The exploration and mining industry remains challenging for investors and mining consultancies, with a decline in market activity, says mining consultancy The MSA Group geology operations manager Michael Cronwright.

Cronwright says, since the peak in exploration budgets in 2012, at about $23-billion, many companies in the junior exploration industry have struggled to find funding, while many producers have also cut back on exploration spending and taken a “wait-and-see” approach to global demand and commodity prices.

Low commodity prices, skills shortages, a lack of productivity improvements at existing operations and increasing talk of resource nationalism in a number of jurisdictions in Africa contribute to the lack of investor appetite, says Cronwright.

He says that data from financial data, news, analytics and expert insights provider SNL Financial shows that the global exploration budget for 2015, at about R10-billion, is expected to be around 10% to15% lower than that of 2014, and the lowest since 2009. The statistics also show that, after Latin America, Africa is the second most popular exploration destination for gold and base metals.

Cronwright notes that, despite the market conditions, MSA has seen an increase in consulting activity on tin, graphite and diamond projects.

“Despite the higher exploration budgets over the last ten or so years, the discovery rate for new deposits has decreased with the net effect that the cost per discovery has increased dramatically,” he says.

He adds that this is owing to reasons including skills shortages, the increasing depths at which exploration is being focused, lack of infrastructure at many of the exploration projects and the increasing cost of a company’s social licence to operate.

The MSA Group environmental manager Robin Bolton says one of the biggest hurdles explorers are exposed to, in any jurisdiction, is obtaining the social licence to operate.

“When operating in any country, it is essential that you are well informed with regards to the relevant legislation and prevailing socioeconomic conditions. It is important that all activities – from the application phase, through exploration and mining to closure and rehabilitation – are managed with the environment and social requirements in mind and that there is meaningful engagement with all the relevant stakeholders,” explains Bolton.

He says this is best managed through active participation of the management of the mining company and ongoing management throughout the process, with appropriate forums and procedures to proactively address the pertinent issues and concerns.

The tough conditions in the exploration and mining sector have seen a lot of money flow out of the sector and also seen some of the junior explorers diversifying into sectors such as biotech, finance and software.

In addition, there has been a diversion of budgets from pure greenfield exploration into brownfield exploration and late stage exploration projects where the return on investment is more quantifiable, although not necessarily as lucrative.

“Since only about half of all good discoveries made will become mines and the pipeline from discovery to mine is about 10 to 15 years, we need to discover twice as much metal now as we will be using in 10 to 15 years’ time,” notes Cronwright.

He says the net result of these factors is that fewer new discoveries are being made which is shrinking the future project pipeline. “In essence, the industry is in the process of engineering another bull market.”

With good deposits becoming harder to find and deeper, the cost of exploration is bound to remain high. However, companies with the correct exploration strategy, management and technical team, with the ability to innovate, are those most likely to succeed going forward, says Cronwright.

He says The MSA Group has noticed that most exploration is being driven by cash positive companies and those companies with the foresight to position themselves to capitalise on the next upswing in the commodities market. These companies are also able to shop around and invest in more advanced, and, hence, de-risked projects.

Data security and data management are also risks that many companies overlook despite this being the foundation on which an exploration company’s value is built, says Cronwright.