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David R. Wilburn U. S. Geological Survey

Nonfuel Mineral Exploration 2002



David R. Wilburn
U.S. Geological Survey



(Originally published in Mining Engineering, v. 55, no. 5, May 2003, p. 30-42.)

Exploration budgets fell for a fifth successive year in 2002, reflecting unsettled mineral commodity prices and continued reluctance to invest in mineral-markets. Industry consolidation, which appeared to peak in 2001, affected 2002 exploration spending, as the exploration budgets of acquired companies effectively disappeared in 2002. Most surviving companies did not increase their exploration budgets despite their expanded exploration portfolio. Copper and gold project budgets continued to account for more than 50 percent of the total planned exploration expenditures. Interest in diamond and platinum-group metals appears to have increased, as the relative amount of capital budgeted for those target minerals rose from newly announced projects and advancement of existing projects. Based on the Metals Economics Group (MEG) reported exploration budget summaries and Engineering & Mining Journal’s annual project investment survey, the principal targets for exploration in 2002, in order of decreasing budget size, were in Latin America, Canada, and Australia.

Statistical Interpretation of International Mineral Exploration for 2002



This summary of international nonfuel mineral exploration activities for 2002 draws upon available data from literature and industry and U.S. Geological Survey (USGS) specialists. The 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 observations on mineral industry direction based upon these data and discussions.

Two types of information are reported and analyzed in this annual review of international exploration for 2002: 1) budgetary statistics provided by MEG1, and 2) information on regional and site-specific exploration activities in 2002 compiled by the USGS. The MEG information summarizes planned company budgets for exploration activities in 2002 worldwide, primarily for precious and base metals; however, it does not report figures reflecting actual exploration expenditures. MEG includes information on additional mineral targets where it is available. MEG estimates that their post-1999 surveys cover 90 percent of world exploration budgets. The MEG survey statistics were changed in 1999 to include companies with 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 2002 survey did not include budgets for those companies who chose not to participate in the MEG study, for private companies that do not publish figures, and for government-funded exploration activities.

USGS compilations described here include nonfuel minerals, with an emphasis on precious and base metals and diamond. Mineral exploration generally focuses on commodities that are more sensitive for supply disruption (platinum-group metals, tin) or have a high value per unit weight revenue potential (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. This work is contributing to the Sustainable Minerals Roundtable discussion process, a joint USGS and U.S. Forest Service effort to develop a set of indicators highlighting trends and priorities related to mineral/material and energy systems, to better define progress toward U.S. sustainability goals. Data on mineral fuel exploration have also been compiled; these data can be accessed at URL http://www.unr.edu/mines/smr.

Care should be taken when performing temporal interpretations of the MEG exploration data, such as trend analyses, because the number of mining companies surveyed by MEG varies with time and companies included in the survey change on a year-to-year basis. Post-1999 data reported in this summary differ from prior-year data as 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 impacted statistical compilations.

MEG estimated the total 2002 commercial international exploration budget for nonfuel mineral targets (excluding iron ore and aluminum) to be US$1.9 billion, 14 percent lower than the corresponding estimated budget for 2001. For the 724 companies canvassed by MEG in their 2002 study, the total amount reported as budgeted for international exploration in 2002 was US$1.73 billion (45 percent for gold, 30 percent for base metals, over 13 percent for diamond, 6 percent for platinum-group metals, and 5.7 percent for other mineral commodities). Figure 1 shows the 2002 planned worldwide exploration budgets, by region.

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 year. Regional allocations based on data from companies canvassed by MEG for 2002 were: Latin America, US$448 million; Canada, US$317 million; Australia, US$304 million; Africa, US$257 million; the United States, US$125 million; the Pacific region, US$85 million; and the rest of the world, US$197 million.

MEG data indicate that planned exploration budgets (in current dollars) for 2002 decreased from 2001 levels in most regions of the world. The general decreasing trend may be attributed to changing exchange rates, continued low commodity prices, abundant metal inventories, investor wariness for funding exploration activities in a time of uncertainty about economic recovery, terrorism, and possible war, and tighter company budgets. Anticipated exploration spending in Canada and Africa were only slightly less than 2001 levels (down 5 percent and 7 percent, respectively). Canadian exploration activity was aided by increased investment in Canadian junior companies, who generally were able to raise exploration funds in the search for gold, diamond, and platinum-group-metal targets. Although Africa possesses large geologic potential for the discovery of significant mineral deposits, regional conflicts, worker and property security issues, and high levels of malaria and AIDS have discouraged or delayed exploration activity. Exploration budgets for the Pacific region decreased approximately 36 percent from 2001 levels, while Latin American budgeted exploration was forecast to decrease 22 percent, as reported by MEG. Figure 2 shows trends in reported exploration budgets for nonfuel mineral targets in selected regions for the period 1995–2002, in terms of regional dollar allocations and in regional percentage of the total exploration budget.

