Reporte SNL WET 2016.indd

WORLD
EXPLORATION
TRENDS
2016
A Special Report from SNL Metals & Mining
for the PDAC International Convention
WORLD
EXPLORATION
TRENDS
Throughout 2015, deepening concern over
the global economy hammered the resources
sector. January 2016 started just as badly
when more than US$2,300 billion was wiped
off global stocks in the first full week. Despite
a robust jobs report in the U.S., investors
were spooked by China’s slowing economy,
depreciation of the renminbi and the collapsing
oil price, lowering the mining industry’s
aggregate market capitalization to levels not
seen since early 2009.
Results from SNL Metals & Mining’s 26th
edition of the Corporate Exploration Strategies
reports clearly show that the global exploration
sector has fared no better, with the mining
industry’s total budget for nonferrous
exploration falling 19% to $9.2 billion in
20151. With depressed metals prices and
weakening Chinese demand, combined with
strong metal production and high levels of
political turmoil, investors are shunning the
mining industry, leaving most explorers with
little option but to further curtail spending.
“
The PDAC is pleased to partner again
with SNL Metals & Mining in making
this special report on global exploration
and industry trends available to members
and Convention 2016 delegates.
During these challenging times, SNL
Metals & Mining’s services are key to
understanding global exploration trends,
which helps us to support our members
through the development of programs,
policy recommendations and advocacy.
Acknowledged as a leader in providing
comprehensive information, expertise
and analysis to the mining industry, SNL
is also the premier source for exploration
statistics worldwide.
Andrew Cheatle
Executive Director
PDAC
”
SNL Metals & Mining obtains the data used in the Corporate Exploration Strategies (CES) studies through the generous cooperation of the surveyed companies. The
individual nonferrous exploration budgets covered by the study include spending for gold, base metals, platinum group metals, diamonds, uranium, silver, rare earths,
potash/phosphate and many other hard-rock metals. They specifically exclude exploration budgets for iron ore, coal, aluminum, oil and gas, and many industrial minerals.
1
(All figures are reported in U.S. dollars; all historical exploration figures throughout this report represent dollars of the day and have not been adjusted for inflation.)
3
World Economy Precarious
Wall Street has an adage: “As goes January, so goes the
year.” Unfortunately, this January was extremely difficult for
global markets generally and for mining specifically. In the
first full week of 2016, the S&P 500 index fell 5%, despite
initially climbing on the announcement of a better-thanexpected extra 292,000 jobs in the U.S. during December.
The FTSE All-World Index lost 5.6% — the worst five-day
start to a year since the index was created in 1994, and the
worst week overall since 2011.
Nevertheless, Morgan Stanley signaled a “year of respite,”
saying it expected “only a modest abatement in China-led
commodity demand growth, not the capitulation that year-todate price performances imply.” However, Morgan Stanley’s
economists lowered China’s GDP growth outlook to 6.7%
and 6.6% for 2016 and 2017 respectively, with “risks tilted
to the downside.”
Speaking at the World Economic Forum in Davos in January,
Professor Kenneth Rogoff of Harvard University warned
that the world economy is precariously balanced between
continued recovery and a third leg of the global financial
crisis. International Monetary Fund chief economist Maurice
Obstfeld agreed, saying there is a “difficult adjustment
ahead in emerging markets.”
The markets took note and global equity markets were
routed, with the FTSE All-World index falling into “bear
market” territory on January 20 as oil prices slid below
US$27/bbl for the first time since 2003. Investors fled for
the safety of government bonds, and equities in the U.K.,
France and Japan fell to more than 20% below their 2015
high (the common definition of a bear market).
By the end of the Davos meeting Moody’s had formally put
120 energy companies and 55 mining companies “under
review.” It cited lower commodities prices due to China’s
economic slowdown for its decision, which focused on
energy companies following the 75% fall in oil prices since
the peak of US$115/bbl in mid-2014.
International equity prices recovered after the European
Central Bank signaled a new round of monetary stimulus.
