Exploration Fright is Over

This is a scary time of the year, with annual budgets looming, but work by S&P Global Market Intelligence confirms that exploration expenditure will have risen in 2018 for the second consecutive year.

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Today is All Saints Day, which means October is over for another year and so is Halloween, when forces even darker than accountants are at work. Scotland is to be thanked for the word Halloween, which is derived from a mid-18th century term for the evening before All Hallows Day, which is itself an English phrase from the mid-16th century for All Saints Mass Day. November 1st is the day in the liturgical year dedicated to remembering the dead, including saints (hallows), martyrs and all the departed faithful.

The rituals are easily explained, as humour and ridicule have long been brought to bear in confronting the power of death. Also, because many Christian denominations encouraged abstinence from meat on All Hallows Eve, the tradition developed of eating certain foods, including apples and pancakes.

All Saints Day also means that we have endured perhaps the most worrying month in the calendar. October has a fraught investment history, being known as the 'jinx' on Wall Street. The Great Depression of the 1930s actually started at the end of October 1929 (on Black Monday), and the Dow Jones Industrial Index suffered its worst ever one-day percentage fall on October 19, 1987 (another Black Monday). Ten years later, on October 27, 1997 the Dow plunged 13% in response to heavy losses on Asian markets.

True to tradition, stock markets were awful in October this year. Despite a rally on the last day of the month, when investors hunted for bargains in battered technology stocks, this October was the worst month for equities in more than six years. Markets were racked by a series of concerns last month and the FTSE All-World index fell 7.3% in October.

In China, the government's manufacturing purchasing managers' index fell to 50.2 in October from 50.8 in September. This gauge of Chinese factory output is at its lowest level since July 2016 and is a fresh sign that the local economy is under pressure. The renminbi closed lower as a result, touching a new 10-year low against the dollar, which itself is at a 16-month high against a basket of global currencies.

There is good news, however, for minerals exploration. This year's exploration budgets have been compiled by S&P Global Market Intelligence (SPGMI), and the company concludes that the exploration sector's recovery, which commenced in late 2016, is gathering pace.

In its annual Corporate Exploration Strategies (CES) study, SPGMI shows that the global nonferrous exploration budget has increased for only the second time since 2012, rising almost 19% year over year to US$10.1 billion from US$8.5 billion in 2017. Despite the improvement, the expenditure is less than half of the US$21.5 billion spent in the peak year of 2012.

SPGMI's survey this year of 3,300 public and private companies resulted in the global aggregate nonferrous budget increasing 20% to US$9.62 billion, to which is added an estimate for budgets by companies spending less than US$100,000, and for exploration budgets by private companies that do not report their data.

Although gold prices have been fairly unremarkable since 2017, the precious metal continues to benefit the most from the industry's recovery. SPGMI's preliminary analysis suggests that gold explorers have increased their aggregate budget by US$762 million to US$4.86 billion in 2018, representing 50.5% of the surveyed total. Copper accounts for the next highest share, with 21.5% of the surveyed total.

The preliminary CES data was presented at the China Mining conference in mid-October. SPGMI reports that exploration activity remains well above the levels seen prior to the start of the recovery in 2016 — despite a slight pullback in mid-2018. It is well known that the junior sector has borne the brunt of the downturn that began in 2012 but SPGMI reports that the surviving juniors "continue to make gains", increasing their aggregate exploration budget in 2018 by 35% year over year. Nevertheless, the majors continue to account for the majority of planned exploration spending.

The exploration sector has endured more 'tricks' than 'treats' in recent years but at least it is now on a clear path of recovery.

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.