Information Bulletin, March 2017
(published in March 2017)
Mineral Exploration and Deposit Appraisal ExpendituresFootnote 1
The latest national survey of company spending intentions indicates that mineral exploration and deposit appraisal expenditures in Canada are expected to increase 18% to $1.8 billion (B)Footnote 2 in 2017 from $1.6B in 2016 (Figure 1).
Buoyed by stronger prices for select commodities, particularly base metals and gold, industry is cautiously optimistic about the short-term outlook, and this could translate into the first spending increase since 2011.
However, reservations exist regarding the drivers of these upward price movements. Continued global political and economic volatility may support gold prices, but excess capacity and high inventories may place downward pressure on the prices of other commodities. As a result, exploration spending increases may not be sustained.
As the industry looks for the early signs of a rally in 2017, some impacts from the latest downturn persist. By 2016, there had been a significant reduction in the number of active mineral projects (down almost one-half from the 2011 peak of approximately 2,700 projects) and active companies (project operators) (down 31% from the 2011 level of 913). In 2017, the number of active companies is expected to decline for the fifth consecutive year. This highlights ongoing challenges, particularly for junior companies, in terms of obtaining sufficient capital to conduct work and remain operational.
Junior and Senior Companies
Junior companies play a critical role in the discovery and advancement of mineral projects in Canada. These companies drove increased exploration and deposit appraisal investment during the 2000s with expenditures reaching $2.3B in 2008 (2016 constant dollars), a tenfold increase over 2000 levels of $211 million (M). Juniors also accounted for upwards of two-thirds of total annual spending during the latter half of the decade.
Junior company expenditures receded in 2009 and 2010 as a result of the financial crisis, but rebounded quickly to reach $2.1B in 2011 (Figure 2). Junior spending declined in subsequent years, highlighted by a 48% year-over-year decline in 2013 due to a sustained period of weak mineral commodity prices and overall economic volatility. Junior company expenditures in 2016 were $582M, a modest increase (1%) over 2015. Indications for 2017 point to a significant spending increase to $786M. As noted, the extent to which these gains may be sustained is subject to the realization of commodity price forecasts and robust underlying fundamentals.
Senior company expenditures surpassed the $2B level in 2011 and 2012, but dropped 31% and 13% in 2013 and 2014, respectively. Senior company spending increased 5% in 2015, but declined another 23% in 2016 as companies continued to look for cost savings in the face of continued market pessimism. Senior company spending is anticipated to climb 8% in 2017 to $1.1B.
Company Spending Distributions
The total number of companies was 644 in 2015, 629 in 2016 and, subject to the availability of financing, is expected to be 581 in 2017 (Figure 2). Since the record high of 916 in 2012, it is projected that 335 companies will have become dormant, merged, or ceased to exist by 2017. Of this total, junior mining companies are anticipated to account for almost all (328) of the lost companies, bringing their population to levels associated with previous major downturns.
The decline in company count has been accompanied by a corresponding reduction in annual expenditures. Between 2011 and 2016, there had been a significant drop in the number of companies spending $10M or more, $5M-$10M, and $1M-$5M (Figure 3). In 2017, the number of companies allocating spending across each of these expenditure ranges is anticipated to increase, as are the corresponding values in each category.
The difficult context continuing to confront grassroots exploration is clearly visible within the less-than-$1M spending interval. In 2016, there were 11 fewer companies spending in this range than in 2015. A further 110 are expected to be lost in 2017. Some of these losses can be attributed to companies’ intentions to increase spending, thus moving into the $1M-$5M range, but many others were not planning to conduct exploration activity.
Provinces and Territories
The 15% decline ($283M) in total expenditures in 2016 was felt in all Canadian mining jurisdictions except New Brunswick and Quebec (Figure 1). Decreases exceeding 30% were recorded in Newfoundland and Labrador, Nova Scotia, British Columbia, and the Northwest Territories.
In dollar terms, British Columbia and Ontario, with drops of $126M and $69M, respectively, accounted for 69% of the total decrease in 2016. In particular, the decline in British Columbia was predominately driven by projects having completed capital-intensive milestones in the more advanced deposit appraisal phase. Despite its spending reduction, Ontario remained the leading jurisdiction, followed by Quebec and Saskatchewan. These three jurisdictions accounted for 57% of total exploration and deposit appraisal spending.
An aggregate increase of $285M is expected in 2017, essentially recapturing the ground lost in 2016. Reduced levels of activity will be isolated to Saskatchewan, the Northwest Territories, and Nunavut, while all other jurisdictions are anticipated to experience increases. Notable expenditure growth is expected in Quebec, Newfoundland and Labrador, Ontario, and Alberta. The anticipated rebound in Quebec stems from advanced project development activity related to gold and other metals such as rare earth elements and vanadium.
Precious metals (mainly gold) remains the leading commodity group target, accounting for 60% of total spending in both 2016 and 2017 (Figure 4). These represent the highest ratios in 20 years and underscore the importance of gold prices in propelling exploration spending. Precious-metals expenditures reached a cyclical peak of $2.3B in 2011 before falling to $849M in 2014. Spending increased in subsequent years, reaching $928M in 2016. Intentions for 2017 point to a further 20% increase to $1.1B.
