Overview of Trends in Canadian Mineral Exploration 2008
Appendix
Historical Exploration and
Deposit Appraisal Statistics
Introduction
This Appendix contains data and analyses that are based on pre-1997 survey definitions when only field and overhead costs were considered. While more restricted by this measure of exploration and deposit appraisal activity, the data are available over a much longer time period. The resulting time series provides useful statistics for studying historical trends in Canadian mineral exploration spending.
Historical Summary
Figure 16 depicts Canadian exploration and deposit appraisal expenditures (field and overhead costs only) in constant 2007 dollars over the period 1973-2007. Above-normal expenditures in the 1980-82 period resulted from high prices for gold, silver, and copper over much of that period. Spending declined somewhat in 1983, but generally rose from 1984 to 1988 as a result of the introduction by the federal government, in 1983, of the Mining Exploration Depletion Allowance (MEDA). MEDA was replaced in 1989 and 1990 by the Canadian Exploration Incentive Program (CEIP). By 1987 and 1988, expenditures had reached unprecedented high levels because of MEDA and the high gold prices that had prevailed until the end of 1987. However, spending fell dramatically after 1988 and decreased until 1992 when it reached its lowest inflation-adjusted level since 1966.
Activity picked up gradually in the 1993-96 period. Expenditures increased by 118% from 1992 to 1996, and the 1996 level of $1137 million (2007 dollars) was the highest since 1989. Although exploration and deposit appraisal spending declined to $1029 million (2007 dollars) in 1997, it still remained relatively strong by historical standards. However, spending dropped significantly in 1998 to $726 million (2007 dollars), a 29% decline from 1997. After another 25% decline, the 1999 total of $543 million (2007 dollars) represented the second-lowest total in almost the past four decades. The recovery began almost imperceptibly in 2000 when field and overhead spending increased by $2 million and gathered a little momentum in 2001 when spending reached $553 million (2007 dollars). Data on field and overhead spending for the period 2002-07 show an acceleration of the upward trend as field and overhead spending, buoyed by strong metal prices, eventually reached successive record levels of $1722 million in 2006 and $2521 million in 2007.
The relatively higher expenditure levels that were recorded from 1993 to 1997 resulted, to a large extent, from important discoveries of diamonds in Canada’s North and nickel-copper-cobalt in Labrador. A combination of factors took over after 1997 to bring Canadian mineral exploration and deposit appraisal activity to dangerously low levels where both the resilience of the Canadian junior mining sector and the ore reserve sustainability of a number of mineral producers were tested. Metal prices constituted the primary factor behind this slide as generally low demand for metals was exacerbated by worldwide economic events (i.e., the Asian financial crisis and the September 2001 terrorist attacks in the United States) and by corporate scandals (e.g., the Bre-X affair).
In this generally negative context, the introduction of exploration tax credits and other measures by the federal government and some provincial/territorial governments was welcome news and contributed, along with a rapidly improving metals price outlook across a broad range of commodities, to the recent recovery and effervescence in the Canadian mineral exploration sector. At the end of 2007, the outlook was still favourable for exploration and deposit appraisal activities despite increasing signs of economic turmoil in the near future.
Metal Prices and Exploration and Deposit Appraisal Levels
Under normal circumstances, metal prices are the most important factor influencing the level of exploration and deposit appraisal activity. In early 1995, metal prices embarked on a generally downward trend, as reflected by Natural Resources Canada’s Monthly Metals Price Index (based on the prices of copper, nickel, lead, zinc, silver, and gold), that lasted until mid-1999 (Figure 17). The index then recovered for about a year before heading downward again and bottoming out in October 2001 following the September 2001 terrorist attacks in the United States and amid generally low metal prices. The recovery that began afterwards picked up considerable steam in the second half of 2003 and continued towards new heights in 2004 and 2005. In 2006, the Monthly Metals Price Index really took off, reaching an historical high in December. Successive new highs were established in the first four months of 2007 and, in May 2007, NRCan’s Monthly Metals Price Index was six times as high as it was in October 2001.
