SNL Metals Economics Group: Global Exploration Budgets for Nonferrous Metals Drop 29%

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Exploration budgets dropped from US$21.5 billion in 2012 to US$15.2 billion in 2013, SNL Metals Economics Group study found.

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Although most metals prices remain at or near 10-year averages, higher operating and capital costs, along with pressure from activist shareholders required major companies to focus on a return to healthy margins after years of growth-oriented spending.

Global exploration budgets for nonferrous metals across the board is estimated to have fallen by 29% in 2013, according to preliminary results from a new Corporate Exploration Strategies study by SNL Metals Economics Group.

Exploration budgets dropped to US$15.2 billion in 2013 from US$21.5 billion a year earlier, the SNL study found.

Junior exploration budgets fell 39% year over year, with its share of overall exploration falling to 34% from an all-time high of 55% in 2007. "Since early 2012, junior companies have struggled to attract investor interest, and have been forced to rein in spending as their coffers become depleted," SNL said in an Oct. 24 statement.

Exploration budgets for major mining firms, meanwhile, dropped by 24% from 2012 levels, which SNL attributed to higher operating and capital costs, as well as shareholder pressure.

"Although most metals prices remain at or near 10-year averages, higher operating and capital costs, along with pressure from activist shareholders, have required major companies to focus on a return to healthy margins after years of growth-oriented spending," it said.

Still, the study found that mining firms have continued to focus on exploration in medium- and high-risk regions, despite ongoing issues with security, policy, taxation and resource nationalism.

However, budgets allocated to stable mining jurisdictions such as Canada and the U.S. dropped, with Canada-focused mining falling 41% and U.S.-centered mining dropping 38%.

SNL also predicted that the pool of early- and late-stage assets available for sale is "likely near an all-time high" as many companies face difficult financial and strategic choices, but noted that potential buyers — such as mid-tier producers, new industry entrants, or companies based in emerging economies — have yet to take advantage of that situation.

To read the full article, please visit http://www.snl.com/InteractiveX/Article.aspx?cdid=A-25492735-13350.

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Christina Twomey
SNL Financial
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