Overview of Trends in Canadian Mineral Exploration 2008

   

Indicators of Mineral Exploration and
Deposit Appraisal Activity in Canada

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Introduction

This chapter presents data and analysis on indicators of mineral exploration and deposit appraisal activity in Canada. Except where needed for comparing different data sets, it does not cover activities beyond the deposit appraisal stage, such as those related to mine development. The most important indicator is spending and, accordingly, most of the analysis focuses on expenditure trends and patterns. Chapter 1 also provides analysis on two other indicators of exploration and deposit appraisal activity: drilling and claim staking.

The federal-provincial/territorial Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures (the survey) provides a comprehensive breakdown of the mineral development cycle in Canada and is based on the Generalized Model of Resource Development.¹ For a better understanding of the survey and its definitions, the reader is invited to consult Section 1.2 and the Reporting Guide for the Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures.²

 

Summary of Survey Definitions

In the survey, often referred to as the federal-provincial/territorial survey of mining and exploration companies, the exploration work phase is defined as the search for, discovery, and first delineation of a previously unknown mineral deposit or the re-evaluation of a sub-marginal or neglected mineral deposit in order to enhance its potential economic interest based on more appropriate tonnage and grade characteristics. ³ This work phase is completed when a deposit has sufficient indicated mineral resources accompanied by a “preliminary economic assessment” (scoping study) that justifies additional, more detailed and costly deposit appraisal work. The expenditures include all field activities and support, including capital, repair and maintenance expenditures,⁴carried out on- or offmine- site.⁵

The deposit appraisal work phase is defined as the steps undertaken to bring a delineated deposit to the stage of detailed knowledge required for a bankable feasibility study that will justify and support a production decision and the investment required. The expenditures include all field activities and support, including capital, repair and maintenance expenditures,⁴carried out on- or off-mine site.⁵

Overall, the survey allows a detailed cost breakdown of total exploration and deposit appraisal expenditures into categories that include the traditional field work and overhead costs, but also include costs related to engineering, economic and feasibility studies, the environment, and land access.

Exploration and Deposit Appraisal Expenditures

Exploration and deposit appraisal expenditure levels usually provide a good indication of the current state of Canada’s mineral exploration sector and insight into the future of the country’s minerals and metals production capacity. However, when the economic context evolves as rapidly as was the case in 2008, the survey can show a lag in recording a sudden drop in activity because of timing considerations. Similarly, a rapidly improving economic outlook might not register immediately in the Preliminary and Spending Intentions compilation, but would instead be captured in the following data collection (Actual and Revised Spending Intentions). Notwithstanding these limitations, the survey continues to provide relevant information, both in current and historical terms, and will continue to be relied upon to monitor the health of Canada’s mineral exploration sector.

This section of the report contains an analysis of the 2007 and 2008 expenditure data.⁶ The data for 2007 are considered to be final. The data for 2008 were fi rst compiled between March and June 2008, and revised in December 2008. They will be fi nalized in 2009. This section also provides some coverage of the period 1997-2008. The analysis, fi gures, and tables presented in this chapter are, for the most part, denominated in current Canadian dollars. However, in order to keep an inflation-free perspective, some of the longer-term comparisons are also presented in terms of 2007 constant dollars (using the Gross Domestic Product defl ator series).

2007 Exploration and Deposit Appraisal Expenditures

Statistical Summary

In 2007, 842 companies (project operators) spent $2824 million ($2831 million when including prospectors) on mineral exploration and deposit appraisal in Canada (Figure 1 and Table 1). That number of companies represented a 9.6% increase from the 2006 total of 768 companies (expenditures of $1906 million) and a further increase from the low of 504 project operators that was recorded in 2000. A total of 417 companies (compared to 318 in 2006 and 231 in 2005) spent more than $1 million each in 2007; these companies’ expenditures accounted for 95% of the total expenditures for that year. Although projects receiving more than $1 million in spending usually account for 80% or more of total yearly expenditures, the upward trend in spending that continued unabated in 2007 has been marked by increasing investments on a per-project basis (notwithstanding inflation in exploration costs resulting from a limited availability of equipment and services).

After increasing by 46% between 2005 and 2006, exploration and deposit appraisal expenditures jumped by another 48% (+$919 million) between 2006 and 2007. All provinces and territories except Alberta contributed to this important increase (Figure 2 and Table 2). In dollar terms, Ontario (+$225 million), Québec (+$181 million), Nunavut (+$127 million), and British Columbia (+$126 million) recorded the largest increases over 2006. Ontario ($572 million), Québec ($476 million), British Columbia ($471 million), Nunavut ($338 million), and Saskatchewan ($314 million) all recorded spending above the $300 million mark. Together these five jurisdictions accounted for 77% of total spending in 2007.

Expenditures for off-mine-site exploration and deposit appraisal activity increased by 49% (to $2638 million) from the 2006 level of $1769 million (Figure 3a). In constant 2007 dollars, this was the seventh consecutive increase in off-mine-site spending (Figure 3b). Overall, 93% of all exploration and deposit appraisal expenditures in 2007 was for off-mine-site activity. The main component of off-mine-site spending, the off-mine-site exploration work phase, has been on a strong increasing trend since 2000. The top three jurisdictions in terms of 2007 off-mine-site exploration spending were Québec ($452 million), British Columbia ($452 million), and Ontario ($447 million). Together these three provinces accounted for just over half (51%) of total off-mine-site exploration spending in Canada for that year (Figure 4).