ECB president Mario Draghi confirmed that more quantitative
easing is “on the table.”
Markets rose further at the end of January, helped by firmer
oil prices and the Bank of Japan’s surprise adoption of
negative interest rates. Nevertheless, by February the FTSE
All-World index was down 7% year-to-date.
The late January recovery was welcome after investors’
recent low valuation of the mining industry. Figure 5
on p.10 illustrates the industry’s amalgamated market
capitalization, which had fallen to US$874 billion by
the end of December (based on almost 2,600 listed
companies). The industry’s value nevertheless still fell
below $800 billion by the end of January. The January
performance is worrying, as the S&P Dow Jones index has
fallen for the rest of the year after a poor January in almost
three-quarters of the years since 1929.
Bear Markets
Société Générale analyst Albert Edwards, a notorious bear,
warned in January of “global deflation and recession.” He
predicts that U.S. stocks could lose almost three-quarters of
their value as an indirect result of “the failure of the Fed’s
quantitative easing.” He argues that investors will “reap
Five-Year Prices
Left scale:
Left scale:
Nickel (US$/t)
Aluminum (US$/t)
Right scale:
Gold (US$/oz)
3,200
Iron Ore (62% Fe, fines, CFR Tianjin; US$/t)
Copper (US$/t)
Right scale:
Zinc (US$/t)
36,500
220
11,000
180
9,200
140
7,400
100
5,600
60
3,800
2,200
26,000
1,200
15,500
5,000
Coal* (US$/t)
!
!
2011
!
2012
!
2013
!
2014
!
2015
200
20
!
!
2011
!
2012
!
2013
*Thermal; 6,000kcal/kg; 50mm; FOB Richards Bay
!
2014
!
2015
2,000
4
the whirlwind” of central bankers’ attempts to support their
economies with looser monetary policy.
Another Société Générale analyst, Robin Bhar, noted in
mid-January that the negative developments in the financial
markets were exacerbated by geopolitical tension. Bhar
expects worries over China and the emerging markets to
place severe pressure on base metals prices in the current
quarter. Further price weakness, he said, should provoke a
stronger supply response, eventually leading to a modest
recovery. Bhar expects prices to recover gradually over
the next two years, based on positive demand trends and
reserves depletion that would eventually return the markets
to deficit.
Given the existing project pipeline, base metals mine
production (with the exception of bauxite) is likely to
peak around 2018. Bhar predicts that “output would
then decline at an accelerating pace, unless higher prices
stimulate investments and incentivize output from highercost projects.”
World Bank View
At the end of January, the World Bank published its latest
Commodity Markets Outlook, in which it predicts a further
10% decline in metals prices this year due to “stubbornly
elevated” metals supplies.
The World Bank’s projections follow an 8% fall in metals
prices in the December quarter, which it blamed largely on
slower growth in China’s economy and an overall increase
in mined material. The Bank’s commodity price index fell
21% in 2015, ending the year 55% below the February
2011 high.
The World Bank expects iron ore to suffer the most. Prices
are slated to fall another 25% in 2016, and to sink further
if China’s economy slows more than anticipated and/or
production is higher than expected.
Copper is also expected to fall on projected weaker Chinese
construction and new supply coming online. For copper
prices to improve in 2016, more significant mines may need
to close, the World Bank said.
2015 Reviewed
Last year was tough on the seven major mined commodities.
Iron ore and nickel prices were around 40% lower over the
year; zinc, copper and coal fell more than 20%; aluminum
was down over 17% and even gold (traditionally a safe
haven) was down almost 10%, albeit as measured in the
strong U.S. dollar.
The end of the year was positive, however, for most mined
commodities — especially iron ore, which gained almost
11% over the last ten trading days. Iron ore closed the year
at almost US$43.6/t, compared with the December 11
low of US$38.3/t. The exceptions in the last week were
gold, down 0.7% at US$1,060/oz (for a 2015 average of
US$1,161/oz), and aluminum, down 1.8% at US$1,513/t.
