GLOBAL MINING EXPLORATION TO HIT US$5.1B

CONSULTANT’S OUTLOOK Strong base metals prices fuel biggest spending rise since ’ 97

Spending on mineral exploration this year has risen 38% from 2004, almost equalling the record set in 1997.

Metals Economics Group, based in Halifax, collected exploration budget data from more than 1,400 mining companies around the world. The group concludes that exploration budgets will hit US$5.1-billion this year, the highest they have been since a peak of US$5.2-billion in 1997.

Global exploration spending bottomed at an estimated US$1.9-billion in 2002, just after metal prices hit rock bottom. Budgets climbed in each of the past three years.

The spending boom is clearly tied to strong prices for base metals such copper, zinc and nickel.

Copper exploration increased substantially, the group said. But zinc exploration is the biggest gainer, rising 90% year-over-year. Nickel exploration budgets have also posted a dramatic gain, rising 65% from a year ago.

Toronto-based Inco Ltd., the world’s second-largest nickel producer, is spending US$40-million on exploration this year, up 25% from US$32-million in 2004. Vancouver-based Teck Cominco Ltd. is spending US$45-million, up 7% from US$42-million in 2004.

The price of copper reached arecord high of US$1.71 a pound on the London Metal Exchange (LME) yesterday. The price of zinc — US65¢ a pound— is roughly double what it was in the fall of 2001, when metal prices bottomed. Nickel, which was selling for US$6.17 a pound, is more than triple what it was four years ago.

Hot commodity prices inspired miners to increase exploration spending this year by 38% from last year’s tally of $3.8- billion. The high metal prices are putting pressure on miners to speed up the development of new mines. For the first time since the group started producing its annual exploration report in 1989, spending on advanced-stage projects has exceeded the spending on new, “grassroots” exploration projects.

“Late-stage exploration has become increasingly important in the current exploration cycle, as juniors prepare projects for joint-venture or acquisition, and miners push to bring projects to production in order to take advantage of historically high metals prices,” Metals Economics Group said.

Late-stage exploration is more costly because it involves a dramatic increase in the amount of drilling done on the property. This extra drilling boosts the amount of information that is known about the deposit.

Independent consultants are brought in to study the drilling data and produce detailed estimates on the size and commercial value of the deposit. For junior miners, such late-stage exploration work increases the chance they will find new investors and lenders to finance construction of the mine.

Measured by country, Canada remains the top destination for exploration dollars, followed by Australia. Regionally, Latin America remains a favourite destination, followed by Canada, then Africa.

Despite the boom in base metals exploration, gold prospecting remains popular. Indeed, around the world, more money continues to be spent on hunting for gold than for base metals.

Gold has risen 13% since July due to concerns higher oil prices might fuel inflation. Gold closed yesterday at US$467 an ounce, down US$2.40. Still, if oil prices remain high, many analysts expect gold to pass through US$500 by 2006.

Toronto-based Barrick Gold Corp. is spending US$120-million on exploration this year, an increase of 26% from US$95-million 2004. Vancouver-based Placer Dome Ltd. is boosting its exploration to US$90-million this year, up 20% from US$75-million in 2004.

Financial Post

dhasselback@ nationalpost. com