 559 significant deposits have been found in the World.
  • The rate of discovery historically moves in-line with the level of exploration spend. However (even after adjusting for the delay in reporting a discovery) in the last 5 years a large gap has opened up between the level spend and the number of discoveries made. This gap is largely due to higher cost of drilling, labour and administration.
  • An ongoing challenge is that most discoveries are too small / low grade to develop as an economic mine
  • The main drivers for exploration spend are 1) rising demand for metal, 2) commodity prices, 3) availability of funds, 4) new exploration ideas & discoveries and 5) changes in Country Risk
  • A special challenge for Australia (and other mature parts of the World) is the fact that we have to explore under increasing depth of cover. We are not very efficient or effective at doing this.
  • Over the last decade A$14.2 billion was spend on mineral exploration in Australia. Also a total of 64.4 million metres of drilling was carried out. All up, 116 deposits were found at an average cost of A$122m per discovery. Only 3 of these were giant discoveries. On this basis it took ~20 million metres (ie 20,000 km) of drilling to find a giant-sized deposit. That’s equal to drilling a hole horizontally between Adelaide and Perth nine times. That’s very inefficient! Industry certainly needs to improve its drilling performance.

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