The coal miners suffered more than most in 2015; the
Dow Jones Coal Index (of 235 companies) ended the year
79% lower than it started, with an aggregate market cap of
US$190.4 billion.
An article by Satyajit Das in the Financial Times argued that
2015’s price declines were exacerbated by the increasing
conversion of commodities into tradeable equivalents. Das
wrote “A Banquet of Consequences” (published in the U.S.
as “The Age of Stagnation”), wherein he notes that cash flow
from future metals sales has been monetized to raise debt
to finance expansion. The need to service this debt has kept
production levels artificially high.
Trade on the London Metal Exchange fell 4.3% in 2015 to
169.6 million lots, equivalent to 3,800 Mt, with a value of
US$11,900 billion. The LME’s owner, Hong Kong Exchanges
and Clearing Ltd., reported that 2015 trade in aluminum
contracts in fell 9.1% to 62.5 million lots, with contracts for
A-grade copper nearly flat year on year at 41.0 million lots.
Trade in tin slumped 30.7%, zinc fell 5.7% and lead slipped
0.9%, compared with 2014. In contrast, nickel trade jumped
6.9% to a record 20.7 million lots.
Mining saw one of its worst years in 2015, but it was a
record year for mergers and acquisitions. Deals for the year
exceeded US$4,600 billion, surpassing the previous M&A
peak of US$4,300 billion in 2007. Analysts explained the
surge as being driven by the hunger for growth, coupled with
cheap funding.
Reviewing 2015 in the Financial Times, Gavyn Davies
commented that although some major trends last year
were obvious in retrospect (weak oil prices, falling euro,
rising dollar, tumbling emerging currencies), many macro
investors failed to navigate the sharp reverses in time.
Davies noted the relative strength of global equities in 2015,
with local currencies returning about 2%. However, with
gains just under zero in U.S. dollar terms, the peaks of May
2015 were not re-attained.
Commodity prices plummeted almost one-third overall,
and eventually took credit markets down with them. The
falling prices also hit emerging markets (with the perplexing
exception of Chinese equities, the best-performing of the
major markets), which generally underperformed developedmarket assets.
5
The steep plunge in exploration budgets over the past few
years reflects increasing investor wariness of the entire
mining sector, which has made it difficult for most junior
companies to raise funds, and for producing companies
to justify intensive capital and exploration spending plans.
Throughout 2015, negative price outlooks further forced
producing companies’ hands, leading many to sell off assets,
shutter operations and focus on companywide cost savings.
SNL’s 2015 global exploration budget calculation was based
on information collected from more than 3,500 mining and
exploration companies worldwide, of which almost 1,800
had exploration budgets reported in the CES study. These
companies (each budgeting at least US$100,000) together
allocated US$8.77 billion for nonferrous exploration, which
SNL estimates covers 95% of worldwide commercially
oriented nonferrous exploration spending.
Although iron ore exploration remains outside the scope of
the CES, and is not included in the analysis throughout the
remainder of this report, SNL began coverage of iron ore
explorers in 2011 (surveying companies for their total ferrous
budgets beyond the core CES targets).
Including the allocations by a number of pure iron ore
producers and explorers that were not otherwise part of the
study, SNL compiled a total exploration budget of US$939
million for iron ore in 2015, down from US$1.44 billion
in 2014, US$1.74 billion in 2013 and US$2.89 billion in
2012. Aggregating the iron ore budgets with the budgets for
the other commodities covered by the CES, the total 2015
exploration budget rose to US$9.71 billion, of which almost
10% is attributable to iron ore.
World Exploration Trends
SNL’s estimate of annual nonferrous exploration allocations
since the early 1990s, relative to a weighted annual metals
price index, is shown in Figure 1. The graph indicates the
cyclical nature of exploration investment, and the correlation
between metals prices and exploration spending, typically
with a one-year lag.
