On the release of Metals Economics Group’s Corporate Exploration Strategies, Jason Goulden looks at why green fields exploration is falling and where companies are looking for new ounces
Interviewer: Mineweb.com’s Geoff Candy
GEOFF CANDY: Welcome to this Mineweb.com Newsmaker podcast – joining me on the line is Jason Goulden, he’s the vice president for research at the Metals Economics Group – they released last week, their 22nd edition of the Corporate Exploration Strategies and they estimate that the 2011 budget for non-ferrous metals exploration is going to jump to $18.2bn. Perhaps if we look first at where this exploration is taking place, you mention in the report that it’s the high risk regions that have seen some growth to 23%. Does that imply a higher tolerance for risk or the fact that they can’t find anything in less risky areas?
JASON GOULDEN: A little bit of both actually – as exploration tends to increase year-on-year and at times when we have very high exploration like we do now, companies tend to be a little more tolerant to that risk – they will go into those countries, where we see strong dips and exploration spending like we did in 2009 – that’s the first exploration spend that tends to be cut. They tend to pull back into safer jurisdictions and spend where they know. With that rise we did see an increase in almost every country across the board – as you can imagine that’s a time when we had a 50% year-on-year increase, most countries are going to go up, but that increase of 23% just shows that there is a little more risk tolerance now despite the heightened awareness to risk.
GEOFF CANDY: I was going to ask that – in terms of that heightened awareness to risk, how quickly does that exploration spend dry up if we were to see an increase in risk particularly perhaps in Western Europe and in the US – how quickly are we likely to see exploration spend dry up?
JASON GOULDEN: In terms of global exploration spending a lot of it has to do with metals prices – it is the primary driver of exploration spend. So if metals prices tend to dip a bit, or if the volatility is there and that sort of persists, then we’ll see exploration spend go a little flat and maybe decline a little bit. But what tends to happen, as I mentioned, is you’ll see a decline in riskier areas, but what tends to be cut first is the grassroots exploration spend in those countries – even if the risk changes in a particular country, it’s the grassroots that disappears first – it is the most mobile and easier to cut than later stage mine site work.
GEOFF CANDY: I suppose it comes down to what the pipeline now of exploration is because there does seem to have been given what happened in 2008, perhaps as you say, money drying up from the Greenfields exploration – the grass roots stuff – and more transactional exploration if you will. Are we getting to a point where companies are going to have to explore at a grassroots level because there is just not enough ounces in the ground that they know about already, or is there still quite a substantial pipeline?
JASON GOULDEN: There are a number of projects in the pipeline at various stages. A lot of it has been worked and reworked many times over the years, and the economic viability of it is questionable, but the investment in the grassroots is your long term investment. There’s a lot of pressure on companies to produce quickly, to find something and move it up the pipe quickly – so you see a lot of the junior companies are focusing on late stage projects that they may have held, or someone else may have held for a long period of time, but they’re trying to make it more attractive, maybe grow the resource and flip it upwards in order to increase shareholder return.
GEOFF CANDY: I suppose that’s also because metals prices have been higher so you want to maximise your profit for as long as prices are high.
JASON GOULDEN: Yes that’s correct – the general decline in grassroots spend as a proportion of the annual total has been ongoing for well over a decade though – since the mid-1990s – it accounts for more than 50% of global spend, and it’s almost been a straight line decline for the last decade and a half, or so. Now we’re only about a third of total spend worldwide.
GEOFF CANDY: Is that going to come back and haunt mining companies?
JASON GOULDEN: It potentially can – with the long lead times to development new discoveries that are being made now are not going to be developed for 10, 15 or 20 years down the road, so an owner should be able to feed that long term pipeline – someone has to find some new resources or new deposits now. Whether they can on the amount of money they’re spending now, it remains to be seen.
GEOFF CANDY: I know we’ve had some comments from people like Pierre Lassonde over the years, saying that the exploration side of the business isn’t doing as well as it should be and perhaps not doing it as innovatively as it perhaps can. Is there a concern that perhaps we’re going to a point where there just aren’t any products or projects really ready to come on-stream and miners are left floundering…?
For the rest of this interview, please go to the Mineweb.com website: http://www.mineweb.com/mineweb/view/mineweb/en/page96985?oid=140695&sn=2010+Detail&pid=102055