LONDON, Aug 23 (Reuters) – Big miners such as Rio Tinto can slash exploration spending and still make valuable finds but they must resist the temptation to stop searching entirely or they will pay later, the company’s head of exploration said.
The secret of successful exploration on a budget, according to Rio’s Stephen McIntosh, is prioritisation and planning. “If something is not making it, we will get out quickly or divest that opportunity, so we can reinvest into something that will be of value to Rio Tinto,” McIntosh said.
Total withdrawal from exploration – attractive as it has no impact on current production – could hit earnings in decades to come especially at a time when smaller explorers and miners cannot raise cash to fill the gap left by big players.
“If you stop your most fundamental greenfield exploration, for the majors you won’t miss it for a very long time. But you will wake up one day, want to the go to the cupboard of future options and find it a little bit bare,” McIntosh said in a telephone interview from Singapore. Cutting exploration, has proved an easy win for miners under pressure, as prices and demand cool, to reduce costs that ballooned during the boom years.
Exploration typically requires little committed spending, staff can be easily moved and cuts have little immediate impact.
A project can take two decades to develop from the idea of entering a country, to a decision on whether to begin mining.
Virtually all miners have cut back – including Rio, which uncovered giant deposits from Peru to Guinea in the last decade but more than halved spending on exploration in the first half of this year.
It cut $483 million of exploration and evaluation costs in the first six months – more than half its 2013 reduction target – and slowed work at projects including U.S. copper mine Resolution.
McIntosh, a veteran of almost three decades who has worked in 45 countries, said less cash now may not mean fewer finds.
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