Nonferrous Exploration Total
SNL Indexed Metals Price
5
$24
$20
4
$16
3
$12
2
$8
1
$4
$0
Indexed Metals Price (1993=1)
Mining companies responded to these market headwinds
with continued reductions in their exploration activities. The
result was an 19% decline in worldwide nonferrous metals
exploration budgets in 2015, compared with the previous
year. Combined with SNL Metals & Mining’s estimates of
budgets that it could not obtain, the mining industry’s total
budget for nonferrous metals exploration was US$9.2 billion
in 2015, less than half the record US$21.5 billion budgeted
in 2012.
Figure 1: Estimated Global Nonferrous Exploration Budgets, 1993-2015
Nonferrous Exploration (US$B)
Exploration Budgets Fall at Slower Pace
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
0
Through the early 1990s, the aggregate nonferrous
exploration budgets reported by included companies steadily
increased to peak at US$4.67 billion in 1997. As metals
prices slumped in the following years, a combination of
substantial cutbacks and mergers by the majors and a loss
of funding for a great number of juniors caused exploration
budgets to decline for five consecutive years, to a 12-year
low of US$1.77 billion in 2002 — an overall decline of more
than 62%.
The initial increase in worldwide exploration budgets from
2002’s low was due to a combination of higher gold prices
and rising investor interest that revived the junior sector,
increased spending by the majors as they recognized
the dearth of new projects moving up the pipeline and
significantly reduced consolidation at the top of the industry.
The emergence of China’s appetite for resources led to a
multiyear bull run that sent the worldwide exploration budget
total to a new high of US$13.75 billion in 2008 — an
almost eightfold increase from the bottom of the cycle six
years earlier.
The mining industry’s boom years came to an abrupt
halt in September 2008, as the world fell into the worst
economic downturn in decades. The resulting US$5.77
billion (42%) drop in exploration spending in 2009 from
2008’s high was the largest year-on-year decline, in both
dollar and percentage terms, since SNL began producing
the CES in 1989.
Most metals prices bottomed in early 2009, and the
industry recovered much more quickly than predicted. The
global economy improved markedly through 2009 and
2010, and with it metals prices, most of which traded well
above their long-term averages through 2011. In response,
6
most companies aggressively increased their exploration
budgets, lifting the industry’s budget total by 44% in 2010
to US$11.51 billion, and by a further 50% in 2011 to
US$17.25 billion.
US$70 million in exploration budgets in 2015. For the fourth
time in five years, China was in the top position with 32% of
total allocations. Gold replaced base metals as the region’s
top target, led by major allocations for China and Russia.
Marking a transformational year, 2012 began with most
metals prices at or near recent highs, relatively strong
investor interest in the mining sector and signs that the
industry was enjoying a return to the boom times of 200708. Exploration budgets increased 19% in 2012, setting a
new all-time high of US$20.53 billion. Beginning in April of
that year, investors became increasingly wary of the junior
sector, causing many companies to struggle to raise funds
for their ongoing programs and forcing them to cut actual
spending below their budgets for the year.
Africa remained in third place for a third year, attracting 14%
of worldwide budgets; with the largest percentage decrease
(30%) of all regions in 2015, the amount separating it from
the Rest of World category increased from US$336 million
in 2014 to US$480 million. Major African exploration
destinations included Democratic Republic of Congo (DRC),
South Africa, Burkina Faso, Zambia and Ghana. Allocations
for gold were down 27%, raising the metal’s share of overall
African budgets to 43% from 41%. Budgets for base metals
fell 39%, led by lower allocations for DRC.
Throughout 2013 and 2014, markets were even less willing
to support junior companies, and producers pulled back
on capital and exploration spending in order to strengthen
financial margins. As a result, the industry’s total exploration
budget fell to US$14.43 billion in 2013 and to US$10.74
billion in 2014, down almost 48% from the 2012 peak.
Canada remained in fourth place with about 14% of
worldwide allocations. Ontario accounted for one-quarter
of Canadian exploration budgets, followed by Quebec with
17%. Gold exploration was down by just US$87 million,
raising its share of total expenditure to just over 50% from
46%. Planned expenditures for base metals were down
26%, lowering their percentage of overall budgets to 17%
from about 19%.