Once again, on-mine-site exploration and deposit appraisal spending failed to match the growing trend in off-mine-site expenditures. This type of spending amounted to $193 million in 2007. This total remains below the more robust on-mine-site spending that took place in 1997, the fi rst year of the current survey format, when this type of spending amounted to $211 million in constant 2007 dollars (Figure 3b). On-mine-site spending totals are based on a smaller number of projects and tend to fluctuate more widely as projects are dropped or moved to a later stage of the mineral resource development cycle (sometimes in a relatively short time frame). This has certainly been the case in this period of intense activity where more expenditures have been recorded in the mine complex development category (Table 3). Still, the apparent lack of effort for on-mine-site exploration and deposit appraisal in a period of strong metal prices underlines the seriousness of the issue of declining reserves (Table 4), which are still at relatively low levels despite some commodity-specific improvements in 2007.⁷

Ontario and Manitoba recorded the highest proportion of on-mine-site spending with 22% and 8%, respectively, of their total exploration and deposit appraisal expenditures. In dollar terms, the bulk of on-mine-site spending in Canada in 2007 occurred in Ontario with $125 million. Québec was a distant second with $25 million, and British Columbia and Manitoba recorded totals of $19 million and $9 million, respectively

Spending by Work Phase

A breakdown of spending by work phase (exploration and deposit appraisal) shows that expenditures dedicated to the exploration work phase grew again in 2007. This type of expenditure rose by another 51% to reach $2274 million (80% of total exploration and deposit appraisal spending for the year). Spending on the deposit appraisal work phase increased to $557 million, a 36% increase from the $408 million recorded in 2006 (Figures 5a and 5b, Table 3). Along with increasing deposit appraisal spending, other indicators (such as average spending per project and the types of work undertaken and described on survey questionnaires) point to a growing portion of exploration-phase work occurring close to the margin separating the exploration phase from the deposit appraisal phase.

Off-mine-site spending of $2141 million represented 94% of total spending in the exploration work phase in 2007 (Figure 3a). Over the period 1997-2007, off-mine-site spending has consistently represented over 85% of total exploration-phase expenditures (Figure 3b). In terms of deposit appraisal expenditures, approximately 90% of the $557 million recorded for off- and on-mine-site deposit appraisal activities in 2007 was reported as off-mine-site spending.

A provincial/territorial breakdown of exploration and deposit appraisal expenditures for 2007 reveals that all Canadian mining jurisdictions recorded greater spending on exploration-type work than they did for deposit appraisal activities (Figure 6). In Saskatchewan, New Brunswick, and Manitoba, virtually all of the work was reported as exploration-phase while Nova Scotia (41%) and Alberta (36%) reported the highest proportions of deposit appraisal spending.

In terms of ranking by total exploration expenditures, Ontario ranked fi rst with $424 million, followed by Québec ($412 million), British Columbia ($369 million), Saskatchewan ($305 million), and Nunavut ($238 million). Together these fi ve jurisdictions accounted for 77% of all explorationphase expenditures in Canada in 2007.

For deposit appraisal, the leaders in dollar terms were Ontario ($148 million), British Columbia ($102 million), Nunavut ($100 million), Québec ($65 million), and the Northwest Territories ($58 million).

Spending by Type of Activity

A detailed cost breakdown for each of the exploration and deposit appraisal work phases confi rms that drilling (surface and underground) is the most important cost component in the discovery and delineation of a mineral deposit (Figure 7). In 2007, surface and underground drilling (diamond drilling and other types of drilling) accounted for 53% ($1210 million) of the $2274 million spent on the exploration work phase. As can be expected, surface drilling accounted for the vast majority of exploration-related drilling activity with 95% of the $1210 million spent on such work. Geoscientifi c surveys (geology, geochemistry, and geophysics) represent the other important cost component in that work phase. In 2007, 27% ($619 million) of all exploration-phase spending was recorded under the geoscientifi c surveys cost category.

In the deposit appraisal phase, surface and underground drilling accounted for 22% ($123 million) of the total $557 million spent in 2007. The rock work category (28%, $153 million) and the engineering, economic, pre- and production feasibility studies category (22%, $122 million) are the other major cost components in that work phase.

Overall, surface and underground drilling accounted for 47% ($1334 million) of all exploration and deposit appraisal spending in 2007 while geoscientifi c surveys ranked second with 23% ($638 million).

Among the other cost categories included in the Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures, the categories of environment and land access can be of interest to various stakeholder groups, including non-governmental organizations, industry associations, and Aboriginal communities.

In 2007, a total of $90 million was reported by survey respondents as environment-related expenditures, which include costs incurred for characterization, permitting, protection, monitoring, and restoration. This total represents 3.2% of all exploration and deposit appraisal expenditures reported for that year. These environment-related expenditures were split approximately 60%-40% in favour of the deposit appraisal phase, a distribution refl ecting the increasing importance of such work in projects moving forward in the mineral development spectrum. For instance, environmentrelated costs (including capital, repair and maintenance) in the mine complex development category amounted to $164 million in 2007 (Table 3).

Similar to environmental costs, land access costs (which include costs incurred for impact and benefi ts agreements, socio-economic agreements, rights of way, damages, and permits, but do not include acquisition costs) only account for a small fraction of total exploration and deposit appraisal expenditures. In 2007, these costs represented only 0.4% ($11 million) of total exploration and deposit appraisal expenditures. However, land access costs can increase subtantially at the mine complex development stage and beyond as items such as impact and benefi ts agreements come into play.

Industry representations to obtain clarifi cation of the tax treatment for community consultation (land access) and environmental costs indicate that these two cost categories may in fact be more substantial than what has been reported in the survey. This issue was studied by a sub-working group on taxation of the Intergovernmental Working Group on the Mineral Industry (IGWG) on behalf of Canada’s Mines Ministers and addressed to industry’s satisfaction in a September 2007 letter to the Prospectors and Developers Association of Canada from the Canada Revenue Agency. Hence, for the purposes of this publication, the reader should be aware that both environmental and land access costs may be underestimated.

