INFORMATION BULLETIN, MARCH 2013
Continued Focus on Advanced Projects Tempers Weaker Exploration Spending
In 2012, exploration and deposit appraisal expenditures(1) in Canada slowed to $3.9 billion from the record level of $4.2 billion in 2011. Expenditures are expected to decline by a further 14% to $3.3 billion in 2013, well above the cyclical low of $1.9 billion in 2009 and the 2010 level of $2.8 billion.
The record level of $4.2 billion in 2011 included $2.9 billion dedicated to exploration and $1.4 billion to deposit appraisal. In 2012, a drop in exploration expenditures to $2.2 billion was partly offset by an increase in expenditures for deposit appraisal activities to advance projects toward a production decision, which reached a record level of $1.6 billion. Expenditures for deposit appraisal are also expected to be $1.6 billion in 2013, while anticipated exploration expenditures of $1.8 billion will reverse most of the gain since 2010 due to restricted availability of funding for early-stage work. Exploration and deposit appraisal are trending upwards at existing mine sites, but about 90% of expenditures are incurred off-mine-site (Figure 1).
A strong cohort of projects, from the start of a pre-feasibility study to a production commitment, will sustain total spending above the $3 billion level in 2013. There have been over 100 of these advanced projects since 2011. Projects entering deposit appraisal require large budgets for costly technical studies. An indication of company success in marshalling the required resources is the large number of companies that spent, or intend to spend, $10 million or more for exploration and deposit appraisal. Over 80 companies have indicated an intention to do so in 2013, a level that should support healthy levels of capital investment when market fundamentals are more positive. Total spending by these project operators will decline somewhat, but will represent around 70% of total expenditures in 2013, while total spending by companies that spend less than $10 million will be similar to 2012 and will represent a higher proportion of total expenditures than in 2012 (Figure 2).
Junior and Senior Companies(2)
Canada is known for its large contingent of junior mining companies, which were instrumental in driving increased investment in exploration and deposit appraisal between 2004 and 2008 (Figure 3). Expenditures by junior companies reached $2.1 billion in 2008 and represented 65% of total expenditures. A lack of operating cash flow makes such companies dependent on equity financing and leaves them more exposed than senior companies to deteriorating financial and economic conditions, as illustrated by a sharp decline in 2009 expenditures. Spurred by metal price increases, more optimistic outlooks, and higher valuations, junior companies recovered rapidly and recorded expenditures of $2.0 billion in 2011 (49% of the total). Reduced spending by junior companies accounted for most of the reduction in total expenditures between 2011 and 2012. Spending by junior companies was $1.7 billion in 2012 (44% of the total). This trend is likely to continue in 2013 when expenditures by junior companies are expected to be $1.5 billion (46% of the total).
Senior companies with stronger balance sheets and greater financial flexibility invested around $2 billion in each of 2011 and 2012. The acquisition of flagship advanced projects or of interests in such projects has also contributed to an increase in their share of total exploration and deposit appraisal spending. Expenditures by senior companies are expected to decline slightly to about $1.8 billion in 2013, but will continue to account for the majority of total exploration and deposit appraisal expenditures. This healthy level of investment is concentrated on advanced projects with better prospects of entering production over the short-to-medium term. More advanced projects present the most promising opportunities for job creation and economic development as global economic growth increases.
Provinces and Territories
After the sharp downturn of 2009, expenditures increased significantly in both 2010 and 2011. For the latter year, record levels of spending were recorded in a number of jurisdictions, including Ontario, which broke through the $1 billion threshold (Figure 4). The subsequent expenditure decline reveals different trends across jurisdictions.
In 2012, declines were recorded in all jurisdictions except British Columbia, Saskatchewan, Newfoundland and Labrador, and the Northwest Territories (largest to smallest increase). Together they accounted for a total increase of $220 million. Decreases totaling $418 million in Ontario, Quebec, and the Yukon more than offset these gains.
In 2013, further decreases are expected in all jurisdictions except New Brunswick, Saskatchewan, Nova Scotia, and Quebec. With an expected total of $47 million, New Brunswick could achieve a record level of expenditures.
Despite a forecast decline from 2012 to 2013, Ontario is expected to rank first in mineral exploration and deposit appraisal expenditures, followed by Quebec and British Columbia. British Columbia ranked second in 2012, but is expected to slip due to reduced spending.
Mineral and metal prices are a key driver of exploration and deposit appraisal expenditures, as shown by the relationship between spending and the Natural Resources Canada (NRCan) Metals Price Index (Figure 3).(3) Strong prices across a range of commodities have supported two previous peaks in expenditures, while the high price of gold continues to sustain a significant share of current activity. With the price of gold now hovering around US$1600 per ounce, the precious metals commodity group, with almost half of total spending, is expected to remain the leading target in 2013 (Figure 5). The base metals group, at 17% of total spending, will continue to rank a distant second.
Spending for each commodity group decreased between 2011 and 2012, except for coal and nonmetals (mainly potash), which reached record levels of spending in 2012 of $237 million and $299 million, respectively. For 2013, the other metals category is the only category expected to see a small increase in spending following a $50 million decrease in 2012.
Precious metals (mainly gold) remain by far the most important commodity group in terms of dollars spent, but are expected to account for $312 million of a $527 million decrease in total spending for 2013. Jurisdictions most affected by an anticipated decrease in gold exploration and deposit appraisal are Ontario and the Yukon, which should account for a combined 60% of the decrease in precious metals spending.
Figure 1. Exploration and Deposit Appraisal Expenditures, (1) On- and Off-Mine-Site, 2003-13
Figure 4. Exploration and Deposit Appraisal Expenditures, (1) by Province and Territory, 2011-13
Source: Natural Resources Canada (NRCan) from the federal-provincial/territorial Survey of Mineral Exploration, Deposit Appraisal and Mine Complex Development Expenditures.
(p) Preliminary estimates; (i) Spending intentions.
(1) Includes field work, overhead, engineering, economic and pre- or production feasibility studies, environment, and land access costs for on-mine-site and off-mine-site activities. (2) In general terms, senior companies are project operators that derive their income from mining or other business ventures and that can direct part of that income towards their exploration and deposit appraisal projects. On the other hand, junior companies usually have no regular source of income and must finance their projects through the issuance of shares. (3) The NRCan Monthly Metals Price Index is a Fischer Ideal Index based on the prices of six metals: gold, silver, copper, lead, nickel, and zinc. (4) The number of project operators in the $1 million or less spending interval averaged 450 over the 2003-13 period. They amounted to 502 in 2012 and 364 in 2013. (5) The commodity breakdown for 2013 spending intentions was estimated based on 2012 preliminary reports.
Notes: Company budgets for 2013 expenditures had not been finalized at the time of the survey. Data were collected from October 2012 to mid-February 2013. Figures throughout this bulletin are rounded and totals may not equal the sum of the components.
© Her Majesty the Queen in Right of Canada, 2013
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