Unfortunately, 2015 did not see the start of the meaningful
recovery that many had been hoping for. Despite five
interest-rate cuts since late 2014, and additional measures
designed to stabilize domestic markets or stimulate growth,
China’s economic slowdown has continued, dragging many
resource-based economies down with it. Given the uncertain
demand, virtually all metals prices were in full retreat
throughout 2015, ensuring that the downturn in exploration
continued. In 2015, companies lowered their budgets by
another 18% to US$8.77 billion, marking the first time
aggregate budgets had fallen below US$10 billion since the
2008-09 crash.
Regional Exploration
Exploration allocations for all regions declined in 2015,
with the greatest dollar reductions in Africa and Latin
America. Nevertheless, the latter remained the most popular
exploration destination, attracting 28% of global spending in
2015. Six countries — Chile, Peru, Mexico, Brazil, Colombia
and Argentina — accounted for the lion’s share of the
region’s total.
Gold reclaimed its position as the top Latin American
exploration target, with its share of overall budgets rising to
42% from 41% in 2014. The percentage allocated to base
metals decreased to 40% from 42%.
SNL’s Rest of World regional grouping (Europe and most
of Asia) had the second-largest aggregate budget, led by
allocations for China and Russia, and by two other countries
— Turkey and Kazakhstan — that each attracted more than
Australia was in fifth place, where it has been since 2004,
with a 2015 budget of US$1.07 billion and 12% of the
total. Its allocations are down 15% (the third-largest
decrease among the regions) from 2014, shrinking its
distance behind Canada from US$233 million to US$117
million. However, after factoring in iron ore budgets,
Australia continues to be the top destination by country.
Western Australia was again by far the most popular
Australian state for exploration, with 60% of the country’s
total. Gold remained the top exploration target, and with
allocations actually rising by US$400,000, its share of
overall spending was up to 48% from 41% in 2014.
Gold and copper exploration in the U.S. kept the country in
sixth place regionally, ahead of the Pacific Islands. The U.S.
had the smallest percentage decrease (6%) of all regions
in 2015, increasing the gap between it and the Pacific/
Southeast Asia region to US$288 million from US$162
million in 2014. Nevada had the largest share (about 42%)
of the country’s 2015 budget total, and three states —
Nevada, Arizona and Alaska — together accounted for 67%.
Gold remained the preferred exploration target; although
allocations dropped just 9%, the metal’s share of overall
U.S. budgets fell slightly to 58% from 60% in 2014. Base
metals allocations actually rose 5% year on year, increasing
their share of the total to 31% from 28%.
7
Map 1: Top Destinations for Nonferrous Exploration, 2015
5% Russia
Canada 14%
Europe 5%
United States 8%
Mexico 6%
China 6%
West Africa 5%
Other Latin America
Pacific
Ocean
FSU 1%
Atlantic
Ocean
7%
1%
3%
Peru 6%
DRC 2%
Brazil
Pacific/SE Asia 5%
East Africa
Indian
Ocean
Southern Africa 4%
Australia
Chile 7%
12%
Other locations account for 3%
Figure 2: Significant Exploration-Related Financings by Juniors, 2008-15
Base/Other Metals Financings
Significant Gold Results
SNL Indexed Metals Price
Significant Base/Other Metals Results
$1,000
150
$750
125
$500
100
$250
75
$0
50
2008
2009
2010
2011
2012
2013
2014
2015
Note: Exploration-related financings include financings by junior
companies of US$2 million or more, where the company indicated that all
or most of the proceeds were for exploration. Proceeds used primarily for
acquisitions, development or debt servicing/repayment are excluded. The
financing data only covers precious and base/other* metals, which account
for most of the exploration spending covered by the CES report.
*In this report and the Industry Monitor publication, silver and PGM
are included in the Base/Other Metals category to allow a clear
picture of the unique trends in gold exploration.