Spending by Type of Company

The analyses within this report often distinguish between senior and junior companies. In general terms, a senior company derives its income from mining or other business ventures and can direct part of that income towards its exploration and deposit appraisal projects. Junior companies, on the other hand, usually have no regular source of income and must fi nance their projects through the issuance of shares.

In 2007, 134 senior project operators accounted for 33% ($926 million) of all exploration and deposit appraisal expenditures in Canada (Figures 1 and 2). Almost 70% of total senior spending was allocated to exploration activities with the remaining 30% going to deposit appraisal work (Figure 5a). The distribution of senior project operators by range of spending was once again skewed towards the higher spending intervals in 2007 with 75 senior project operators recording expenditures above the $1 million level and 29 of these falling in the more than $10 million category (Table 1). In fact, these 29 senior project operators averaged spending of $25.4 million. Ontario and Nova Scotia were the only jurisdictions where senior expenditures surpassed junior ones. In Ontario, senior companies spent $312 million on exploration and deposit appraisal activities in 2007 (Figure 2).

The number of junior project operators reached 708 in 2007, a 9% increase from the 649 recorded in 2006 and a continuation of the increasing trend that began in 2001 (Figure 1 and Table 1). Altogether, these junior companies (along with prospectors) spent $1904 million on exploration and deposit appraisal in 2007, a strong 54% increase over the $1238 million they spent in 2006. This was yet another signifi cant improvement in junior company spending, a trait that has characterized this latest upward trend in total spending. Even when accounting for the time value of money, junior company exploration and deposit appraisal expenditures in 2007 were almost eleven times their 1999 value (Figure 5b).

Junior company expenditures amounted to an impressive $393 million in British Columbia in 2007. Large amounts of junior company spending were also recorded in Québec ($335 million), Ontario ($260 million), Nunavut ($237 million), and Saskatchewan ($228 million) (Figure 2). Together these fi ve jurisdictions accounted for three-quarters (76%) of all junior spending in Canada in 2007.

For that same year, junior company spending most frequently fell in the $1 million-$5 million spending interval (Table 1). In fact, with 244 projects in the $1 million-$5 million range, 62 in the $5 million-$10 million range, and 36 with spending of more than $10 million, junior companies were clearly managing the vast majority of the larger exploration and deposit appraisal projects in Canada.

The continued growth and strong performance of Canada’s junior mining sector coincided with exceptional market conditions across a broad range of commodities, the continued availability of federal and provincial/territorial incentives, and a receptive investment community providing the funds needed to sustain this intense period of activity.

Spending by Type of Commodity Sought

The federal-provincial/territorial survey provides a breakdown of exploration and deposit appraisal spending statistics by type of commodity sought. Figure 8a shows such a breakdown for the groups of commodities or individual commodities most explored for in Canada: precious metals, base metals, diamonds, uranium, and “others.”

As a result of declining prices, exploration and deposit appraisal spending for precious metals (mostly gold) decreased significantly between 1997 and 2001. In constant 2007 dollars, preciousmetals spending dropped from $508 million in 1997 to $196 million in 2001 (Figure 8b). For base metals, the downward trend was of an even longer duration. Starting with a 1997 total of $358 million (constant 2007 dollars), base-metal spending spiralled down to $154 million in 2003.

In 2002, precious-metals expenditures recovered somewhat by increasing to $248 million (constant 2007 dollars). As the result of an improving gold price outlook, precious-metals spending increased drastically in subsequent years to reach $357 million in 2003, $593 million in 2004, and $566 million in 2005 (all in constant 2007 dollars). Precious-metals spending increased to $747 million in 2006 and rose by a further 37% in 2007 to exceed the $1 billion threshold ($1025 million).

For base metals, a revamped exploration effort led to expenditures of $263 million in 2004, $321 million in 2005, and $425 million in 2006 (constant 2007 dollars). In response to the positive market outlook that prevailed at the time, base-metal exploration and deposit appraisal expenditures jumped by 68% to reach $711 million in 2007. As mentioned in previous editions of this report, Canada is facing a serious challenge in terms of declining base-metal reserves, and a renewed and sustained base-metal exploration effort will be needed to reverse that trend (Table 4).

The search for diamonds continued to generate significant investments in 2007 with another $322 million dedicated to the discovery of the precious gems. In constant 2007 dollar terms, this amount was second only to the 2006 total of $353 million, which was the highest total recorded since the current survey format was adopted in 1997. In the period 1997-2007, the relatively young Canadian diamond industry has allocated more than $2.3 billion to exploration and deposit appraisal activities. These investments have been the foundation upon which this $1.5-$2.1 billion/year industry was built, making Canada the third-ranked producer in the world (by value of diamonds produced since 2003).

After more than doubling from 2004 to 2005, uranium expenditures increased by 129% in 2006 to reach $220 million (constant 2007 dollars). Buoyed by soaring uranium spot prices and worldwide energy supply concerns, the search for uranium in Canada resulted in expenditures of $413 million in 2007. In addition to the well-known Athabasca Basin in Saskatchewan, a number of other uranium plays caught the interest of explorationists trying to take advantage of this favourable uranium market. Regions of interest included the Central Mineral Belt in Newfoundland and Labrador, the Otish mountains in Québec, the Elliot Lake region and Sibley Basin, both in Ontario, the Wernecke Mountains in the Yukon, and the Thelon, Baker, and Hornby basins in the Northwest Territories and Nunavut.

In the “other” category, strong showings by the ferrous metals (iron ore in Nunavut, Newfoundland and Labrador, and Québec) and coal (in British Columbia) pushed spending for that commodity group to a 2006 peak of $226 million (constant 2007 dollars). In 2007, this high was shattered by a significant 59% increase (to $359 million) that was fueled not only by continued interest in iron ore, but also by the increasing attractiveness of commodities such as molybdenum, antimony, tungsten, cobalt, and potash.

