Mining companies are extending massive cuts in exploration budgets for a second year, setting up the next price boom as China continues its relentless pursuit of metals and energy.

Exploration spending plunged by 30%, or $10-billion, last year, squeezing budgets to search for minerals and sustain supplies, according to MinEx Consulting, whose clients include BHP Billiton, the world’s biggest miner. Payments may drop another 10% this year for geologists, drilling exploratory holes and analysing mineral specks to unearth the next copper, iron-ore or gold El Dorado, MinEx says.

Investors in mining companies and metals may welcome the cuts because they will help propel a rebound in prices. Platinum, alumin-ium, silver, nickel, zinc, lead and uranium all are forecast to rise by 2017, according to the median of analyst estimates compiled by Bloomberg. The losers will be buyers of cans, cars and all the goods made from metals.

“Companies are doing the right thing by cutting back on exploration,” says Daniel Sacks, who helps manage $107-billion at Investec Asset Management in Cape Town. “It’s a cyclical industry.”

Rio Tinto Group said last week it more than halved exploration and evaluation spending to $948-million last year from $1.97-billion in 2012. OZ Minerals, an Australian copper producer, last week cut its 2014 exploration budget by 62%.

The austerity has been triggered after a decade-long mining boom peaked in 2012. That forced producers including BHP Billiton, Rio Tinto and GlencoreXstrata to slash spending and sell assets to bolster earnings as more than $60-billion in writedowns mounted and shareholders demanded changes.

Although China, the biggest metals con- sumer, has slowed its rapid economic expan-sion, it is still forecast to grow 7.5% this year and 7.2% in 2015, the fastest in the world. The Asian nation will be the major driver of world economic growth and could increase demand for some commodities by as much as 75% over the next 15 years.

“Are we actually finding enough deposits to replenish what we mine? The answer is, we struggle,” says Richard Schodde, MD of Melbourne-based MinEx Consulting, whose clients also include Barrick Gold, the largest gold producer. “Enthusiasm or financial capability to fund exploration is fairly limited.”

Today’s slower growth rates in mine output increasingly are being priced into metals, Macquarie Group analysts, led by Colin Hamilton, said in a January 8 report. The market’s focus may shift towards potential deficits of supply in 2015 and 2016, they said.

“The irony is that the biggest investment cycle in history hasn’t produced enough capacity,” says Markus Bachmann, CEO of Craton Capital, which manages about $80- million.

Aluminium is forecast to rise 22% to $2 204/t in 2017 from the first quarter this year, according to the median estimate. Uranium is seen 69% higher at $66.03/lb.

The drop in exploration now may create supply shortages because it can take between 10 and 12 years to develop a mine from when a deposit is discovered, MinEx’s Schodde says.

Companies were pressured to retrench as metals prices tumbled about 12% from last year’s high in February, according to the London Metals Exchange Index, a measure of six primary metals. Iron-ore has declined about 16% from a year ago. Shares fell even more. The Bloomberg World Mining Index lost 26% in 2013.

BHP Billiton, the world’s third-biggest producer of nickel, iron-ore and copper, almost halved its exploration spending last financial year from a peak of $2.45-billion in the 2012 fiscal year, according to its annual report.

“We simply can’t expect to push forward with every opportunity at the same time and so have prioritised and sequenced our spend on longer-dated evaluation projects,” Rio Tinto CFO Chris Lynch said on December 2.

“We are always looking at our overall cash position and you taper the expenditure to what your expectation is,” says Dan Lougher, MD of nickel producer Western Areas. His company reduced its exploration budget by 25% for this financial year.

Lougher assesses his budget quarterly and will boost exploration spending should the nickel price increase, he says. Prices, currently at about $6.67/lb, would need to gain to at least $7.50/lb before spending would rise, he adds. The company has two nickel mines and a con- centrator at its Forrestania operation, in Western Australia. “It is a challenge for these mining companies because they have to balance the still strong demand that is coming out of Asia – and particular China in relation to our iron-ore – but with cash flows from oper- ations decreasing from lower commodity prices,” says PricewaterhouseCoopers partner Justin Eve.

Investors are demanding improved profits this year and further retrenchment in project spending as Citigroup and Goldman Sachs Group predict the current commodities slump will deepen in the next few years.

“Anyone who is wisely investing in explor-ation because they have a long-term picture, they are smart but extraordinarily rare,” says Tom Price, a commodities analyst at UBS, in Sydney.