Total Financings for Exploration
200
$1,250
160
$1,000
120
$750
80
$500
40
$250
Amount Raised (US$M)
Amount Raised (US$M)
175
SNL Indexed Metals Price (May 2008=100)
$1,250
Number of Announcements
Gold Financings
Figure 3: Significant Gold and Base/Other Metals Drill Results, 2008-15
$0
0
2008
2009
2010
2011
2012
2013
2014
2015
Note: SNL Metals & Mining’s Monthly Industry Monitor tracks significant
precious and base/other metals drill results monthly from 2008 onward, as
reported in SNL’s online database. Significant drilling includes initial finds,
new zones or satellite deposits, and extensions to existing mineralization
– essentially any drilling that adds to the resource potential of a particular
project or deposit.
8
Rarely immune to the traditional boom-and-bust mining
cycle, junior companies continue to face considerable nearterm uncertainty, with the past decade chronicling the rise
and fall of the sector. A decade ago, junior companies were
well placed to benefit from China’s growing appetite, buoyed
by investors that were keen to capitalize on rising metals
prices. The juniors’ share of the global exploration budget
peaked in 2007 at 55%, before the 2008-09 financial
crisis lowered the group’s share to 40% in 2009. Market
conditions recovered much more quickly than most analysts
anticipated, allowing many juniors to secure strong support
from investors in 2010-11.
By the middle of 2012, however, investment in mining had
become increasingly scarce, forcing many juniors to curtail
programs in the last half of the year. No longer buoyed by a
rising gold price, the juniors’ access to capital continued to
evaporate in 2013, lowering the amount raised by the sector
for exploration to levels not seen for a decade. Despite a
modest increase in the funds raised through the first three
quarters of 2014, a dismal December quarter marked the
beginning of an extended drought in exploration financings
that has continued into 2016.
While many junior companies have been able to survive on
minimal funding, an increasing number have moved out of
the sector by leveraging opportunities in existing or emerging
non-mining industries. With any future upward shift in
market sentiment likely to be gradual and uneven, it could
be some time before the juniors derive any practical benefit.
SNL therefore projects a further decline in junior explorers’
aggregate budget total for 2016.
Drilling Steadies
Despite the troubles facing the junior sector, the number of
active projects with drilling activity has remained surprisingly
stable over the past two years, suggesting that some
As presented in SNL Metals & Mining’s quarterly State of
the Market report, exploration drilling by primary project
commodity has shifted since 2012, with the annual number
of active copper and gold projects falling by 23% and 31%
respectively in 2015 from 2012 levels — contributing to the
25% fall in the total number of active projects. Bucking the
trend, active drill programs at zinc-lead projects increased by
27%, while the number of nickel projects more than doubled
over the past four years.
Explorers have also shifted their geographic focus in recent
years. Whereas Canada and the United States led the
number of active projects at the peak of the cycle four
years ago, their number of active projects fell by more than
one-third by 2015; Latin America and Africa fared even
worse, with each region having about half the number of
drilled projects in 2015. Conversely, the number of drill
programs at Australian projects jumped by more than half
from 2012 to 2015, despite suggestions that the overall
number of meters drilled fell.
Figure 4: Initial Resource Values, 2008-15
Value of Initial Gold Resources
Value of Initial Base/Other Metals Resources
Number of Initial Resources
$125
50
$100
40
$75
30
$50
20
$25
10
$0
M J
S D M J
2008
S D M J
2009
S D M J
2010
S D M J
2011
S D M J
2012
S D M J
2013
S D M J
2014
S D
Number of Announcements
Efforts to ward off the junior sector’s collapse remain
robust, with various industry organizations pushing hard for
government and investor support. Canada’s PDAC continues
to lobby for a number of fiscal policy tools to help offset
the deficit of infrastructure in the country’s prospective
north, including new tax incentives and the creation of a
Northern Infrastructure Bank. Despite the 2014 adoption
of the Exploration Development Incentive, many Australian
juniors remain vulnerable to the lack of equity market
support, with the Association of Mining and Exploration
Companies advocating for improved State and Federal
initiatives designed to enhance access to exploration
opportunities and funding.
companies are capitalizing on lower drilling costs to continue
small programs at their most promising assets. In addition,
Figure 3 illustrates that the number of reported significant
drill results from this activity has also remained well above
the levels reported in 2008-09, despite a dearth of equity
financing. Regardless of this stability, SNL Metals & Mining
believes the continued lack of funding will translate into
lower exploration activity in 2016.
