TORONTO (miningweekly.com) – Although industry budgets for nonferrous exploration rebounded 44% in 2010, the focus continues to be on late-stage exploration at the expense of grassroots activity, Metals Economics Group (MEG) said in a report on Sunday.

Companies with comparable figures in 2009 also didn't exploy more exploration geoscientists last year overall, despite the bigger budgets, as increased hiring by small and mid-tier companies was offset by a net retrenchment by the majors.

Grassroots exploration, the hunt for new deposits, had just 33% of the total, unchanged from the record low calculated in 2009. Grassroots spending accounted for 52% of the total as recently as 2001.

"There's been a real draw away from grassroots spending and a real focus on later stage and mine-site spending as a way to replace reserves more cheaply and at lower risk," MEG vice-president for research and report author Jason Goulden told Mining Weekly Online on the sidelines of the annual Prospectors and Developers Association of Canada (PDAC) convention in Toronto.

The event, the biggest in the industry, is expected to draw more than the 22 000 delegates recorded at last year's convention, amid surging activity and rising interest in companies that mine and prospect for minerals.

"The problem is that the junior companies at the same time are also shifting away from grassroots spending; their main goal is to drill up their later stage projects and hope that the majors will purchase them," Goulden said.

Late-stage budgets jumped 52% year-on-year, to account for about 42% of the worldwide total exploration budget.

Mine-site spending has also had a bigger share of the total in recent years, as it is viewed as a more economical and less risky way of replacing and adding to reserves.

Goulden cautioned that the shift away from grassroots spending could put pressure on future production levels for the industry.

"You lose your long-term investment in terms of pipeline growth and new projects that will feed production won't be coming into the pipeline at all."

STILL SHY OF RECORD

Overall, the mining industry budgeted about $12,1-billion on exploration for what the MEG report labels 'nonferrous metals', which includes precious and base metals, diamonds, uranium and some industrial minerals, but excludes iron-ore, aluminium, coal, oil and gas.

The figures for last year are a significant year-on-year improvement, but still fall short of the record exploration budgets reported for 2008.

After rising for six years to a record high of $14,4-billion, nonferrous exploration budgets tracked by MEG dropped 42% in 2009, as the industry responded to the global economic crisis and declining prices for almost all commodities.

However, metals prices have since recovered, and companies of all sizes increased their average exploration allocations last year.

Regionally, Latin America was the top exploration destination in 2010 – a position it has held for the better part of two decades – while Canada was the top country overall.

Gold was the leading target, attracting more than half the global exploration budget total, “with copper a distant second”, MEG said.

The group based its estimates on information collected from more than 3 200 mining and exploration companies worldwide.

HIRING AND FIRING

Interestingly, while companies with comparable figures tracked by MEG reduced their exploration departments in 2009, cutting the number of exploration geoscientists by an aggregate of 16%, these companies made no net staffing change year on year when exploration budgets bounced back in 2010.

Junior and intermediate companies with comparable figures increased their exploration staffs by 10% and 8% respectively, but the majors continued to retrench, reporting 12% fewer geoscientists in 2010 on top of a 5% drop in 2009, MEG said.

"A lot of companies haven't been able to hire back geologists because a lot of geologists that gold laid off in previous cycles have now started a lot of these junior companies," Goulden commented.

There are also fewer exploration geologists being trained and entering the market, he said.

To subscribe to Mining Weekly's print magazine email subscriptions@creamermedia.co.za or buy now.