Newly released global exploration budget data from research and data company Standard & Poor’s Global Market Intelligence’s Corporate Exploration Strategies (CES) series shows that the exploration sector's optimism that began to appear in the second half of 2019 had been snuffed out by the Covid-19 pandemic, resulting in a second year of decreasing budgets in 2020.
S&P Global Market Intelligence notes that exploration budgets decreased modestly in 2019 as a result of poor price performance by most metals early in the year and a slowdown in financing activity.
As the year advanced, precious metals prices moved upward and base metals prices stabilised.
The company also notes that 2019 market activity had picked up, with financing levels ending the year well above 2018 levels.
However, S&P Global Market Intelligence points out that optimism for a return to increasing exploration was stymied early this year by the global spread of Covid-19. As such, mobilising exploration teams became difficult as lockdowns hit Asia in the March quarter and then spread to most other nations.
Accordingly, the CES series shows that preliminary analysis of budgets gathered for 2020 exploration point to S&P Global Market Intelligence’s estimate of the total yearly global nonferrous exploration budget falling 11% year-on-year to $8.7-billion, from $9.8-billion in 2019.
S&P Global Market Intelligence’s survey of 2 500 public and private companies this year resulted in the global aggregate nonferrous budget decreasing 10% year-on-year to $8.3-billion. Incorporating an assessment of budgets of companies spending less than $100 000 and those entities with limited visibility increases the total nonferrous metals exploration budget for 2020 to $8.7-billion, which is $1.1-billion less than in 2019.
Further, S&P Global Market Intelligence’s data shows that the shuttering of many major economies resulted in severe demand destruction, which sent base metals prices lower until late March, while uncertainty hit global markets, causing a decline in financings into the June quarter.
However, S&P Global Market Intelligence also highlights that the mining industry recovered quickly from the initial shock. Base metals prices trended upward during the June and September quarters and financings returned to pre-pandemic levels.
On the ground, it states, mining was declared an essential industry in most countries with shutdowns relatively short-lived.
Exploration programmes resumed, but difficulty remained with large district programmes crossing state or provincial boundaries or near first nations.
Through all of this, gold went on a bull run, spending several months above $1 900/oz, although it has since pulled back somewhat. All of these factors have contributed to the 2020 exploration budget decrease being far less steep than anticipated at the end of the March quarter.
POSITIVE FUTURE
Despite the challenges this year, S&P Global Market Intelligence points to some positive signs, including the number of active companies with exploration budgets having increased again – up 3% to 1 762, from 1 708 in 2019 – as dormant companies reactivated themselves in late 2019 before conditions deteriorated.
Gold allocations have also increased by $51-million to $4.3-billion despite the difficult field season earlier in the year.
As the end of this year nears, S&P Global Market Intelligence states that its outlook is cautiously optimistic for 2021 budgets.
Financings are trending above 2019 levels, and prices for copper and gold − the two largest targets for exploration − are well above where they started the year. Although the gold price could retreat as global economies recover from the pandemic, it should remain above 2019 levels for the near term.
As such, S&P forecasts that 2021 budgets will see double-digit growth year-on-year, potentially in the 20% range, with gold the most likely target to lead exploration spending upward.
In terms of base metals budgets, S&P Global Market Intelligence states that a fall in this sector was partly mitigated by gold and silver increases, as base metals exploration budgets have been hit hardest by the pandemic, with industrial metals mines and projects suffering from regional lockdowns and from sharply lower prices caused by global demand shock.
While prices recovered relatively quickly, the rapid downturn has led many explorers to reduce budgets out of caution and growing fear of a longer road to price recovery. This has resulted in allocations to the base metals group falling 21% year-on-year to $2.54-billion.
Copper has decreased the most, down by $560-million, while zinc and nickel decreases are smaller, at $116-million and $18-million, respectively.
These decreases are partly offset by increases in allocations to gold and silver. Prices for both precious metals have had a strong run in the year to date, drawing the attention of investors.