Value of Resources (US$B)
Juniors’ Struggle Reflects Market Reality
0
2015
Note: SNL’s Monthly Industry Monitor has tracked significant precious
and base/other metals initial resources monthly since 2008. The
database includes initial estimates for both new deposits and new zones.
For this graph, and in the Industry Monitor service, silver and PGM
results are included with the base/other metals to allow a clear picture of
the unique trends in gold exploration.
9
Map 2: Location of Significant Gold and Base/Other Metals Drill Results, 2015
Atlantic
Ocean
Pacific
Ocean
Indian
Ocean
Primary commodity
Copper
Gold
Lead and zinc
Nickel
As documented in CES, exploration budgets have been
shifting away from grassroots work since the 1990s, and
the current downturn has only amplified this trend. With risk
aversion now paramount, companies have been refocusing
their drill activities on existing or new operations to ensure
an adequate level of reserves. The continued decline in
investor funding for early-stage exploration is impacting the
industry’s medium- and long-term supply pipeline, which
will make it difficult for the sector to respond when demand
begins to rise.
Plunging Initial Resources
With exploration drilling at earlier-stage assets declining,
the disappointing number of initial resource announcements
comes as little surprise. As Figure 4 demonstrates, the
number and value of initial resources peaked in 2008 and
again in 2012; the steep decline after the 2008-09 financial
Platinum
Silver
Other
crisis has been surpassed by the low numbers of new
deposits announced over the past three years.
Persistent uncertainties, financing difficulties and cutbacks
on drill programs targeting new mineralization resulted in
the announcement of only 44 initial resources in 2015,
compared with 50 in 2014 and 168 in 2012. According
to SNL’s methodology, the value of 2015’s initial resource
announcements was US$103.2 billion, down 21% from
US$130.6 billion in 2014, which in turn was well short
of the US$366.5 billion valuation achieved in 2012. Map
5 illustrates the in-situ value and global distribution of
the 27 gold and 17 base/other metals initial resource
announcements in 2015, with gold projects in Canada and
a copper project in Russia (Malmyzh) accounting for almost
two-thirds of the total in situ value.
10
Figure 6: Project Milestone Announcements, 2008-15
Figure 5: Pipeline Activity Index and Industry Market Cap, 2008-15
Mining Industry Market Cap
Pipeline Activity Index (PAI)
Prd Decreases
New Prd Mines
SNL Indexed Metals Price
$2,750
SNL Indexed Metals Price
$2,500
160
$2,000
130
$1,500
100
Pre on Hold
New Pre Projects
Fea on Hold
New Fea Projects
175
$500
$0
40
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
2008
2009
2010
2011
2012
2013
2014
10
2015
Significant Project Milestones
SNL also monitors project “milestones.” Positive
developments include the opening of mines, favorable
project decisions and the initiation of feasibility studies.
Negative milestones include stalled feasibility work,
cancelled expansions and mine closures.
There were 54 positive milestones in 2015, compared
with 96 in 2014 and 389 in 2010. Despite fewer project
advancements in 2015, the dollar value of these positive
milestones rose slightly to US$1,334 billion, up from
US$1,245 billion in 2014 but down significantly from
US$8,959 billion in 2010. In 2015, there were a total of
44 negative milestones, valued at US$1,278 billion. This
compares with a total of 27 negative milestones in 2014,
valued at US$752 billion.
As shown in Figure 6, the industrywide pullback
from exploration spending has dramatically slowed or
postponed the positive advancement of many projects.