A regional breakdown of where exploration and deposit appraisal activity for these different commodity groups was taking place in 2007 is shown in Table 5. For precious metals, the leading jurisdictions in terms of spending were Ontario ($338 million), Québec ($232 million), and British Columbia ($181 million). Nunavut’s gold mining potential attracted a further $125 million in expenditures. Base-metal exploration and deposit appraisal work was concentrated in British Columbia ($164 million), Ontario ($162 million), and Québec ($112 million). As for diamonds, the Northwest Territories continued to be the main target ($123 million), but significant spending was also recorded in Saskatchewan ($85 million) and Nunavut ($56 million). As can be expected, the search for uranium was most intense in Saskatchewan ($182 million). However, Québec ($71 million), Newfoundland and Labrador ($69 million), and Nunavut ($44 million) also drew the attention of companies interested in this commodity’s future prospects. For the remaining commodities, special mention should be made of the $96 million spent in British Columbia for “other metals” (mainly molybdenum) and the $87 million spent in Nunavut for iron ore.

Table 6 combines information on both the types of companies conducting exploration and deposit appraisal activities and the types of commodities sought by these companies. In 2007, precious metals continued to be the favourite target of senior companies with total spending of $363 million ($131 million more than in 2006). Base metals were a clear second with expenditures of $291 million, an increase of $122 million over the previous year. During 2007, senior companies also increased their expenditures for the discovery of uranium to $83 million from $55 million in 2006. They spent $36 million less on diamonds, a situation that probably reflected the advanced stage of their projects rather than a weakening interest in new diamond discoveries.

Once again, junior companies clearly outspent senior companies by a significant margin for every single commodity group. In doing so, junior companies continued to show a preference for preciousmetals (mostly gold) exploration and deposit appraisal. Their steadily increasing expenditures on the search for gold and platinum group metals (PGM) reached $662 million in 2007, an increase of 35% over the $492 million recorded in 2006. Junior companies also substantially increased their spending on the other commodity groups. For example, junior companies increased their expenditures on the search for base metals from $243 million in 2006 to $421 million in 2007, on the search for uranium from $159 million to $330 million, on the search for diamonds from $203 million to $219 million, and on the “others” category from $141 million to $273 million. With these impressive numbers, junior companies continued to be at the forefront of this historic period of intense exploration activity in Canada.

2008 Exploration and Deposit Appraisal Expenditures

Statistical Summary

As explained in the opening paragraphs of this chapter, company spending intentions for 2008 were compiled between March and June of 2008 and were revised in December of the same year. While this approach yields more timely forecasts of exploration and deposit appraisal expenditures, it remains a less detailed survey exercise. For instance, data on spending by type of commodity and by type of work are not exhaustive enough in the 2008 revised spending intentions to be presented in this report. Rather, they will be available in the 2009 edition after results from the 2008 Actual survey have been released.

For 2008, revised company spending intentions reveal that 800 companies (project operators) intended to spend a record $3.1 billion ($3130 million) (Figures 1 and 2, Table 1). When prospectors and groups of prospectors are included, this total reaches $3133 million. The fi nal amount of exploration and deposit appraisal spending for 2008 will be confi rmed in the Actual survey that will be conducted in 2009. However, given the deterioration of economic conditions that took the world by storm in 2008, leading to drastically reduced demand for minerals and metals and, consequently, to much weaker commodity prices, it can be expected that the fi nal spending totals for 2008 will be lower than predicted in both the original and revised spending intentions compilations. In fact, the spending intentions forecast for 2009 (currently being compiled) is expected to highlight a clear break in the upward trend that had charaterized mineral exploration and deposit appraisal expenditures in Canada since 2001. Therefore, when reading the following analysis, the reader is reminded that survey respondents may not have been able to fully gauge the impact of such rapidly changing economic conditions on their exploration projects and connected fi nancing activities. In addition, the survey exercise itself, with its built-in time constraints, might not have fully captured the extent of the project operators’ reaction to this fast-paced erosion of the minerals and metals market outlook.

The total of 800 project operators represents a 5% decrease from the 842 (expenditures of $2831 million when including prospectors) recorded in 2007. With junior mining companies being hit particularly hard by the current economic crisis and the likelihood that its repercussions will linger for some time in the minds of potential investors, 2007 can probably be considered a peak year in terms of the number of projects being worked on in Canada. On average, companies were planning to spend $3.9 million per project in 2008, an amount equal to 3.5 times the 2003 level of $1.1 million. Part of this increasing-investment-per-project trend can be explained by higher exploration costs resulting from the intensifying use of equipment and resources. However, it has also taken place in an environment conditioned by strong metal prices, interesting exploration results, generous incentive levels, and mining-friendly capital markets. The timing and combination of these favourable conditions have provided a strong impetus for companies to invest in and move some of their projects as far along the mineral development spectrum as possible. Once the next recovery begins, these advanced projects will be among the fi rst to get renewed consideration as investors and lenders look for projects that are closer to production and revenue generation.

This commitment to serious exploration and deposit appraisal activity was again highlighted by the number of project operators with large exploration budgets. Revised company spending intentions indicate that a total of 461 companies (417 in 2007, 318 in 2006, 231 in 2005, and 187 in 2004) each intended to spend more than $1 million in 2008 (Table 1). These 461 companies expected to spend a total of $3020 million, or 96% of total intended expenditures for 2008. This $3020 million total also represents a 12% increase from the $2698 million spent on projects of $1 million or more in 2007.