As outlined in previous editions of this report, there is a relationship between the level of spending in a particular year and metal prices in earlier years. The decreasing trend in metal prices that began in 1995 was not reflected in spending levels before 1997, partly because of that relationship and partly because of expenditures on the search for diamonds, which added an element of stability to exploration and deposit appraisal levels. When excluding diamonds, expenditures (field and overhead costs only) peaked in 1996, started declining in 1997, fell even more in 1998 and 1999, were mostly stable but low in the 2000-2002 period, and began to recover in 2003. They exploded in 2004 after the price outlook really showed signs of improving in the second half of 2003 and continued to improve greatly as prices continued to head higher and higher, pulling exploration spending towards the records discussed in this report. This relationship outlines the importance of improving metal prices in enticing higher exploration and deposit appraisal spending levels and, based on current metal markets, points to a negative short-term outlook.
Exploration and Deposit Appraisal Expenditures by Junior Companies
As shown in Figure 16, junior companies have traditionally played an important role in Canadian mineral exploration and deposit appraisal activity. However, their contribution really expanded in 1984, a year after the introduction of MEDA, when their spending accounted for almost 24% of total exploration and deposit appraisal expenditures (field work and overhead). That proportion had more than doubled by 1987 when junior companies accounted for $1064 million (2007 dollars), or 51% of the total of over $2.0 billion (2007 dollars) spent during that year. Junior spending was also very important in 1988 with almost 50% ($1018 million) of total expenditures. Their proportion of total spending then started to gradually decrease until it reached 21% in 1992.
The levels of spending recorded by junior companies in the 1986-88 period are even more impressive when taking into account the fact that, during that period, considerable contributions were made by junior companies to joint-venture projects operated by senior companies. In the survey, these contributions were counted as part of senior companies’ spending, thus overstating senior expenditures and understating junior expenditures.
On a yearly basis, junior spending accounted for approximately 30% of total expenditures (field work and overhead only) over the period 1993-2000. The discovery of diamonds in Canada’s North and nickel-copper-cobalt at Voisey’s Bay were the two most important positive factors affecting junior spending during those years. Low metal prices, a slowing world economy, and difficulties in raising financing explain the more difficult years. The introduction of the federal Investment Tax Credit for Exploration (ITCE) in October 2000 and related provincial tax credits, around that time and subsequently, were favourable to junior mining companies as their expenditures started to recover faster than those of senior companies. This recovery in junior spending was strong enough to increase their share of total spending (field and overhead costs) to almost 44% in 2003. The momentum continued to build in 2004 as junior mining companies accounted for 53% of all spending, the first time since 1987 (and only the second time in the history of Canadian mineral exploration statistics) that junior spending exceeded that of senior companies. Buoyed by strong metal prices and the eagerness of financial markets to fund mineral exploration activity, junior companies’ spending continued to surge at a much faster pace than the expenditures of senior companies in 2005 and 2006. As a result, junior company field and overhead spending represented 60% of total spending in 2005 and 64% in 2006. The proportion of junior company spending continued to increase in 2007 as they accounted for 68% of total field and overhead expenditures. While the 2008 totals for field and overhead expenditures are not yet available, they will most probably show that junior companies continued to dominate the Canadian exploration scene.
Exploration and Deposit Appraisal Expenditures by Province and Territory
Tables 13 and 14 show exploration and deposit appraisal expenditures (field and overhead costs only) by province and territory in terms of current dollars and 2007 constant dollars. Both tables cover the period 1993-2007, which includes the exciting discoveries of 1993 and 1994, the ensuing increase in spending up to 1996, the downward trend that brought exploration and deposit appraisal spending down to an almost historical low in 1999, and the latest upward trend that began so slowly in 2000 and has taken expenditures to record levels in 2007.