The largest budget dollar reduction between 2001 and 2002 (US$128 million) took place in Latin America, followed by an US$48 million reduction for exploration in the Pacific Region and US$45 million reduction in Australia. In terms of percentage of worldwide exploration budget, Latin America dropped from almost 29 percent in 2001 to less than 26 percent in 2002; similarly, the Pacific region decreased from 6.7 percent in 2001 to 4.9 percent in 2002. The exploration budget percent share of Rest of World countries increased from 8.7 percent in 2001 to more than 11 percent in 2002, primarily a result of improved survey coverage in Russia. The Canadian percent share increased from less than 17 percent in 2001 to more than 18 percent in 2002, as many Canadian junior exploration companies focused their exploration efforts in relatively low-risk areas close to home. In spite of a budgetary decrease, Latin America remained the region with the highest exploration budget.

The apparent data shift seen in figure 2 for 1999 reflects 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 - 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.

There was no distinct trend for metals prices in 2002, perhaps reflecting a year of economic uncertainty. Prices for some metals in 2002 remained near 2001 levels (copper, lead, and platinum), other metal prices rose slightly (gold, nickel, and silver), and others (palladium and zinc) fell. The average palladium price for 2002 was 45 percent lower than the average 2001 price, while the average 2002 gold price increased about 14 percent from the level reported for 2001. Table 1 shows the change in price of selected precious and base metals for the years 1995–2002.

Table 1. Prices for selected base and precious metals, 1995–2002




Average price for specified year, in U.S. currency

Commodity

19951

19961

19971

19982

19992

20002

20012

20023

Copper4

1.38

1.09

1.07

0.79

0.76

0.88

0.77

0.76

Gold5

386

389

332

295

280

280

272

311

Lead6

0.42

0.49

0.46

0.45

0.44

0.44

0.44

0.44

Nickel7

3.73

3.40

3.14

2.10

2.73

3.92

2.70

3.07

Palladium8

153

130

184

290

363

692

611

337e

Platinum9

425

398

397

375

379

549

533

540e

Silver10

5.15

5.19

4.89

5.54

5.25

5.00

4.39

4.60e

Zinc11

0.53

0.51

0.65

0.51

0.54

0.56

0.44

0.39

eEstimated.

1USGS Metal Prices in the United States Through 1998, published in August 1999.

2Estimated price reported in USGS Mineral Commodity Summaries 2003.

3Estimated price 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.

8New York price (99.9% pure in 100-ounce lots), in Platts Metals Week, dollars per troy ounce.

9New York price (99.9% pure in 50-ounce lots), in Platts Metals Week, dollars per troy ounce.

10New York price (99.9% pure silver), in Platts Metals Week, dollars per troy ounce.

11U.S. Dealers Special High Grade zinc (99.99% pure) delivered price, in Platts Metals Week, dollars per pound.

Figure 3 illustrates the distribution of reported mineral exploration budget estimates for 2002 by commodity grouping. Gold continued to be the greatest exploration target, representing over 45 percent of exploration funding in 2002. The amount budgeted for gold exploration (US$784 million) was 7.7 percent lower in nominal terms than that budgeted for gold in 2001. In 2002, gold returned as the top target for all stages of exploration based on MEG data, suggesting the beginnings of renewed strength. The current strengthening of the gold price and a weakened U.S. dollar leads MEG to expect an increase in gold exploration in 2003. Based on decreasing MEG budget estimates, the principal geographic areas for gold exploration in 2002 were in Latin America, Australia, and Canada (MEG, Strategic Report, January/February 2003).

Exploration budgets for base-metal projects (MEG includes copper, lead, nickel, and zinc) dropped from US$779 million in 2001 to US$512 million in 2002 consistent with the general decrease in exploration funding. Base metals decreased to about 30 percent of the total MEG world exploration budget in 2002, compared to about 39 percent in 2001, ending four consecutive years of percentage increases. Sustained weak base metals prices are believed to be the main contributor for the decrease. Copper exploration constituted about 60 percent of the base-metals exploration budget; nickel increased to almost 26 percent, and zinc decreased to less than 15 percent of the base-metal total. Although Latin America remained the region with the greatest minerals exploration budget for base metals, 2002 base metals exploration budgets for Latin America declined in both percentage and budget terms. The percentage of the base metals budget remained stable or increased slightly in Canada, the United States, Australia, the Pacific region, and in the rest of the world category in 2002. The African base metals budget dropped in 2002. For base metals, the budget percentage dropped significantly for both grassroots and late-stage exploration work in Africa, and dropped less significantly for mine site exploration in 2002.

Budgeted diamond exploration in 2002 increased to over $234 million from about $198 million in 2001. As a result, diamond exploration accounted for 13.5 percent of the total exploration budget in 2002. Much of this apparent increase is due to the inclusion for 2002 of the budget for the Russian diamond exploration company Alrosa, which was unavailable in the 2001 statistics. MEG estimated that the 2002 increase in the diamond exploration budget was actually $8.4 million, in contrast to decreases for most other commodities. Significant diamond exploration was occurring in Africa (about 35 percent), Canada (32 percent), and Russia (15 percent).

Exploration budgets for other mineral targets (primarily borates, heavy minerals, platinum-group metals, and tantalum) reached their highest level (almost 12 percent of the total budget) in six years. Platinum-group metals accounted for 51 percent of this total, and exploration for platinum-group metals increased from 3.4 percent in 2001 to 6 percent of the world total in 2002. Silver was considered by many companies to be a significant target, however, most silver exploration was occurring in conjunction with gold or base metal exploration because silver is mostly found in association with other metals.

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