Very large spending intentions (more than $10 million) used to be the appanage of senior companies. Starting in 2005, the two types of companies began to split almost equally the number of these large projects. In 2007, junior company project operators reported spending intentions of $10 million or more on 36 projects while senior companies managed 29 such projects. In 2008, the number of junior project operators anticipating spending more than $10 million on a project increased to 50. These junior companies intended to spend an average of $18.3 million on such projects. Senior companies with projects costing over $10 million in 2008 numbered 28 at an average investment of $32.4 million each. Once again, junior companies totally dominated the other spending categories. Overall, 669 junior company project operators intended to spend $1983 million ($3.0 million per project) versus 131 senior company project operators intending to spend $1147 million (for a much higher $8.8 million per project). Although senior companies did spend more per project, the intensive activity reported by the pool of junior company project operators, and its ultimate degree of success (in terms of discoveries and increased mineral resources), will play a crucial role in determining the future of mining in Canada.

As opposed to the previous two years when exploration and deposit appraisal expenditures were increasing in virtually every Canadian jurisdiction, only six provinces were expecting their total spending to rise in 2008. Between them these six jurisdictions were predicted to contribute an additional $414 million to the Canadian total. Ontario, with an increase of $166 million (for an astounding total of $738 million), was expected to lead the way. Signifi cant increases, in dollar terms, were also anticipated in Saskatchewan (+$102 million) and Québec (+$95 million) (Figure 2 and Table 2). Despite small decreases in 2008, some provinces/territories were expected to continue attracting considerable amounts of exploration and deposit appraisal spending. This is the case for Newfoundland and Labrador ($148 million), British Columbia ($467 million), the Yukon ($131 million), and Nunavut ($317 million). Of the six provinces/territories that were expected to see their total spending decline in 2008, the Northwest Territories is the most notable with a predicted decline of $65 million, or 34% less than the $194 million it received in 2007.

In Ontario and Québec, these high levels of spending were to be distributed among many projects targeting a number of commodities (e.g., precious metals, base metals, diamonds, and uranium) and also to be relatively well balanced between junior and senior companies. In British Columbia, where spending was also well distributed among projects and commodities, including coal and porphyry deposits (copper and molydenum), the junior mining sector was defi nitely predominant. Of course, Saskatchewan remained at the forefront of the search for uranium, but potash and diamonds were also factors there. The latter continued to attract some interest in the Northwest Territories, but also in other jurisdictions such as Nunavut where gold, base metals, iron ore, and uranium were also sought and where senior companies have taken an interest in some of the advanced projects (e.g., Australia’s Zinifex in the High Lake copper-zinc-silver-gold deposit, U.S.-based Newmont in the Hope Bay gold properties, and Agnico-Eagle in the Meadowbank gold project). Uranium has even been a factor in the exploration revival that has been taking place in the Yukon (where other non-traditional commodities such as tungsten and molybdenum have joined the more traditional gold, silver, zinc, and copper), and it has also been an important factor in Newfoundland and Labrador (along with iron and nickel in Labrador, and zinc, copper and gold on the Island) where exploration continues despite a three-year moratorium on uranium mining and development by the Nunatsiavut government to study the effects of uranium mining and to develop a land-use plan.

Revised company spending intentions indicate that off-mine-site exploration and deposit appraisal expenditures could reach almost $3 billion ($2923 million) in 2008. This 11% increase in offmine- site spending represents yet another segment of the growing trend that has characterized this type of expenditure since the mineral exploration sector started its recovery in 2003 (Figures 3a and 3b). Ontario (+$169 million), Saskatchewan (+$98 million), and Québec (+$82 million) are expected to experience the largest increases, in dollar terms, for that type of spending in 2008 (Figure 4).

Overall, off-mine-site spending is expected to account for 93% of total exploration and deposit appraisal expenditures in Canada in 2008. While this continued emphasis on off-mine-site exploration could lead to important new discoveries, resource upgrades, and the advancement of projects outside traditional mining camps, it does not help alleviate concerns about the depletion of ore reserves at producing mines nor does it indicate much immediate interest in fi nding new sources of ore on existing mine properties.

Ontario is once again expected to remain the undisputed leader amongst Canadian mining jurisdictions for on-mine-site exploration and deposit appraisal spending. The $122 million slated for on-mine-site work in that province in 2008 far outweighs the $38 million and $15 million that are respectively forecast for second- and third-ranked Québec and British Columbia.

Spending by Work Phase

Revised company spending intentions indicate that expenditures dedicated solely to exploration activities will increase by 8% in 2008 to reach $2456 million (Figures 5a and 5b). This amount represents 78% of total intended exploration and deposit appraisal expenditures for that year. Of this $2456 million total, $2325 million (95%) is expected to be spent off mine sites (Figure 3a).

As for deposit appraisal spending, it is expected to amount to $676 million in 2008. Of this total, $598 million (88%) will be incurred off mine sites and $78 million (12%) will be incurred on mine sites.

On a provincial/territorial basis, exploration-phase expenditures are once again expected to surpass deposit appraisal expenditures in every mining province/territory (Figure 9). In percentage terms, New Brunswick, Saskatchewan, and Alberta are expected to have all, or almost all, of their work recorded under the exploration category. The proportion of exploration work, out of total exploration and deposit appraisal spending, in other provinces/territories is also expected to be at least 80% in the Yukon, Newfoundland and Labrador, and Manitoba.

In terms of ranking by total exploration-phase expenditures, Ontario ($521 million) is expected to take the lead over Québec ($442 million), Saskatchewan ($392 million), and British Columbia ($352 million). Nunavut ($232 million), Newfoundland and Labrador ($130 million), Manitoba ($118 million), and the Yukon ($116 million) should also be the recipients of major explorationphase investments.

With a $69 million increase over 2007, Ontario is expected to lead the country in terms of deposit appraisal spending with spending intentions totaling $217 million. With an expected increase of $65 million, Québec should rank second with $129 million. British Columbia should claim third place with a forecast increase of $12 million that will take its 2008 deposit appraisal spending total to $114 million. The Northwest Territories, Nova Scotia, Ontario, and Nunavut are the provinces/ territories that show the most balance in their exploration/deposit appraisal portfolios.

