Trends In Minerals Exploration Activity

The annual surveys of corporate exploration expenditures carried out by Metals Economics Group (MEG) show that estimated total spending rose to a record $13.2 billion in 2008 ($14.4 billion including expenditure on uranium exploration). This compares with the previous peak of $5.2 billion in 1997. MEG does not adjust its figures for the effects of inflation but recognizes that the substantial increase in budgets of recent years has not been reflected in a proportionate rise in actual activity on the ground (MEG, 2009). In recent years, costs were boosted by rising prices of fuel and other inputs, and acute shortages of qualified staff and drilling rigs. The inflation rate for exploration substantially exceeded increases in general price levels as measured by national indices. Just how much exploration costs in-creased, however, is probably not widely appreciated. Figure 1 compares the MEG estimates of total annual dollar spending in Australia, Canada and the United States combined with their drilling activity, measured in meters drilled, as reported by national agencies. These three countries accounted for 39 percent of MEG?s estimate of total spending on minerals exploration in 2007 and 40 percent in 2008. Expenditure is shown both in money terms, as reported by MEG, and adjusted to real terms, with the U.S. implicit gross domestic product (GDP) price deflator. The comparison is of index numbers based on 2000 as 100. Comparisons for the individual countries are shown in Fig. 2 to 4. National figures for drilling activity and expenditures cover some minerals like iron ore, coal and industrial minerals (29 percent of Australian spending in 2007 to 2008 and 10 percent of Canadian in 2008) that are not included in the MEG estimates of spending. Such exploration has risen more than the total since 1997 so that the index of drilling activity in the figure may be overstated for recent years on a like for like basis with the MEG data. MEG only includes spending on uranium exploration in recent years whereas the national agencies include it throughout. Figures 5 and 6 com-pare national and MEG estimates for Australia and Canada. No comparable figures are available for the United States. The national estimates have been converted to U.S. dollars at the appropriate annual average exchange rates, and the Australian annual totals have been summed from the published quarterly data. Not only is spending cyclical, but so are unit costs. Australian and Canadian data show that total exploration spending per meter drilled rose by 2.5 to 3 times between 2001 and 2008. These rises may partly reflect increasingly complex drilling methods, and an increased share of assaying and testing in total exploration costs. In Canada, however, diamond drilling accounted for a lower footage of the total in 2005-2007 than in the preceding few years, and spending on exploration, as opposed to deposit appraisal, made up a higher proportion of the total. Figure 7 compares index numbers of exploration spending per meter drilled in U.S. dollars for Australia and Canada. These figures raise a number of questions. First, is the relationship between total expenditure and meters drilled in the three countries for which data are available typical of the global experience? Secondly, has there been a significant change in the make-up of exploration spending in recent years? The Canadian data do not suggest that there has been, but is Canada typical? Has drilling become less important relative to other exploration techniques, or is it just as important as ever in confirming the existence of viable ore deposits?