SANTIAGO- (Reuters) – A weak copper price and tighter financing are forcing mining companies to cut or stall spending on exploring to their lowest levels in four years as they focus instead on axing costs and reducing debt.
Executives who gathered in the Chilean city of Santiago this week acknowledged tougher environmental standards, labor strikes, community resistance and resource nationalism were also making exploration more challenging.
Over the last year to 18 months mining companies have been buckling to shareholder pressure and cost cutting, Vanessa Davidson, consultancy CRU’s copper group manager told the CESCO/CRU copper conference in Santiago.
She said this has included head count reductions and cutting or stalling exploration spending; a trend that is likely to continue.
“We are just seriously focusing on using capital effectively, so exploration would come under the spotlight as well,” Anglo American copper business Chief Executive Officer Hennie Faul told Reuters on the sidelines of the annual CESCO/CRU copper conference in Santiago. “We believe in the fundamentals of copper, but we don’t foresee ourselves expanding our exploration for now.”
Capital constraints may force the global miner to exit its Michiquillay copper project in Peru, Faul said in an earlier interview, as he warned that copper prices will remain weak in the short-term on uncertain Chinese growth. China accounts for more than 40 percent of global consumption.
From a 2002 low of just $2 billion dollars, global exploration spending for nonferrous metals boomed to an all-time high of $21.5 billion in 2012, according to consultants SNL Metals & Mining.
But as the market weakened through the latter half of 2012 and through 2013, just about all mining companies cut exploration budgets resulting in a overall fall of 30 percent to about $15 billion last year, its lowest since 2010, SNL Director Jason Goulden said on the sidelines of the conference.
That will slide by another $2 billion this year.
Junior miners have led the decline as they cut spending in order to conserve cash and stay afloat, and the main producers also trimmed exploration to cut overall costs in a new capital sensitive environment, Goulden said.
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