Spending by Type of Company

Based on revised company spending intentions, a total of 131 senior project operators intended to spend $1147 million in 2008, accounting for 37% of all exploration and deposit appraisal expenditures for that year (Figures 1 and 2, and Table 1). Overall spending was expected to increase by 11%, going from $2831 million in 2007 to $3133 million in 2008. Senior spending should exceed that growth rate and rise by 24%, refl ecting the producers’ quest for additional resources and reserves to take advantage of what were, at the time of preparing their 2008 budgets, deemed to be favourable market conditions across a broad range of mineral commodities. Still, junior exploration spending is expected to exceed that of senior companies for the fi fth year in a row, a feat that only happened once before, in 1987, when the generous Mining Exploration Depletion Allowance combined with favourable metal prices to push junior exploration spending to record highs.

Based on revised company spending intentions, a total of 131 senior project operators intended to spend $1147 million in 2008, accounting for 37% of all exploration and deposit appraisal expenditures for that year (Figures 1 and 2, and Table 1). Overall spending was expected to increase by 11%, going from $2831 million in 2007 to $3133 million in 2008. Senior spending should exceed that growth rate and rise by 24%, refl ecting the producers’ quest for additional resources and reserves to take advantage of what were, at the time of preparing their 2008 budgets, deemed to be favourable market conditions across a broad range of mineral commodities. Still, junior exploration spending is expected to exceed that of senior companies for the fi fth year in a row, a feat that only happened once before, in 1987, when the generous Mining Exploration Depletion Allowance combined with favourable metal prices to push junior exploration spending to record highs.

About 64% of total spending by senior companies in 2008 is expected to be allocated to activities falling in the exploration work phase (Figures 5a and 5b). Hence, senior companies’ expenditures continue to be more balanced between exploration and deposit appraisal spending than those of junior companies. Over 80% (82%) of the expenditures intended by senior fi rms for 2008 were destined for Ontario ($337 million), Québec ($195 million), Saskatchewan ($149 million), Nunavut ($144 million), and British Columbia ($121 million) (Figure 2). The most important gains in senior spending were anticipated in Saskatchewan (+$63 million), Québec (+$51 million), Nunavut (+$44 million), and British Columbia (+$43 million).

Excluding prospectors, the number of junior project operators was expected to total 669 in 2008, compared to 708 in 2007 and 649 in 2006. Given the deteriorating economic context and the reliance of junior companies on stock markets to fund their activities, the number of junior project operators is likely to keep declining as fi rms are forced out of business or become dormant. Hence, the peak of 708 junior project operators recorded in 2007 will likely remain unchallenged until the outlook for minerals and metals improves radically (Figure 1 and Table 1).

Back in 2000, only 387 junior companies were recorded as project operators. Therefore, this is a sector that has really benefi ted from the favourable conditions that prevailed in recent years. In 2008, at the tail end of this positive period, junior companies were expected to spend $1983 million ($1986 million when including prospectors). This further increase of $82 million (4%) comes on the heels of eight successive years of growth and maintains, albeit weakly, the momentum created by gains (in 2007 constant dollars and including prospectors) of 44% in 2003, 105% in 2004, 29% in 2005, 51% in 2006, and 49% in 2007 (Figures 5a and 5b). Notwithstanding differences in surveying methodologies over the years, junior company spending is expected to be the highest ever recorded (in both current and constant 2007 dollars) in 2008, although Actual survey results (to be released in 2009) may bring the revised spending intentions total down and show that the peak in junior spending really occurred in 2007.

Contrary to previous years, this ninth consecutive increase in junior company spending will not be the result of a country-wide effort (Figure 2). The largest increases, in dollar terms, should occur in Ontario (+$141 million), Québec (+$42 million), and Saskatchewan (+$39 million). Signifi cant decreases are expected in Nunavut (-$65 million), the Northwest Territories (-$62 million), and British Columbia (-$47 million). In decreasing order of expenditures, Ontario (with an outstanding total of $401 million), Québec ($376 million), British Columbia ($345 million), and Saskatchewan ($267 million) as a group are expected to account for 70% of all junior company expenditures in Canada in 2008. Nunavut ($173 million), Newfoundland and Labrador ($113 million), and the Yukon ($106 million) should also boast strong levels of junior company expenditures while, proportionately, New Brunswick and Alberta will experience signifi cantly higher levels of junior spending.

When not counting projects under the $50 000 level, junior company project operators typically spent $100 000 to $500 000 in the early years of the latest upward trend (2000, 2001, and 2002). Over the years, junior company project operators with higher spending ($500 000 or more) became more prevalent as this sector picked up momentum (Table 1). This tendency continued all the way to the revised spending intentions survey of 2008 and translated into 375 junior company project operators unveiling their intentions to spend $1 million or more. In fact, for 2008, junior company project operators were expected to number 268 in the $1 million-$5 million interval, 57 in the $5 million-$10 million interval, and 50 in the more-than-$10 million interval. Overall, the 669 junior company project operators were expected to average $3 million in spending for a total injection of almost $2 billion in the Canadian mineral exploration sector in 2008.

Hence, junior company expenditures were poised to exceed those by senior companies for the fi fth year in a row in 2008. This strong performance is a testimony to these companies’ ability to rapidly mobilize resources in the presence of positive market outlooks for a number of mineral commodities, favourable fi nancing conditions, and government-provided measures to encourage grassroots-type (or off-mine-site) exploration. In this positive environment, junior companies were also able to benefi t from associations with senior companies to provide funds, knowledge, and expertise in the joint exploration or outright sale of promising properties.

