Global mining giants ready to dig deep in hunt for new deposits
The mining industry is set to see the first increase in spending on exploration in five years as global giants step up the hunt for new deposits, according to analysts.
It follows year of cutting budgets and squeezing existing mines as exploration spending came under pressure when commodity prices tumbled and investors pushed miners to be less profligate, especially on large projects and untested locations.
Spending last year was down two-thirds from a 2012 peak of $21.5bn (€19.9bn), according to S&P Global Market Intelligence.
But mining companies say that is now changing as supply concerns return, market prices recover and deals for top-tier, low-risk mines in key commodities remain elusive.
S&P forecasts more will be spent this year in safe-bet countries such as the United States, Canada and Australia, where operating risks are lower and technology is cutting-edge.
The focus is on commodities like copper, which could slip into deficit, and on technology - to allow mining companies to find more faster, and with fewer people.
"At quiet periods in the cycle, we will typically press out into non-OECD countries," said Stephen McIntosh, group executive for growth and innovation at Rio Tinto, referring to the 35-member Organization for Economic Cooperation and Development.
"But at the moment, we're focusing on the OECD, predominately the Americas, and predominately for copper."
Rio Tinto intends to spend $180m-$200m (€166m-€185m) on exploration this year, and BHP Billiton is boosting its exploration spending by about a third after four years in decline, mainly to find more oil and copper.
"We're looking for copper, zinc and nickel. We aren't against making acquisitions, but the assets that we're looking for just aren't there," said Andrew Michelmore, managing director of Hong Kong-listed MMG. "That leaves exploration."
Overall, exploration spending in Australia alone - the second-highest behind Canada - rose to A$113.8m (€80m) in the third quarter of 2016 from A$87.1m (€61m) in the first three months.
Drilling on new ground, a key indicator of exploration activity, increased 75pc in last year's third quarter from the second quarter, according to Australia's Association of Mining and Exploration Companies.
Key, however, is the need to improve the hit rate, after spending ballooned in the boom but failed to translate into more discoveries. Rio Tinto reckons a Tier-1 new, or greenfield, copper discovery is made on average every four years.
Innovations such as speedier drilling analysis and on-site testing can reduce costs, and improved detection can help find ever deeper deposits. Rio Tinto has technology that identifies which rocks contain metals worth digging for, while others use underground drones, 3D mapping and robots to do much of the grunt work. Companies that supply exploration equipment - from earth movers and drills to high-tech mapping - are gearing up for more business.
But the pressure is still on when it comes to costs. Commodity prices have risen enough to spur greater investment in exploration, but no one is disregarding costs yet, says Adrok Chief Operating Officer Alan Goodwin. "There's more appetite for them to try new things, whereas before they were shelving a lot of projects." (Reuters)