Cutting exploration may be a shortsighted move for major and mid-tier mining companies, but meantime it does look as if the global fall in exploration activity may be flattening out.
LONDON (MINEWEB) – At the Randgold Resources Q3 results presentation in London, the company’s CEO, Mark Bristow, made a scathing comment about the recent moves by a number of major and mid-tier mining companies to cut back on mineral exploration as a part of their new found austerity programmes. While cash strapped juniors are cutting back, or ceasing exploration activity altogether, this is of necessity as they move into cash preservation mode to try and stay alive.
Many juniors have thus ceased exploration drilling altogether, laid off staff, reduced head office costs, and cut executive salaries to the bare minimum, but Bristow sees no reason for companies with good balance sheets and ample cash to do the same, largely as a sop to increasingly active institutional shareholders who look to short term bottom line figures rather than the long term future of the companies. As we noted here a few days ago in reporting on the Randgold results, Bristow commented that shareholders can be ‘brutal’ when the companies in which they are invested are seeing falling profits and cashflow.
It should perhaps be remembered by the companies, and their shareholders, that past cyclical downturns have seen enormous changes in industry make-up with less farsighted companies being replaced at the top of the tree by those with better forward plans. Take copper for example – where are Asarco, Kennecott and Phelps Dodge nowadays? Once these big historic mining names dominated the sector, but all have since been swallowed up by more successful competitors – Grupo Mexico, Rio Tinto and Freeport McMoran.
But Bristow commented, mining companies should be looking to the long term, not short term bottom line massaging to keep critics happy, and exploration cutbacks could be seen as extremely counter-productive in this context. Mining is very much a cyclical industry, and the cycles are exacerbated by such exploration cutbacks. When the cycle starts to pick up again, as it inevitably will, the lack of exploration when the cycle is down leads to the mining companies being unable to meet rising demand given the long lead times in bringing new projects on line.
But have all these exploration cutbacks reached their lows yet? Exploration drilling reports monitored by Intierra actually show a month on month increase in September from the extremely discouraging August figures, but whether this indicates the start of a pickup in exploration activity is too early to tell. On the basis of the past two years exploration has tended to be a little higher in September than August, so the likelihood is that the trend still remains negative in comparison with the already very low 2012 figures – a trend we reported earlier when the same organisation published its rather depressing State of the Market report at the beginning of the month.
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