With the further production cuts expected throughout
2016, and the resulting decreased pressure to replace
reserves, SNL does not foresee much improvement in
project advancement efforts before 2017.
Pipeline Trends
SNL’s Pipeline Activity Index (PAI) is a valuable measure
of exploration and development activity in the international
mining industry. It incorporates data on the number of
projects where significant drill results have been announced,
initial resource statements, exploration financings and
positive project milestones. The PAI slumped in mid-2015 to
reach the year’s low of 41 in April — slightly better than the
all-time low of 40 in April 2014. The index rebounded to 69
in November 2015, but then fell off sharply in December to
end the year at 49 (see Figure 5).
In-situ Resource Value of Status Changes (US$B)
70
150
$1,750
$1,250
125
$750
$250
100
-$250
-$750
75
SNL Indexed Metals Price
$1,000
SNL Pipeline Activity Index and Indexed Metals Price
Aggregate Market Capitalization (US$B)
$2,250
-$1,250
-$1,750
M J S D M J S D M J S D M J S D M J S D M J S D M J S D M J S D
2008
2009
2010
2011
2012
2013
2014
50
2015
Figure 5 plots the PAI against SNL’s indexed metals price
and the market capitalization of listed companies in the
SNL Metals & Mining database. The number of qualified
companies decreased to 2,594 at the end of December, and
the industry’s total market valuation fell in each of the final
three months of 2015.
By the end of 2015, the mining industry had a total market
capitalization of US$874 billion, one-third less than at the
end of 2014 and down 64% from US$2,415 billion in April
2011. Of the latest valuation, 86% was contributed by the
largest 100 companies. As noted earlier, the industry’s
market standing suffered further setbacks in January, falling
below US$800 billion.
Looking Forward
A third consecutive year of industry doldrums has come
to a close, and early indications suggest that 2016 is
unlikely to reveal the light at the end of the tunnel. With
depressed metals prices, production exceeding demand
for most metals, high levels of international political
turmoil and a slowing Chinese economy, investors are
understandably wary of the mining industry, and indeed
of markets in general. As a result, SNL maintains a
moderately negative outlook for investment in exploration,
and does not expect exploration budgets to begin
rebounding before 2017.
Over the past three years, companies have significantly
restructured their operations and refined their strategies
to better align with poor economic forecasts and to
reassure their investors. Initially pushed to lower
spending and increase profit margins, many majors have
recently been forced to shrink their operations (including
their exploration departments) to address balance sheet
issues. The inevitable result is a slowdown in organic
11
Map 3: Location of Significant Gold and Base/Other Metals Initial Resources, 2015
Yukon Territory
Sweden
British Columbia
Russia
Ontario
Kyrgyzstan
Turkey
Nevada
Mexico
Pacific
Ocean
Mongolia
Atlantic
Ocean
West Africa
Philippines
Tanzania
Brazil
Peru
Indian
Ocean
Solomon Is.
Papua New Guinea
Queensland
Western Australia
Chile
New South Wales
Argentina
New Zealand
Sum of Total In-Situ Value (US$M)
Greater than 10,000
1,001 - 10,000
Less than or equal to 1,000
growth, leading to greenfields projects being sold or
placed on hold.
The prolonged period of poor financing opportunities for
the majority of junior explorers has forced them to slash
spending, renegotiate agreements or settle for unfavorable
terms, go temporarily dormant or leave the industry
altogether. When market sentiment eventually begins to
improve, the recovery will likely be tentative, offering little
promise of a quick restoration of the juniors’ fortunes.
SNL therefore projects a further decline in junior explorers’
aggregate budget total for 2016.
% Base/other metals
% Gold
Although the majors are likely to continue with highly
focused exploration programs on less risky brownfields
targets, SNL believes that some highly leveraged producers
will continue curtailing exploration budgets in 2016,
thereby lowering their category’s aggregate exploration
effort. Given these forecast scenarios and the current
general economic malaise, SNL projects a net decrease of
about 15% in corporate exploration budgets for 2016.
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