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Exploration decline is changing market for resource estimators

Posted by: Admin | Posted on: July 24th, 2014 | 0 Comments

A steady decline in exploration since 2012 is proving to be a dual-edged sword for the mining industry as the availability of investment capital contracts and becomes increasingly concentrated in efforts to develop higher-quality assets.

Australian Bureau of Statistics (ABS) data showed exploration expenditure had declined by more than A$500 million (US$470 million), representing a drop of more than 50%, in the two years since March 2012.

A survey by resource consulting firm CSA Global showed mineral resource estimate (MRE) releases to the Australian Stock Exchange (ASX) showed a corresponding decline between November 2012, when 40 MREs were released, to May 2014 when just 15 estimates were presented to the market.

A survey by accounting firm BDO reported 10% of companies that made up Australia’s 800-strong junior-exploration sector had stopped drilling in the March quarter of 2014, up from 7% in the June quarter of 2013.

CSA Global director of Australian operations, Aaron Green said the trend was primarily the result of a lack of funding available at the junior end of the market and, as a result, some companies had started to focus on alternative market sectors such as technology and agriculture. However, while many exploration entities would continue to face challenges in the near term, the BDO survey revealed continued investment support for explorers with high-quality assets and the capabilities to develop and realise the potential of those assets.

Green said the decline in exploration activity had also resulted in a significant number of experienced and talented resource geologists entering the consultancy market or becoming available to replace consultants as full-time employees within junior mining companies.

“We’ve seen many of our competitors’ resource and geological teams drop by 50-to-75% … and in some cases they don’t exist anymore,” Green said. But CSA Global saw opportunity where others were seeing only gloom. “We’ve taken the position that we want to up-skill during this period because there are some really good people available and we have to maintain a critical mass so we’re able to provide the best service when opportunities do come along.

“It’s a very difficult balancing act right now,” he said.

Green said the trend on the ASX over the past few years was mirrored on London’s Alternative Investment Market (AIM) and he expected an upcoming survey of the Toronto Stock Exchange (TSX) exchange to show a similar trend.

However, unlike the ASX or AIM, the bulk of the MREs on the TSX were completed by an independent qualified person. In contrast to this, 22% of the MRE releases to the ASX and AIM were reported ‘internally’ by resource companies while fewer than 30% were signed off by an independent consultancy such as CSA Global.

“We’re very proud of our position as the one of the leading providers of independent competent-person sign-off on both of those markets but we have to continue to develop our capabilities to remain competitive in this market,” Green said.

Nationally in Australia, expenditure on minerals exploration fell by a seasonally-adjusted A$48.9 million (-9.2%) over the March quarter. The median spend on exploration activity has fallen 27% from $245,000 in the December quarter to $178,000 in the March quarter. This represents the largest decrease in exploration expenditure since BDO started examining these trends.

Gold, at 28%, was the commodity for which exploration was most reported, followed by coal and iron (including magnetite), each at 15% and copper-plus-other, 11% and uranium at 5%.

Raw data, unadjusted for seasonal variations, showed iron ore exploration expenditure fell by $69 million (-38%), gold exploration expenditure fell by $35 million (-30%), and selected base metals exploration expenditure fell by $12 million (-16%). “All others” fell by $19 million (-29%), and coal by $5 million (-4%).

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