However, at the time of writing this report, conditions had changed dramatically for the junior mining sector. The worldwide economic slowdown that began as a credit crisis has not only affected the demand for the very products explored for by junior companies, but it has also had a direct impact on their main source of funds, the stock markets. In fact, both equity and debt fi nancing are now much more diffi cult to access and this has caused the scaling down, postponement, or cancellation of a number of projects. Some of these projects were quite advanced and counted upon to become part of Canada’s next wave of mining producers. Faced with such a challenging environment, junior companies, especially those with little or no cash reserves, have no choice but to try to preserve their main assets (properties) until economic conditions improve. So far, strategies employed include: project termination, renegotiaton of option agreements, negotiation of jointventure agreements, strategic alliances with junior or senior partners, corporate cost-cutting measures (including salaries and personnel), delisting and becoming dormant, switching to less capital-intensive work while still moving projects forward, and attempting to raise equity capital despite a dilution of the shareholder base. Despite their best efforts, it is clear that a number of junior companies will not survive this downturn. Of the companies that do survive, the ones with quality projects will fare better as the providers of capital and equity become much more selective than before.

In this type of environment, government-provided incentives and assistance programs become even more important to the exploration and mining industry. In past editions of this report, the Regional Outlook section provided details on provincial/territorial incentives and programs. While no longer available in this report per se, the information on these tax and non-tax measures can still be found by consulting the various provincial/territorial web sites that are provided in the Regional Outlook section (Chapter 2) of this report. As for the federal Mining Exploration Tax Credit (also called the Investment Tax Credit for Exploration, or Super Flow-Through Shares), it was extended for another year in the January 27, 2009, budget. Hence, this 15% tax credit, which is linked to the use of fl ow-through shares, has been extended to March 31, 2010. Under existing tax rules, funds raised with this tax credit during the fi rst three months of 2010 will be able to support eligible exploration work until the end of 2011.

Spending by Type of Commodity Sought

Because complete statistics on commodities sought are collected in the Actual part of the survey rather than the Spending Intentions component, not all data on this type of spending are available yet for 2008. Still, revised spending intentions show that the precious metals category should once again have attracted the most exploration and deposit appraisal spending in 2008 (Figures 8a and 8b). However, the predicted precious metals total of $1107 million represents only an 8% increase over the $1025 million spent in 2007. Base metals were also expected to continue their progression with a forecast total of $883 million, a 24% increase over the $712 million spent in 2007. The “others” category, which includes ferrous metals, other metals and nonmetals, and coal, was also expected to experience a signifi cant increase, going from $359 million in 2007 to $446 million in 2008, also a 24% increase. The search for uranium, which has intensifi ed in recent years, was expected to remain strong with another $411 million in spending. Finally, diamonds, after all the developments of recent years, were expected to settle back to an expenditure total of $286 million, an 11% decrease from the $322 million spent in 2007. The effect of the economic downturn on 2008 actual spending and 2009 budgets for these commodity groups will be better understood in the next survey compilation, which will take place in the fi rst quarter of 2009 with the 2008 Preliminary Survey and 2009 Spending Intentions Survey.

Drilling

Drilling activities are an essential component of the mineral development cycle from the anomaly investigation stage to the deposit delineation and deposit definition stages. As such, drilling statistics constitute a valuable indicator of recent levels of Canadian mineral exploration and deposit appraisal activity.

Diamond drilling is the most widely used drilling method for determining the existence, location, extent, grade, and tonnage of a mineral deposit. This type of drilling figures in most of the following analysis although, in some cases, other types of drilling are also considered. The data are from the Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures and include all metres (m) drilled and expenditures reported by companies for their “own account” (drilling they did themselves) and for contracted drilling work. Data for 2008 will only be available once the Preliminary survey results are released in March 2009.

Drilling by Work Phase

According to the federal-provincial/territorial survey, a total of 6 589 000 m of surface and underground drilling (including diamond drilling and other drilling methods) were carried out for exploration and deposit appraisal purposes in Canada in 2007, compared to 5 323 000 m in 2006 (Tables 7 and 8). As a result, the 6 483 000 m recorded in 1987 were surpassed for the fi rst time in 20 years. Of the 6 589 000 m drilled in 2007, 6 351 000 m (96%) were accounted for by diamond drilling, up by 31% from the 4 849 000 m drilled in 2006.

Refl ecting the continued focus on grassroots and off-mine-site types of work, some 90% (5 922 000 m) of total drilling activity in 2007 was dedicated to the exploration phase while the remaining 10% (679 000 m) was dedicated to deposit appraisal work (Table 9). In terms of provincial/territorial rankings, Ontario (1 625 000 m) dominated exploration-phase drilling with 29% of the total metres drilled for that year while Québec (1 276 000 m) and British Columbia (1 016 000 m) combined for another 41% (Table 7). On the deposit appraisal side, Ontario (345 000 m), Québec (207 000 m), and British Columbia (94 000 m) accounted for 68% of all drilling in that work phase.

Drilling by Type of Company

After overtaking senior companies in 2005, junior companies continued to account for most of the surface and underground drilling (including diamond drilling and other drilling methods) in both 2006 and 2007. When both the exploration and deposit appraisal phases are added together, junior companies accounted for 59% (3 122 000 m) of the total 5 323 000 m drilled in 2006 and for 63% (4 168 000 m) of the 6 589 000 m drilled in 2007 (Table 9). In 2005, junior companies had accounted for 52% of total drilling.

The lead that junior companies enjoy in overall drilling (surface plus underground) can be explained by their higher overall spending, which is focused on surface activities. Hence, as can be expected, junior company drilling is conducted overwhelmingly from the surface. In 2007, 98% of their drilling was classifi ed as surface drilling and the vast majority of this was undertaken in the exploration phase.