With expenditures of $210M, the base-metals category remained the second-ranked commodity group in 2016 despite a 45% spending decline from 2015. Spending for base metals is expected to climb 23% in 2017 to $259M on the basis of increased short-term demand.
Uranium, the third-ranked commodity, increased 2% in 2016 to $174M. However, spending is expected to fall 20% in 2017 as companies take stock of their plans in the face of decreasing demand and an over-supplied market.
Exploration and Deposit Appraisal Work Phases
Annual survey work phase variations, including off- and on-mine-site spending, help track activity and project fluidity across the various stages of mineral development from grassroots exploration to a commitment to mineral production.
As a result of the strong fundamentals that supported the last upward trend in overall expenditures, off-mine-site deposit appraisal (i.e., from the start of a pre-feasibility study to a production decision) became increasingly prevalent, more than tripling between 2007 and 2012 (Figure 5). Although spending in this category steadily declined from 2013 to 2016, when expenditures were $390M, a drop of 72%, it is expected to increase 38% in 2017 to $537M.
Illustrating the underlying factors that influence year- to-year variations in work phases, 12 projects (of 78) accounted for two-thirds of 2015 expenditures within off-mine-site deposit appraisal. In 2016, these same projects accounted for over 90% of the year-over-year decrease in this same work phase. Having completed capital-intensive economic and technical studies, their attention was focused instead on regulatory obligations, community engagement, and market reassessment to inform a production decision.
Overall investment for off-mine-site exploration (from grassroots exploration to the completion of a positive preliminary economic assessment) declined from a high of $2.7B in 2011 to $911M in 2014. Spending levels remained stable in 2015 before climbing modestly in 2016 to $925M. At the beginning of previous commodity price rallies, year-over-year expenditures in riskier off-mine-site exploration expanded rapidly. Underscoring a more cautious approach to spending during the outset of this potential uptick, anticipated expenditures in 2017 are expected to increase 14% to $1.1B.
Figure 1. Exploration and Deposit Appraisal Expenditures,Footnote 1 by Province and Territory, 2015-17
Text Version - Figure 1
Figure 1 is a map of Canada on which is superimposed bar charts (three bars for the years 2015, 2016 and 2017) showing the amount of exploration and deposit appraisal expenditures (in current dollars) for each province and territory. Each bar is subdivided into two segments: one for exploration and one for deposit appraisal. The top spending jurisdictions in 2017 are expected to be Ontario ($486 million), Quebec ($457 million), and British Columbia ($237 million).
Text Version - Figure 2
Figure 2 is a bar chart showing exploration and deposit appraisal expenditures (in current dollars) by type of company and number of project operators for the years 2007 to 2017. Each bar is subdivided into two segments: the lower one is for the number of senior companies and the upper one is for the number of junior companies. Within each segment, there is a number indicating exactly how many project operators fall within each type of company. A line graph depicting the Bank of Canada's Minerals and Metals Price Index is superimposed over the bar graph. The combined chart shows the strong correlation between metal prices and exploration and deposit appraisal spending with upward movements in the price index corresponding to rising expenditures.
Text Version - Figure 3
Figure 3 is a bar chart showing exploration and deposit appraisal expenditures (in current dollars) by range of expenditures and number of project operators for the years 2007 to 2017. Each bar is subdivided into spending intervals ranging from $1 million or less to $10 million or more. Within each spending interval is a number indicating how many project operators fall within this particular range for the year in question. For example, in 2017, it is expected that 45 project operators will spend $10 million or more, 36 will spend $5 to $10 million, and 160 will spend $1 million to $5 million. The number of companies spending less than $1 million is not indicated in the graph, but is explained in the footnote to the graph.
Text Version - Figure 4
Figure 4 is a bar chart showing exploration and deposit appraisal expenditures (in current dollars) by mineral commodity sought for the years 2007 to 2017. For each year there are bars for precious metals, base metals, iron ore, uranium, diamonds, other metals, nonmetals, and coal. Precious metals (gold) maintain a sizeable lead, ahead of base metals, throughout the entire period.
Figure 5. Exploration and Deposit Appraisal Expenditures,Footnote 1 On- and Off-Mine-Site, 2007-17
Text Version - Figure 5
Figure 5 is a line chart showing exploration and deposit appraisal expenditures (in current dollars) by work phase for the years 2007 to 2017. The amounts for 2016 are preliminary while those for 2017 are based on company spending intentions. The work phases shown include off-mine-site exploration, off-mine-site deposit appraisal, and on-mine-site exploration and deposit appraisal. The chart shows the volatility in spending within each work phase.
Source: Natural Resources Canada, from the federal-provincial/territorial Survey of Mineral Exploration, Deposit Appraisal, and Mine Complex Development Expenditures.
(p) Preliminary estimates; (si) Spending intentions.
Notes: Company budgets for 2017 expenditures had not all been finalized at the time of the survey. Data were collected from October 2016 to mid-February 2017. Figures throughout this bulletin are rounded and totals may not equal the sum of the components.
© Her Majesty the Queen in Right of Canada, as represented by the Minister of Natural Resources, 2017
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