By virtue of their ownership of underground mining operations, underground drilling continues to be associated mostly with senior companies. In 2007, senior companies accounted for 90% of the underground drilling in both work phases. In line with earlier years, surface drilling activity was more evenly distributed as junior companies accounted for 71% (4 088 000 m) of the total compared to 29% (1 703 000 m) for senior companies.

Drilling by Type of Commodity Sought

In terms of total surface and underground drilling (including diamond drilling and other drilling methods) by commodity group sought, Figure 10 shows that exploration and deposit appraisal drilling activities in Canada in the period 2003-07 were primarily aimed at the discovery of precious metals and base metals. In 2007, a total of 3 339 000 m were drilled in the search for precious metals, representing 51% of total exploration and deposit appraisal drilling. Of this total, 2 773 000 m (83%) were drilled from the surface. Drilling for base metals accounted for 29% (1 908 000 m) of total exploration and deposit appraisal drilling and, once again, surface drilling was more prevalent with 88% (1 680 000 m) of the drilling aimed at this commodity group. Among the other commodity groups, uranium and “other metals” stood out in 2007 with drilling totals of 655 000 m and 368 000 m, respectively.

As can be expected, surface drilling also accounted for most of the exploration and deposit appraisal drilling activity targeting commodities other than precious metals and base metals in 2007. In fact, it represented virtually all of the drilling conducted within these two phases of activity for the discovery of diamonds, uranium, nonmetals, coal, and iron.

Claim Staking

Claim staking is another useful indicator of exploration activity. It is particularly effi cient at rapidly highlighting emerging trends, such as the mid- and late-1990s exploration rush for diamonds and the uranium plays that have recently emerged in various regions of the country. Because claim staking usually happens at a relatively early stage of the exploration and deposit appraisal process, it also provides a good indication of current grassroots-type activities and a good insight into where future advanced (deposit appraisal) work could be focused.

Claim-staking rules and guidelines differ across Canada. In recent years, mineral tenure has evolved with the advent of Internet-based map staking and the granting of mineral rights to some Aboriginal groups who now administer their own regimes. Therefore, in order to ensure timeliness and accuracy of information on mineral tenure regulations in a particular Canadian jurisdiction, the reader is invited to contact the respective provincial/territorial mining recorder’s offi ce. Another useful source of information that summarizes the different mineral rights regimes found across Canada (i.e., ground vs. map staking; prospecting permits vs. claims; cost and size of claims, permits and leases; assessment work requirements; etc.) is the Provincial/Territorial Mining Rights Committee. This committee meets annually and maintains a number of summary tables on the administration ofmineral tenure in Canada. One portal where these tables can be viewed is the web site of the Ontario Ministry of Northern Development and Mines at http://www.mndm.gov.on.ca/en.

New Claims Staked

Just as for spending and drilling, which are the other two indicators of mineral exploration activity studied in this chapter, claim-staking activity also increased in 2007. The area of new mineral claims staked increased by 11% from 24.2 million hectares (Mha) to 26.9 Mha (Table 10). However, with the different claim-staking rules that apply across the country, it is diffi cult to look at claim-staking statistics in a national perpective. On a provincial/territorial basis, Nova Scotia (+114%), Québec (+112%), and Ontario (+70%) recorded the strongest proportional increases. In terms of actual hectares staked, 2007 data show that Québec (+2.56 Mha) recorded the largest increase, followed by Ontario (+0.75 Mha), Newfoundland and Labrador (+0.54 Mha), and British Columbia (+0.54 Mha).

Claims in Good Standing

In terms of area occupied by claims in good standing at the end of 2007, British Columbia (14.1 Mha), Saskatchewan (13.3 Mha), Alberta (11.4 Mha), and Québec (11.3 Mha) were the national leaders in a year that saw a 17% rise in the Canadian total (Table 11). This 17% increase was preceded by gains of 18% in 2006 and 38% in 2005, and by three years of stability before that when approximately 4.1% of Canada’s total landmass was occupied by such claims, compared to 7.9% in 2007. The increasing area of claims in good standing in Canada indicates that some of the increased spending recorded in 2005, 2006, and 2007 has been incurred on new ground and that exploration and mining companies have decided that their new properties warrant further investigation. At the start of 2008, it would have been diffi cult to assert that a consolidation of claims in good standing was in the offi ng, but this is now a real possibility given the impact of the negative economic outlook on the mineral exploration sector.

Short-term Outlook for Exploration and Deposit Appraisal Spending in Canada

The analysis of three key indicators (drilling, claim staking, and particularly spending) leads to the conclusion that Canada was in the midst of a record-setting period in its mineral exploration history before worldwide economic conditions took a turn for the worse. While the data still point to strong performances in terms of exploration and deposit appraisal spending in 2007 ($2.8 billion) and 2008 ($3.1 billion), the downturn happened so fast that companies, and by extension the survey itself, did not fully grasp its impact on their plans and projects. As a result, the 2008 totals are probably overestimated and the upcoming 2009 survey results will likely show a clear break from the upward trend that has prevailed over the last eight years.

During that period of growth, the focus was placed on off-mine-site and exploration-phase spending, both inside and outside traditional mining camps. Exploration and deposit appraisal activities were also widely distributed among various regions and mineral commodity targets, especially in the latter years when prices rose across a broad range of products. Throughout this period, junior mining companies played a leading role, reaching record levels of activity, and took on a lot of the risk and responsibility for shaping the future of Canada’s mining industry.

As the 2009 field season approaches, both junior and senior companies face an uncertain economic environment that may become one of their greatest challenges ever. Low demand for minerals and metals, debt-laden balance sheets, risk-averse equity markets, reduced debt availability, higher credit costs, and overall economic insecurity are some of the issues that these companies will have to contend with. For Canada not to suffer a lag in its mining projects pipeline, it is important that the owners of the most promising projects survive and forge ahead in anticipation of an eventual economic recovery.

   

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